[Ask the Tax Whiz] How the 19% tariff works, and how it will affect PH exporters

17 hours ago 1
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A 19% (previously 20%) tariff recently imposed by the United States on Philippine exports is more than just a number. It serves as a warning sign for exporters, particularly micro, small, and medium-sized enterprises (MSMEs), to reassess their trade and tax strategies.

Whether you ship garments, electronics, or consumer goods to the US, this tariff means one thing: your products just got more expensive abroad.

What exactly is a tariff, and how does it affect your exports?

A tariff is a tax charged by a foreign government when your goods enter their country. A 19% tariff means your buyer in the US must now pay 19% more for your product, unless you absorb the cost. An additional 19% of its declared value must be paid to the US Customs before it can be sold or distributed.n (READ: Zero tariffs? Trade talks still ongoing, certain products not exempted)

For example, if your product is priced at $1,000, a 19% tariff would increase the cost by $190, making the total cost for the buyer $1,190. The tariff is formally imposed on the importer, which means the added cost is often passed on to the US buyers. As such, they generally react by either demanding lower prices from Filipino exporters or by shifting purchases to other suppliers in countries with lower or no tariffs.

This directly affects the competitiveness of Philippine goods, particularly in price-sensitive industries like garments, electronics, and consumer goods. The sudden increase in cost can lead to reduced purchase orders, strained relationships with US buyers, and even canceled contracts. These tariffs are often unpredictable and may arise from trade policy changes, allegations of unfair pricing or dumping, or the loss of trade preferences like the Generalized System of Preferences (GSP).

For exporters, understanding how tariffs work is critical, not just to anticipate their impact but also to develop strategies for mitigating losses and maintaining access to key markets.

US tariffs on ASEAN, graphic
Is your product affected by the 19% tariff imposed by the United States?

Not all Philippine exports are automatically subject to the 19% tariff, which is why the first step for any exporter is to verify whether their product falls under the affected categories. This involves checking the Harmonized System (HS) Code or tariff classification of your goods — a universal economic language and code for goods, and an indispensable tool for international trade

Each product has an HS code, which determines the applicable duties, tariffs, and required documentation during international trade. The US may apply a 19% tariff only to specific products depending on the outcome of trade investigations or updates in its trade policy. 

To confirm this, the exporter must verify their freight forwarder or customs broker, review recent advisories from the Department of Trade and Industry (DTI), the Philippine Exporters Confederation (PHILEXPORT), the Bureau of Customs (BOC), the Tariff Commission (Philippines), or even the US International Trade Commission (USITC). 

Even if your goods are not currently affected by the 19% tariff, it is important to monitor updates regularly as tariff coverage expands without much warning. Staying informed is essential, especially for MSMEs that may lack the resources to absorb sudden cost changes or reconfigure contracts on short notice.

Can you adjust your price to stay competitive?

Once it’s confirmed that your product is affected by the 19% tariff, the next crucial step is to review your pricing structure and determine whether you can remain competitive in the market. A tariff of this size can significantly erode your profit margins, especially if you are operating on a tight cost structure, as most MSMEs do. 

You will need to assess whether you can absorb some or all of the tariff cost without heavily compromising profitability, or whether the added cost must be passed on to your buyer. This decision is not just financial; it’s strategic. 

Absorbing the cost may help preserve your relationship with US buyers and maintain your market share, but it also means taking a hit to your bottom line. On the other hand, raising your prices to cover the tariff might result in fewer orders or even the loss of customers who can source similar products elsewhere at a lower cost. 

Beyond pricing, consider other ways to manage your costs, review your raw materials sourcing, labor efficiencies, shipping methods, packaging, effective manufacturing processes, and even exchange rate exposure. If you have access to a tax or trade advisor, now is the time to consult them. A detailed cost-benefit analysis could reveal savings opportunities that will help you stay afloat, even with the tariff in place. 

In short, staying competitive is not just about cutting prices, it’s about smart adjustments, strategic planning, and knowing your financial limits.

How can tax planning protect you from future trade risks?

In today’s uncertain global trade environment, Filipino exporters face rising risks from volatile oil prices, tariff hikes, domestic trade laws, shifting trade alliances, and other economic factors that tighten market access. But strategic tax planning and maximizing available incentives can significantly shield exporters from the fallout of abrupt tariffs like the new 19% tariff. Under the CREATE MORE Act, companies that export at least 70% of their total production, known as Export-Oriented Enterprises (OEOs), may access a range of tax incentives. 

These include VAT zero-rating on local purchases, allowing them to benefit from a 12% VAT exemption on locally sourced raw materials, packaging, and supplies. EOEs may also enjoy VAT-exempt importation, allowing them to bring goods used for export activities tax-free, which helps reduce the effect of external trade barriers.

Lastly, they may qualify for an Income Tax Holiday (ITH), which provides 0% income tax for a specified number of years depending on the enterprise’s location and industry. – Rappler.com

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