PEZA, manufacturers oppose lifting of VAT exemption

MANILA, Philippines - Manufacturers and other locators in the country’s economic zones are opposing the removal of their zero value added tax (VAT) exemption privileges under the proposed comprehensive tax reform package of the Department of Finance (DOF). 

The Philippine Economic Zone Authority (PEZA) is supporting these calls saying the lifting of the zero VAT exemption would discourage foreign investors from locating in the country. 

“We will come up with our position paper on the proposed tax reform bill. The entire tax reform is okay except that we will ask an exemption on the VAT for economic zones and our industries. Investors want to invest with us because of the VAT exemption,” PEZA director general Charito Plaza said. 

Plaza said the Philippine’s attractiveness as an investment destination would surely take a hit should the government removes the zero VAT exemption. 

“This is one of the incentives that our investors are enjoying, the zero VAT exemption. We will submit our position paper that at least economic zones and industries will be exempted from this provision of the proposed tax reform. The exemption of the VAT should stay for economic zones and industries,” Plaza said. 

The PEZA chief said all economic zone locators across all industries are clamoring for the status quo on the zero VAT exemption. 

“We conducted a dialogue with them and that’s the only portion of the tax reform law that they want to be considered,” Plaza said. 

The DOF has proposed to remove the zero VAT exemption for indirect exporters as part of the government’s action plan to push for accelerated and inclusive tax reforms.

The agency, however, proposes to retain the zero rating only for direct exporters. Indirect exporters supply materials or services to direct exporters. 

PEZA provides incentives to companies that are producing export-oriented products.

PEZA currently administers 366 economic zones across the country, 74 of which are manufacturing zones, 250 are IT parks, 21 are agro-industrial zones, 19 are tourism zones, and two are medical tourism parks. 

Of these economic zones, only four are owned by PEZA while the rest are from the private sector. These public economic zones in the country are located in Cavite, Mactan, Baguio, and Pampanga.