Mahal Kita
By Atty. Irwin C. Nidea Jr.
"The law must be amended to reflect the needs of the present time….If the law on VAT is inadequate, then let us improve it. All three branches of government must come together. It must be a whole of nation approach."
Love is in the air. But tax is forever. My daughter will cringe if she sees this.
It is true though that after your date tonight, the havoc that is brought about by some tax developments continues.
First, is the dynamics on how the Fiscal Incentives Regulatory Board (FIRB) formulates the Strategic Investment Priorities Plan (SIPP) which is the list of industries and businesses that may qualify for tax incentives under CREATE, including vat zero-rating on qualified local purchases.
As we all know, the cross-border doctrine is dead. The incentives given by PEZA to some of its locators are now in limbo, especially businesses that are only considered as supporting export enterprises. They must now seek FIRB approval to be in the SIPP list.
Just recently, the ecozone logistics services enterprises (ELSEs) were recognized as an eligible industry in the SIPP. This is after the Department of Finance (DOF), Department of Trade and Industry (DTI), Board of Investments (BOI), and the Bureau of Internal Revenue (BIR) resolved the eligibility of ELSEs to vat zero rating incentives, among others.
The BOI has released Memorandum Circular (MC) No. 2023-001, in January 31, 2023 to clarify that logistics services is one of the activities that support exporters and are qualified for vat zero rating, as provided under CREATE.
The tax incentives of ELSEs have been cast in stone by the BIR under Revenue Memorandum Circular No. 15-2023, dated February 3, 2023.
This RMC is a welcome development for ELSEs. They deserve to be given tax incentives because they play an important part in the business of an export enterprise.
But how about other industries that also play an important part in supporting the operations of an export enterprise? Do they also need to lobby to many government agencies to deserve their own BOI Circular or BIR revenue circular affirming their tax incentives? The FIRB must recognize the importance of other ecozone locators that provide support to export enterprises.
The second development is on the renewable energy sector. The Philippines has fully opened it to foreign ownership. On November 15, 2022, the Department of Energy (DOE) issued Circular No. 2022-11-0034. The circular stipulates that foreign investors can now own 100 percent stake in the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy resources and exercise full control over the operations and profits of these companies. Foreign investors with existing investments in the Philippines on renewable energy may acquire the shares of their Philippine joint venture partners. This circular came into effect on December 8, 2022.
This is very good for the environment and a giant step for the Philippines’ goal to be carbon neutral.
But foreign investors must be aware that they might not be able to recover the input VAT that they will incur during the construction of their renewable energy plants. There is a Supreme Court decision saying that input VAT cannot be recovered if there are no corresponding zero-rated sales in the VAT returns. Construction of renewable energy plants takes years. Local purchases and importations are made during these years, and consequently, input vat is incurred. Since no sales were made during these years, it appears that as it stands now, the corresponding input VAT will not be returned.
The law must be amended to reflect the needs of the present time. Investors will appreciate predictability and a guarantee that all input VAT that they will incur during the construction and pre-operation stage of their renewable energy plants will be refunded. Otherwise, they will be turned off and the efforts of our government to encourage foreign investments in renewable energy will go to waste. If the law on VAT is inadequate, then let us improve it. All three branches of government must come together. It must be a whole of nation approach.
It is an urban legend, that Fr. Ferriols of Ateneo explained the difference between “I Love You” and “Mahal Kita”. In I Love You, “I” and “You” pertain to two individuals. The first is a lover, and the other is the one who is loved. When you say Mahal Kita, “kita” means “us”. The Filipino language compared to the English language is more powerful as it espouses oneness, cohesion.
I hope that like our language of love, Filipinos find unity in purpose and in action.
The author is a senior partner of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice son any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 8403-2001 local 330.