FACTS:
In response to reports of smuggling of petroleum and petroleum products and to ensure the correct taxes are paid and collected, petitioner Secretary of Finance – pursuant to his authority to interpret tax laws and upon the recommendation of petitioner Commissioner of Internal Revenue signed RR 2-2012 on 17 February 2012.
The RR requires the payment of VAT and excise tax on the imporation of all petroleum and petroleum products coming directly from abroad and brought into the Philippines, including the freeport and economic zones (FEZs). It then allows the credit or refund of any VAT or excise tax paid if the taxpayer proves that the petroleum previously brought in has been sold to a duly registered FEZ locator and used pursuant to the registered activity of such locator.
ISSUE(S):
Whether or not goods within FEZs are subject to VAT.
HELD:
NO. The act of bringing the goods into an FEZ is not a taxable importation. As long as the goods remain in the FEZ or re-exported to another foreign jurisdiction, they shall continue to be tax-free. However, once the goods are introduced into the Philippine customs territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be considered as an importation subject to all applicable national internal revenue taxes and customs duties.
