Daily TribuneThree years after the passage of CREATE, inconsistencies have come up between this law and the corresponding administrative issuances on taxes and incentives enjoyed in freeport and economic zones.
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The Philippine Exporters Confederation Inc. (PHILEXPORT) is backing proposed Senate Bill (SB) No. 2654 or the CREATE MORE bill, which seeks to clarify the uncertainties in the implementation of the CREATE Act, particularly its provisions on the Value Added Tax (VAT) zero-rating and tax administration.
Strong support for CREATE MORE is contained in a recent position letter signed by PHILEXPORT president Sergio R. Ortiz-Luis, Jr. and addressed to Senator Sherwin Gatchalian, who introduced SB 2654 last 6 May.
The letter echoed the position of the Philippine Chamber of Commerce and Industry (PCCI) submitted earlier to the Senate Committee.
In the position letter, Ortiz-Luis noted that the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act was enacted with the good intention to raise the country’s regional competitiveness by lowering corporate income tax rates and rationalizing fiscal incentives granted to registered business enterprises (RBEs).
However, he also pointed out that three years after the passage of CREATE, inconsistencies have come up between this law and the corresponding administrative issuances on taxes and incentives enjoyed in freeport and economic zones.
Issues
“These issues have seriously and unfairly impacted the operations and competitiveness of existing companies and are inconsistent with the current efforts of the Marcos administration to attract investors,” Ortiz-Luis said.
Among these contradictions is the distinction being made between registered domestic enterprises and export enterprises inside separate customs territories when applying VAT privileges.
Distinction
This distinction is being done when CREATE itself does not make such a distinction, Ortiz-Luis said.
“Under the CREATE Act, VAT zero-rating on local purchases is granted to registered business enterprises in general,” the business leader said.
“However, the law’s Implementing Rules and Regulations (IRR) and subsequent administrative issuances of the Bureau of Internal Revenue (BIR) limited the application of VAT exemption on importation and VAT zero-rating on local purchases to ‘registered export enterprises,’” he pointed out.
Consequently, this distinction puts domestic market enterprises inside separate customs territories at a disadvantage as they have now ceased to avail themselves of the incentives, including the 5 percent tax on gross income earned (GIE) that they are supposed to enjoy for 10 more years under the transitory provisions of the CREATE Law.
Disincentived domestic manufactures
“This has disincentivized domestic manufacturers who must now absorb the VAT passed on to them by local suppliers, and must pass on the cost to consumers,” noted the letter.
The two other concerns raised relate to the transition period prescribed under Section 311 of the Tax Code on the VAT privileges attached to the preferential 5 percent tax on GIE and the tedious VAT refund process.
On VAT refund, Ortiz-Luis observed that while the BIR is required to process VAT refund or tax credit claims within 120 days, “the BIR usually takes an average of four to six years to process and approve such claims.”
These refund delays hurt the cash flow of businesses, especially MSMEs, and prevent them from putting their money to productive use, the letter said.
As of 6 June 2024, SB 2654 has undergone first reading and been referred to the Committee on Ways and Means.
