The Supreme Court’s recent decision questioning certain provisions of the implementing rules and regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act has reignited debate over how investment incentives are applied to domestic and export-oriented firms.

Enacted in 2021, CREATE aims to attract investment and boost economic recovery by lowering corporate income tax rates and rationalizing fiscal incentives for both local and foreign enterprises.

Under CREATE, registered business enterprises (RBEs) are entitled to value-added tax (VAT) zero-rating on local purchases of goods and services that are “directly and exclusively used” in their registered activity.

But subsequent IRRs and revenue regulations (RRs) issued by tax authorities limited this incentive to registered export enterprises (REEs) only, excluding domestic market enterprises (DMEs) from the same benefit.

This change effectively required suppliers to charge VAT on goods and services purchased by DMEs. Those operating under the 5% Special Corporate Income Tax (SCIT) regime have since had to absorb the passed-on VAT as part of their business expenses.

In a 29 September 2025 ruling, the Supreme Court declared portions of the CREATE law’s IRR and related revenue regulations invalid, saying these rules went beyond what the law intended. The Court held that the Department of Finance (DOF) and Bureau of Internal Revenue (BIR) could not unilaterally restrict VAT zero-rating benefits to export enterprises, since the CREATE law itself made no such distinction.

The decision affirmed that all RBEs, including domestic firms, are entitled to VAT zero-rating on qualified purchases, restoring what many investors view as a level playing field.

The Supreme Court’s decision is expected to have far-reaching implications for both investors and policymakers. Business groups have welcomed the clarification, saying it could restore investor confidence and enhance the country’s competitiveness by providing clearer, more consistent tax rules for all registered enterprises.