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House adopts tax panel report on inconsistencies between CREATE Law and IRR; Salceda says tax panel addresses PBBM concerns about tax incentives law

August 11th, 2023

The House of Representatives has adopted Committee Report No. 638 or its report recommending the rectification of inconsistency between the CREATE Law and its implementing rules and regulations, primarily on the imposition of value-added tax (VAT) on importation and local purchases of goods and services by registered business enterprises (RBEs) in special economic zones. The report, written by the Committee on Ways and Means, chaired by Rep. Joey Sarte Salceda (Albay, 2nd district), was the result of extensive deliberations called for by House Resolutions No. 490 and 611.

“We have received assurances that the Department of Finance will act on the Resolution. In the coming days, they will issue amendments to the CREATE Law IRR so that registered export enterprises can continue to avail of VAT zero-rating throughout the transition period, and that domestic market enterprises inside ecozones will be allowed to register as VAT taxpayers so they can avail of the VAT refund system,” Salceda said.

“During the course of discussions for the Committee Report, the DOF and the BIR have also issued Bureau of Internal Revenue (BIR) RMC No. 24-2023 clarifying the entitlement of logistics service enterprises (LSEs) to VAT zero-rating on its local purchases,” Salceda added.

“So, piece by piece, the DOF, DTI, and BIR are responding to the recommendations of the Committee.”

The Committee Report states that “The Committee found glaring inconsistencies between the letter and intent of the CREATE law and the rules and regulations issued to implement its provisions. These inconsistencies were abject in (1) the disrespect for the transition period prescribed under Section 311 of the Tax Code about the VAT privileges attached to the preferential five percent (5%) tax on gross income earned (GIE); and (2) the distinction between registered domestic and export enterprises in applying VAT privileges, when the law did not make such distinctions.”

“With the coming amendments, we expect issue no. 1 to be resolved. Issue No. 2 will still be pending, so we hope the DOF and DTI can resolve that.”

Salceda said that the Committee came up with the 68-page report to emphasize “that the problems cited about CREATE Law are matters of interpretation and can be resolved through executive issuances.”

“Representatives from the business sector have brought these VAT issues to the President’s attention and have cited them as affecting our competitiveness as an investment destination. So, we worked with the DOF, DTI, and other agencies to address them as much as we can.”

Apart from issuances related to the CREATE Law, the committee report also recommended “For the DTI-BOI to expand its reach as a non-zone-based investment promotion agency (IPA) by integrating incentive promotion in its DTI regional offices; For the BIR to improve the processing of VAT refund claims; and For the concerned government agencies to submit periodic status reports to the Committee pursuant to Section 290 of the NIRC of 1997, as amended.”

“The DTI and BOI have to proactively expand access to investment promotion services across the regions, and the BIR must take cognizance of its role to enable businesses so that we can collect more revenues from a bigger pie.”

“We hope to put all questions about CREATE’s IRR to rest before the year ends,” Salceda added.

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