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On July 1, 2021, PEZA Director General Charito ‘Ching’ Plaza, in a letter addressed to the
Department of Finance (DOF) Secretary Carlo Dominguez III, raised several clarifications
in relation to BIR RR 9-2021 which took effect on June 27, 2021. The said RR imposed
12% VAT on several transactions previously taxed at zero percent (0%).

According to the PEZA Director General, the inclusion of RR 9-2021 in the final draft of
the Implementing Rules and Regulations of CREATE and in the amendment of the
definition of “export sales” gives the impression and interpretation that sale to PEZA
registered business enterprises (RBEs) shall be automatically subject to 12% VAT. Rule 2,
Section 5 of the Implementing Rules and Regulations of CREATE explains that
“the VAT exemption on importation and VAT zero-rating on local purchases shall only
apply to goods and services directly and exclusively used in the registered project or
activity of export enterprises, during the period of registration of the said registered project
or activity with the concerned Investment Promotion Agencies (IPAs)”. The section further
provides that the direct and exclusive use in the registered project or activity refers to
raw materials, inventories, supplies, equipment, goods, services and other expenditures
necessary for the registered project or activity without which the registered project or
activity cannot be carried out. The IRR, however, states that transactions failing under
Section 106 (A) (2) (a) (3), (4), and (5) and Section 108 (B) (1) and (5) of the Code, as
amended, shall be subject to 12% VAT as stated in RR 9-2021. Section 106(A)(2)(a)(5) of
the Tax Code, one of the enumerated transactions, pertains to those considered export
sales under Executive Order No. 226, otherwise known as the “Omnibus Investment
Code of 1987”, and other special laws.

She now seeks confirmation as to the tax treatment of the local purchases of PEZA
export enterprises – that is, whether from an export-oriented or domestic enterprise,
local purchases shall be taxed at zero percent (0%) VAT subject to the condition
required under the provisions of Section 295 of RA 11534 and Section 5 of its IRR.
Section 294 of Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for
Enterprises Act (CREATE) which took effect on April 11, 2021 lists the different types of
tax incentives which may be granted to registered projects or activities subject to
compliance with Section 295 providing for the Conditions of Availment. One of these
incentives include the VAT exemption on importation and VAT zero-rating on local
purchases. Rule 8, Section 5 of the Implementing Rules and Regulations provides for the
Conditions for the Grant of Tax Incentives.
PEZA asked for the deferment of the implementation of RR 9-2021 to give export
enterprises the opportunity and sufficient time to study the regulations prior to its
implementation as well as to allow the IPAs and government agencies concerned the
opportunity to put in place mechanisms and procedures to implement the new
regulations and ensure compliance with the conditions set forth to avail of the VAT
zero-rating incentive. PEZA has also expressed its concern that the implementation of
the RR will add to the burden of PEZA RBEs given the additional VAT and as such, make
the Philippines unattractive to foreign investors.