Tax issuances rarely bring good news. Yet for qualified export-oriented enterprises, Revenue Memorandum Circular (RMC) No. 96-2026 may bring welcome relief by allowing the recovery of VAT incurred on qualified purchases and imports while waiting for a VAT Zero-Rating Certification.
Through RMC No. 96-2026, the Bureau of Internal Revenue (BIR) provided a welcome clarification that could translate into real cash recoveries for qualified export-oriented enterprises (EOEs). For businesses that paid value-added tax (VAT) while waiting for their VAT Zero-Rating Certification from the Department of Trade and Industry’s Export Marketing Bureau (EMB), the RMC provides a pathway to recover those amounts through a VAT refund claim.
BACKGROUND
Republic Act No. 12066, otherwise known as the CREATE MORE Act, allows EOEs to enjoy VAT zero-rating on local purchases and VAT exemptions on imports, if they meet specific requirements, including the 70% export threshold and the certification that it has achieved this milestone. Sounds simple, doesn’t it?
In practice, however, many exporters are unable to immediately avail themselves of the benefit. While the law took effect on Nov. 28, 2024, the certification process needed to implement the incentive took longer than expected. As businesses awaited their VAT Zero-Rating Certification from the EMB, local suppliers continued charging 12% VAT on otherwise qualified purchases, while EOEs continued paying VAT on qualified importations.
WHAT IS THE CONCERN?
Some may ask, “Can’t exporters just offset the input VAT against any VAT payable?” In theory, they can, but depending on the factual circumstances, offsetting may not be applicable to some exporters.
VAT can represent a significant cost for exporters, especially for those with a majority of sales being export sales subject to 0% VAT. Without any output VAT to offset, these companies are constrained to carry over the input VAT indefinitely in their VAT returns, unless they opt to file for a tax refund with the BIR.
Consider an exporter that purchases raw materials, logistics services, professional services, or manufacturing inputs throughout the year. If VAT is charged on those transactions, the accumulated amount could easily become substantial. Until recovered, it represents cash that could otherwise support operations, expansion, hiring, or investments in technology. A refund claim, however, entails the submission of strict documentary requirements and can take up considerable time, expense and effort, without guarantee of actual recovery.
For many exporters, this is not merely a tax issue. It is a business issue. Every peso paid as input VAT is cash that could otherwise be used for the business.
THE CLARIFICATION BUSINESSES WERE WAITING FOR
Fortunately, the BIR answered this question in favor of taxpayers.
RMC No. 96-2026 clarifies that qualified EOEs may claim VAT refunds for VAT passed on to them on local purchases and imports attributable to zero-rated sales covering the period from Nov. 28, 2024 up to the issuance of their VAT Zero-Rating Certification, provided that such certification was issued during the transition period ending Dec. 31, 2025.
Simply put, businesses that eventually obtain the required certification during the transition period do not necessarily lose the benefit of the incentive merely because they received their certification months later.
The RMC effectively recognizes the reality that administrative processes take time, and that taxpayers should not be unfairly disadvantaged because of circumstances beyond their control.
IS THIS A GOOD THING?
For many qualified EOEs that incurred VAT during the transition period, the answer is a resounding yes.
First, the RMC promotes fairness. A taxpayer who qualifies for VAT incentives should not be placed at a disadvantage merely because the certification process was still being implemented.
Second, it promotes certainty. Taxpayers now have a clearer basis for evaluating whether they should pursue a VAT refund claim for the transition period. This reduces unnecessary disputes and allows businesses to focus on compliance rather than speculation.
Third, it supports competitiveness. The Philippine export sector competes in a global market where costs matter. Allowing qualified exporters to recover VAT that would otherwise become an additional cost helps improve efficiency and strengthens the country’s attractiveness as an investment destination.
NOT A FREE PASS
Of course, taxpayers should not view the RMC as an automatic refund approval.
The BIR emphasized that only input VAT directly attributable to qualified zero-rated sales may be refunded. Further, taxpayers must still satisfy all documentary, attribution, and verification requirements. Moreover, no refund shall be allowed to the extent that the VAT has already been reimbursed, credited, recovered from suppliers, or otherwise utilized.
The relief also does not extend to EOEs that have met the 70% export threshold but failed to secure the required EMB certification, including during the transitory period. Under the RMC, these enterprises may not claim the refund for the immediately succeeding taxable year, although their unutilized input VAT may be carried forward and applied against future VAT liabilities.
In short, the opportunity exists, but proper documentation remains essential.
BALANCING COMPLIANCE WITH COMMERCIAL REALITY
By acknowledging the realities of the transition to the CREATE MORE regime, the BIR demonstrated a practical and business-minded approach to tax administration. Rather than allowing a procedural timing issue to undermine the intended incentives of the law, the RMC provides qualified exporters with a meaningful chance of recovering VAT costs incurred during the implementation period.
Tax professionals often spend their time explaining new obligations and compliance requirements to their taxpayer clients. Opportunities to talk about genuine taxpayer relief are less frequent. RMC No. 96-2026 is one such opportunity.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only and should not be used as a substitute for specific advice.
Steven Lloyd Co is a senior manager at the Tax Services department of Isla Lipana & Co., a Philippine member firm of the PricewaterhouseCoopers global network.