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.
The 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 May 6.
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.
“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,” said Ortiz-Luis.
Among these contradictions is the distinction being made between registered domestic enterprises and export enterprises inside separate customs territories when applying VAT privileges. 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 (RBEs) 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’.”
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% tax on gross income earned (GIE) that they are supposed to enjoy for 10 more years under the transitory provisions of the CREATE Law.
“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% 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.
Supporting the PCCI position, PHILEXPORT has made the following recommendations to ensure CREATE MORE responds better to the needs of exporters and MSMEs:
• Implement duty exemption on importation, VAT exemption on importation, and VAT zero rating on local purchases of goods and services directly attributable to the registered project or activity of an RBE inside economic zones with no distinction between export and domestic enterprises, consistent with the CREATE Act.
• Deputize the DTI Export Marketing Bureau to implement VAT zero-rating for exporters outside the Board of Investment jurisdiction and zones.
• Apply VAT zero-rating to customs brokerages (for export shipments), trucking services (for export containers), and forwarding services (for export shipments) because these services are essential in moving the export shipment from the factory to the port.
• Apply the principle of Separate Customs Territory/Cross-Border Doctrine for VAT purposes—the sale and delivery of goods to registered enterprises within a Separate Customs Territory shall be subject to 0% VAT.
• Implement CREATE Act prospectively, particularly the transitory provisions affecting RBEs. CREATE MORE should provide that RBEs currently availing of the 5% tax on GIE granted prior to the effectivity of this Act shall be allowed to continue availing themselves of the said tax incentive at the rate of 5%, including all corresponding exemptions from local and national taxes for a period of 10 years or up to December 31, 2033.
• Impose Registered Business Enterprise Local Tax in lieu of all local taxes, which shall include local business tax, real property taxes except on property owned by developers, among others, for RBEs availing of Income Tax Holiday, Enhanced Deductions, and after the Special Corporate Income Tax entitlement period, as follows: Manufacturing Industry – 1%; Service Industry – 0.5%.
• Provide that existing RBEs in good standing with their Investment Promotion Agency (IPA) may continue to enjoy indirect tax incentives such as duty exemption on importation, VAT exemption on importation, and VAT zero-rating on local purchases during the period of registration of such project or activity with the IPA.
• Streamline and simplify the VAT refund system with a set timeline for processing of applications.
Said Ortiz-Luis: “The Senate’s consideration of our recommendations above will go a long way in ensuring that we remain on track in achieving the principles and objectives of inclusive growth and development.”
As of June 6, 2024, SB 2654 has undergone first reading and been referred to the Committee on Ways and Means.
