PESPCAI denounces the 12% VAT imposed on indirect exports

The Philippine Export Service Providers and Consolidators Association Inc. (PESPCAI) said its outlook for 2023 is “not so optimistic” due to the 12% Value Added Tax (VAT) imposed on indirect exports, among other things. .

“We are not so optimistic about 2023 just because of the VAT and also the shipping and logistics issues,” said Tomas B. Medina, President of PESPCAI, at the press conference hosted by the Philippine Chamber of Commerce. Agriculture and Food Inc. (PCAFI) in Quezon City on Friday.

The PESPCAI chief cited problems faced by local export consolidators, including the 12% VAT imposed on indirect exports under the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act and the problems of shipping and logistics, which he says are “hindering” exports.

In a press release on Friday, PESPCAI said: “We are requesting the exemption of 12% VAT on indirect exports under the CREATE Act, thanks to our inclusion of exporter consolidators in the priority plan of Strategic Investment (SIPP) 2023 of the Board of Directors.

Another way, the group said, is through “a memorandum from the BIR (Bureau of Internal Revenue) for a stay of implementation of VAT on exports of the CREATE Act until possible remedial legislation of the Act CREATE”.

The group of local export consolidators pointed out that the Philippines could not follow the practice of some of the country’s competitors on the global stage, which may apply zero VAT on exported goods or even impose low VAT rates of 3 at 5%, or establish an automated refund system immediately after a shipment, “because our business environment is highly regulated and the ease of doing business is not yet a reality”.

In fact, the group noted in its statement that there has already been an “exodus” of national brand production, resulting in products from Monde Nissin, URC, Century Pacific, Frabelle, Liwayway Marketing, and even dried products. of Profood International Corp. mangoes in countries neighboring the Philippines.

Medina said the group had “exhumed” all possible avenues by contacting lawmakers, including House Ways and Means Committee Chairman Joey Sarte Salceda, Senator Sonny Angara, Senate Speaker Juan Miguel “Migz” Zubiri and the Speaker of the Chamber, Martin Romualdez.

The PESPCAI chief noted that the group has also raised concerns about VAT with the Department of Trade and Industry‘s (DTI) Export Marketing Bureau, the Export Development Board and the BOI.

“Because our VAT is based on a law. . . the CREATE Act, which cannot be changed until and after Congress actually passes corrective legislation, which could take Congress two years,” Medina pointed out.

The head of the local export consolidators, however, said that if Congress is convinced that the VAT will continue to be imposed on indirect exports, it could kill many micro, small and medium enterprises (MSMEs). Medina added that members of the group could also travel to other countries to source products. He pointed out that if this is the situation that exporters have to deal with, “we will just become brand owners”.

As for the group’s advocacy to be included in the 2023 SIPP – what he called the group’s “last avenue” – Medina pointed out that if the BOI allows the group to be part of the SIPP as service providers, this will help the group as it covers a wide range of services for small traders.

He expressed the hope that the BOI “will consider our petition as a group to be part of the SIPP as service providers because the service we provide to MSMEs is, as I said, not only in funding , shipping, trade – but also in compliance and certification. The involvement of export consolidators in small – and even large – is quite significant,” Medina explained, partly in Filipino.

If that does not materialize, Medina said, further closures are expected both among MSMEs and the export sector.

Medina also touched on the other issues hampering exports, such as shipping and logistics issues.

“These are compounded by the myriad of trade issues related to shipping and logistics, lack of access and high cost of export finance, high cost of inputs from packaging, labels, raw materials , “non-compliant” regulations imposed by agencies affecting exports of the Bureau of Customs (BOC), the Philippine Ports Authority (PPA), relevant agencies of the Departments of Commerce and Industry, Finance, Agriculture, Science and Technology, Health, which deploy “non-convergent” programs that duplicate, diminish or brand a “band-aid” poster program for export stakeholders,” reads the statement from the local export consolidators.

For his part, Renato Pamintuan, President of Bayside Terminal and Transportation Services Inc., pointed to the shipping and logistics challenges faced by the Philippines on the global stage.

Pamintuan pointed out that the Philippines could have been Asia’s shipping hub, “but we are not – simply because of our government’s oversight and lack of direction over the past 50 years.”

“We should have exploited the country’s position, but we didn’t. So what happened? The mother ship moved to Shanghai, Taiwan, Korea and other places,” he explained, “before our cargo reached the final destination in the US or EU, a feed cost is first imposed on our small ships” which must transfer the cargo to the mother ship. The resulting problem is that “now, [we have] about $500 to $1,000 extra cost on top of our usual cost,” Pamintuan said.

Pamintuan pointed out that the global supply chain “mess” has also stalled the shipment of goods, as other countries that can afford “premium freight” are given priority.

Shipping lines take cargo from those willing to pay premium freight, so, for example, if a shipper in China is willing to add $1,000 just to get their 40ft container to get priority loading, “our [Philippine] The container will first sleep in the Shanghai container yard, which means it will likely arrive in the United States after six months, Pamintuan said.

With this, he added, it becomes a “national security issue” since almost all international shipping companies are “foreign owned”.

PESPCAI said the country’s exports from MSMEs have reached $1.5 billion through its group and a host of other export facilitation programs, which it says is a “significant” number that allows and empowers small traders in food, personal care, specialty apparel and crafts to expand their market overseas.

The group said it employed about 12,000 direct workers and about 250,000 indirect project or dispatch and/or seasonal workers.

In addition, local export consolidators have noted that “the jobs generated extend to support sectors for contract manufacturers, from logistics to packaging and labeling as well as contract farmers and fishermen” .

Image credits: Qilai Shen/Bloomberg