THE chairman of the House Committee on Ways and Means asked the Department of Finance and the Bureau of Internal Revenue (BIR) to respect the Corporate Recovery and Tax Incentives for Enterprises, or “Create,” law by resolving remaining issues with the exemptions and zero-rating of registered business enterprises (RBEs) with tax incentives on or before June 20, the next date of the monthly physical filing of value-added tax (VAT) returns.
House Committee on Ways and Means Chairman Jose Ma. Clemente “Joey” S. Salceda made the “urgent request” during regular committee meeting of the House tax panel last Tuesday.
Salceda explained the actions taken by the Committee to address House Resolution (HR) 490, authored by Rep. Gloria Macapagal-Arroyo, which directed the Committee to determine inconsistencies between the Create law (Republic Act 11534) and its corresponding administrative issuances regarding VAT privileges of registered business enterprises.
Salceda said that the committee found there are substantial inconsistencies between RA 11534 and its IRR as well as BIR issuances.
Negative list
THE lawmaker explained that RBEs inside economic zones (ecozones) were entitled to VAT zero-rating privileges under the cross-border doctrine.
“The privilege was withdrawn, invoking Train law [RA 10963] provisions and the veto message principle that the zero-rating privilege should only apply to exporters,” Salceda said. “[The] Train [law] did not repeal the cross-border doctrine. It did not repeal the provisions designating ecozones as separate customs territories. And a veto message is not a law.” He also pointed out that the purchases of registered domestic enterprises catering to registered export enterprises were subjected to VAT, which they cannot pass on to their clients.
“The VAT-exemption and zero-rating privileges of some domestic market enterprises previously enjoying the 5-percent GIE [gross-income-earned] rate were withdrawn, despite the Create [law’s] transition period—for solving by issuing an RR [Revenue Regulation] consistent with the letter and spirit of the Create transition period, which was to retain [the rate] in lieu of all [tax] privilege for those under the 5- percent GIE rate,” Salceda said.
Salceda acknowledged that some concerns have already been addressed by RR 3-2023, which effectively expanded the definition of which transactions of registered exporters are VAT zero-rated by setting a narrow negative list of what cannot be counted as “directly and exclusively used” for export activities. He added this issue was further addressed by Revenue Memorandum Circular 24-2023, which entitled logistics service enterprises serving registered exporters to VAT zero-rating.
‘Stickiest point’
SALCEDA added that the “stickiest point” remains with the privileges of domestic enterprises enjoying a VAT exemption prior to the enactment of the Create law, but whose privileges were withdrawn “in direct contravention of the transition period under the law, where they enjoy whatever they had prior to the law.”
The lawmaker said he is urging the BIR and the DOF to respect the letter and spirit of Section 311 of the Tax Code, under the Create Law, “which was an assurance to investors that status quo stays for 10 years to give them time to adjust.”
“We should honor the promises we make,” Salceda said.
The lawmaker believes that, given their respective return on equity, the electronics sector, petrochemicals and food manufacturing—“all essential sectors”—will be among the first to take the hit with these VAT issues.
“With high power costs and soaring interest rates in the global environment, they’re in a serious bind,” Salceda said. “We don’t want them to leave.”