DOF freezes 2 BIR tax rulings

VAT on exporters deferred until amendments issued Prohibition on reduced income tax rate on schools suspended

The Department of Finance (DOF) has formally deferred a Bureau of Internal Revenue regulation imposing value-added tax (VAT) on the local materials used to create export goods.

Based on Revenue Regulation (RR) No. 15-2021 obtained by reporters late Wednesday, Finance Secretary Carlos G. Dominguez III approved the deferral of Revenue Regulations No. 9-2021 “until the issuance of an amendatory revenue regulations.”

“This Regulations [RR 15-2021] shall take effect immediately,” the document dated last July 21, but was signed by Dominguez on July 27, 2021.

Export-oriented companies earlier decried the issuance of RR 9-2021 that imposed VAT on certain transactions previously taxed at zero percent. The previous BIR regulation had took effect last June 27, or 15 days after its issuance on June 12.

Under RR 9-2021, raw materials, packaging supplies and services rendered or sold to export companies engaged in manufacturing, processing, packing or repacking are subject to VAT. Sale of services and lease of properties to exporters are also covered. According to exporters, the imposition of VAT on their local inputs could “cripple industry.”

Last July 21, Dominguez admitted that there were conflicting provisions regarding VAT on exports under the tax reform and acceleration and inclusion act (TRAIN) and the newlyenacted corporate recovery and tax incentives for enterprises (CREATE) law.

TRAIN law has mandated the removal of VAT zerorating of goods sold to exporters, while CREATE law provided that the VAT zero-rating may still apply. “We will implement it accordingly to the law,” Dominguez had said.

“Now the law unfortunately is not very fair. There is one law in TRAIN and there is another provision in CREATE. We will implement it strictly as we are sworn to do.” The finance chief also said the imposition of VAT on exporters’ local inputs was “technically deferred.”

“Registrations were issued end of June. VAT returns are quarterly. So if we start implementing CREATE this quarter July, it’s technically deferred to this quarter and returns are due 25th day after the end of the third quarter,” Dominguez explained.

The Department of Finance (DOF) has suspended the Bureau of Internal Revenue’s (BIR) ruling barring for-profit educational institutions from availing of a reduced income tax rate.

Based on Revenue Regulations No. 14-2021 signed by Finance Secretary Carlos G. Dominguez III, the BIR has suspended the implementation of “certain provisions” of Revenue Regulations No. 5-2021 dated last April 8.

The document, dated July 26, 2021 but was signed by Dominguez on July 27, 2021, stated that the deferral was aimed at easing the burden of taxation among proprietary educational institutions, especially during the time of COVID-19 pandemic.

The DOF also noted the pending bills in Congress clarifying the provisions under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law regarding taxation on for-profit educational institutions.

“The following provisions of Revenue Regulations (RR) No. 5-2021 dated 8 April 2021 are hereby suspended pending passage of such appropriate legislation,” the newly-signed RR read. “(i) Section 2 (C), on the definition of Proprietary Educational Institutions, insofar as in includes therein the phrase, ‘which are non-profit’,” the document stated.

Moreover, “Section 2 (33), on the definition of Non-Profit, insofar as it applies to ‘Proprietary Educational Institutions’,” was also suspended.

Lastly, the DOF barred the implementation of “Section 3 (B), which provides illustration on the tax treatment of Proprietary Educational Institutions that are non-profit.”

“All other revenue issuances inconsistent herewith are hereby modified or amended according,” Dominguez said.

“This Regulations shall take effect immediately.” Earlier, the Coordinating Council for Private Educational Associations (COCOPEA), a group of private schools, appealed to rectify RR 5-2021.

COCOPEA said the BIR regulations will cause “irreparable damage” to private education institutions as the bureau will more than double their existing tax rate.

“The erroneous provision of RR 5-2021 will add a heavy additional burden to the many stakeholders of the private education sector, at a time when we are already fighting for our survival,” the group said.

“Our sector has not yet recovered from the debili

tating effects of the K-12 Law, and is in the midst of struggling with the steep drop in enrollment caused by the pandemic. RR 5-2021 will be the straw that breaks the camel’s back,” it added. (Chino S. Leyco)