The national government (NG) has amended the implementing rules and regulations (IRR) of the CREATE Act to “resolve” value-added tax (VAT) concerns by “transitory” registered business enterprises (RBE) in the country.
The amendment came about two weeks after President Ferdinand R. Marcos Jr. announced that the state would undertake necessary amendments to the CREATE Act and its IRR to address VAT-related woes raised by certain investors.
Finance Secretary Benjamin E. Diokno and Department of Trade and Industry (DTI) Secretary Alfredo E. Pascual approved the amendment to the CREATE Act’s IRR.
“We welcome this amendment in support of our RBEs and in alignment with the national government’s efforts to establish a more conducive investment climate in the country,” Diokno said on Friday.
The DOF said the amendment, specifically to Rule 18, Section 5 of the CREATE Act IRR, was made in response to the Marcos’ directive “to review and address the VAT-related issues” of both domestic market enterprises (DMEs) and registered export enterprises (REEs).
With the amendment, transitory registered DMEs inside an economic or a Freeport zone availing of the 5 percent gross income tax regime are now given the option to register as VAT taxpayers. By having such an option, VAT-registered DMEs can opt to get a refund from the Bureau of Internal Revenue for their input VAT.
“This will enable VAT-registered DMEs covered by the transitory provisions of CREATE to either charge output VAT to domestic customers or receive a refund from the Bureau of Internal Revenue [BIR] for the input VAT directly attributable to their zero-rated sales,” the DOF said in a statement.
Furthermore, the DOF said transitory REEs, whose income tax-based incentives have, will continue to enjoy VAT zero-rating on their local purchases until such a time that the electronic sales reporting system under Section 237-A of the Tax Code is fully operational or until the expiration of the 10-year transitory period, whichever comes earlier.
“Before the approval of the CREATE IRR amendment, the technical working group [TWG] on VAT led consultations with investment promotion agencies and other relevant stakeholders. The TWG is composed of representatives from the Department of Finance, DTI, and BIR,” it said.
Last July, Marcos met with the executives of Marubeni Corp, Austal Ltd, and Tsuneishi Heavy Industries (Cebu), Inc. (THI) in Cebu City to discuss the situation of their business activities in the country.
During their dialogue, Marubeni raised the following issues: 12-percent VAT imposed on indirect exporters supplying goods and services to export-oriented enterprises; non-refund of VAT incurred by the DMEs on their local purchases; tedious documentary requirements, slow process, and unpredictability on VAT refund claims.
“We’re working on those issues and…we will be introducing the amendments for the CREATE law to take care of this,” Marcos was quoted as telling Marubeni’s executives.