Clark ecozone locators hitCREATE law misapplication


AT least three senators on Thursday weighed in on a mounting clamor by Clark-based businesses to push back the implementing rules and regulations of the CREATE law and certain issuances of the Bureau of Internal Revenue that are deemed as negating the intent of CREATE to rationalize incentives while attracting investments.

Senate Minority Leader Aquilino “Koko” Pimentel III threw his support behind the cause of the Clark locators, noting that in September 2022, he had introduced Resolution 244 directing the Ways and Means committee to investigate the imposition of value added tax (VAT) on the importations and local purchases of goods and services directly and exclusively used in the registered project or activity of domestic market enterprises in Special Economic Zones.

“I agree with the Clark locators that the IRR of CREATE has not been totally consistent with the terms of the CREATE law,” Pimentel said in a viber message to BusinessMirror, when sought for comment on the Manifesto by the the Clark Investors and Locators Association (CILA), calling “unfair and inequitable” some parts of the IRR as crafted by the Department of Finance (DOF). The organization said these questionable provisions contradict the intent of Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises, enacted in February 2021.

CILA also assailed BIR issuances Revenue Regulations 21-2021, and Revenue Memorandum Circular 24-2022 that were issued on December 3, 2021 and February 23, 2022, respectively.

One example of the misapplication, as noted by Pimentel, is this: “Those registered business enterprises granted incentives prior to CREATE have a 10-year sunset clause. They are allowed to still enjoy incentives. The CREATE law IRR and RR in effect removed the VAT incentives even during transition.”

Pimentel is linking up with his sole ally in the minority, Sen. Risa Hontiveros, in prodding authorities to revisit this misapplication of CREATE law, expressing concern over its dire consequences on the performance of locators in ecozones like Clark and its dampening effect on investors.

Separately, Sen. Imee Marcos urged the DOF to guard against misapplying CREATE.

Wanted: Prudence–Imee

“While we agree that the passage of CREATE has amended all the ecozone laws, particularly Sec. 15 of RA 7227, as amended by RA 9400, we call upon the DOF to exercise prudence in the interpretation of the law in its IRR,” Marcos said in a text message to BusinessMirror.

“CREATE does not remove the incentive of locators for duty-free importation of capital and raw materials for the exclusive use of registered projects and activities of registered business enterprises (RBEs). Removing these incentives is a clear misapplication of the CREATE law and will cause great harm to the investment climate of the country,” Marcos asserted.

In a Manifesto issued during the very first General Membership Meeting of CILA this year, last March 27,  the organization expressed fear of “massive opportunity costs for the Philippine economy in terms of job creation, foreign direct investments and exports.”

As of December 2022, there are 1,096  foreign and local investors in Clark. Possible closure of Clark enterprises could jeopardize around 128,000 jobs. “This would definitely put a setback to the nation’s economy as Clark Freeport investor-firms have combined investments of US$5.42 billion while the exports have been valued at US$5.47 billion,” CILA said.

These assailed revenue regulations issued by the BIR “went beyond bounds and are contrary to the original intent of the CREATE Act,” the Manifesto stated. CILA echoed this observation first made by Rep. Joey Salceda, chairman of House and Ways and Means Committee, Rep. Gloria Macapagal-Arroyo, Senators Pimentel III and Hontiveros, and former Justice Elpidio Vega, Head of the Office for Government Corporate Counsel.

“We continue to make an appeal for the government to cure the situation by ordering the review and amendment of the IRR and the immediate suspension of RR-21-2021, RMC 24-2022 in order to preserve the original intent of the CREATE Act,” said CILA’s manifesto.

“While the CREATE Act passed by Congress, extended a sunset provision of 10 years  for all registered business enterprises [RBEs] currently enjoying fiscal perks, the IRR that was crafted by the DOF introduced a distinction between export enterprise [EE] and domestic market enterprise [DME] and prescribed different treatments for each category.  This has resulted in the loss of fiscal perks for several RBEs that were supposed to be covered by the CREATE Act,” the Manifesto noted.

The BIR issuances have led to the premature imposition of VAT on investors in Clark and other Freeport and Economic Zones whose locators are to pay only 5 percent of their Gross Income Earned (GIE) as part of the incentives, the business group added.

These subsequent issuances after the adoption of IRR “negated the cross-border doctrine and created enormous confusion among investors and taxpayers alike and may lead to divergent interpretations in the treatment of VAT and all other related taxes.”

Failure by government to immediately address this conflict with the CREATE Act may, CILA added, lead to “further erosion of the Philippines’ competitiveness in comparison to its ASEAN neighbors and other comparative economies and the exclusion of small and medium enterprises [SMEs] outside of the freeport zones from participating in the global value chain.”

Hontiveros, who was guest speaker of CILA on March 27, said in her speech:  “I believe this is a serious issue, and risks driving investments away from the country, and deviates from the policy embodied in the CREATE Law which is, among others, to attract investments by developing a more responsive and globally-competitive tax regime.”

She added:  “The deviation of the aforementioned issuances from the intent of the CREATE Law risks directly and adversely affecting the cost of doing business for domestic industries.”

Former president now Pampanga congresswoman Macapagal-Arroyo, meanwhile, filed a resolution that calls for the congressional oversight committee on tax reform program to address the conflict.

Arroyo filed a separate resolution that urges the House Ways and Means Committee to look into the crossorder doctrine that should apply at Freeports which are separate customs territory.  The resolution stated that that the cross border doctrine has been rendered “ineffectual and inoperative” and is inconsistent with the CREATE Act.