PCCI calls for passage of bill amending CREATE law

The Philippine Chamber of Commerce and Industry (PCCI) is calling for the passage into law of a measure that seeks to amend the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to address issues related to fiscal incentives.

In a statement on Thursday, PCCI, citing a letter to Senate Committee on Ways and Means chairman Senator Sherwin Gatchalian, said it is backing Senate Bill 2654, or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill.

It is the Senate’s version of House Bill 8968, filed by Albay 2nd District Representative Joey Salceda, with a similar name, which seeks to clarify the transitory provision in the law “by expressly exempting transitory registered business enterprises (RBEs) under the 5% gross income earned (GIE) regime from all national and local taxes, including value-added tax (VAT) and duty incentives.”

The PCCI pointed out the “inconsistencies” in the CREATE Act concerning taxes and incentives enjoyed in freeports and economic zones.

The group said administrative issuances implementing the CREATE law limited the applicability of the VAT exemption on importation and the VAT zero-rating on local purchases by a registered export enterprise.

The CREATE law lowered the corporate income tax (CIT) and rationalized fiscal incentives, making it performance-based, time-bound, targeted, and transparent.

It reduced the CIT to 25% from 30% effective July 1, 2021, followed by a one-percentage-point cut annually from 2023 until it reaches 20% in 2027.

The PCCI, however, said that under the CREATE law, VAT-related incentives are granted to "Registered Business Enterprises (RBEs)" in general and do not make a distinction between an export enterprise and a domestic market enterprise inside separate customs territories.

The group said this has disadvantaged domestic enterprises "as they have now ceased to avail of their incentives, including the 5% tax on gross income earned (GIE) that they are supposed to enjoy for 10 more years as specified in the transitory provisions of the CREATE law."

"This situation not only disincentivizes local suppliers of manufacturers inside freeport zones; it also puts manufacturers/exporters at a disadvantage as they must now absorb the VAT passed on to them by their local suppliers, which they pass on to consumers, making them uncompetitive in the global market," said PCCI president Enunina Mangio.

The PCCI said it supports CREATE MORE's intent to improve the tax refund process, which currently takes an average of four to six years to process and approve.

The CREATE MORE bill seeks to establish a streamlined tax refund system for RBEs and the institutionalization of a risk-based classification of claims and audit framework in a bid to improve the timeliness, efficiency, and predictability of the VAT refund process.

Under the existing VAT refund process, any excess input VAT credit arising from zero-rated sales, or previously from significant capital expenditures, would have to be paid back by the government.

While the 1997 National Internal Revenue Code (NIRC) requires the BIR to process VAT refund or tax credit claims within 90 days, processing and approving such claims have taken an average of four to six years, the PCCI said.

"VAT refunds represent sums of money owed by the government to zero-rated taxpayers and investors, who already paid the VAT upfront on their purchases or investments. These are taxpayers’ money trapped with the government, idle, instead of being used to generate economic activities. Bureaucratic inefficiencies in the VAT refund system have resulted in higher costs of doing business in the country as compared with other countries vying for the same market or investment," said Benedicta Du-Baladad, PCCI director for taxation and investment policy and promotion.

Du-Baladad outlined the provisions of the CREATE MORE bill that the PCCI welcomes:

• The 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 a registered business enterprise inside economic zones, with no distinction as to whether these are export or domestic enterprises, are consistent with the CREATE Act
• The application of the principle of Separate Customs Territory/Cross-Border Doctrine for VAT purposes - that the sale and delivery of goods to registered enterprises within a Separate Customs Territory, shall be subject to 0% VAT
• Transitory provisions affecting RBEs where said RBEs currently availing of the 5% tax on GIE granted prior to the effectivity of the CREATE Act shall be allowed to continue availing the said tax incentive at the rate of 5%, including all corresponding exemptions from local and national taxes for a period of 10 years 
• The option to avail of RBELT (Registered Bussiness 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 (SCIT) entitlement period — manufacturing industry at 1% and service industry at 0.5%

To further strengthen CREATE MORE, PCCI said that the bill expressly provides that existing RBEs that are in good standing with their respective Investment Promotion Agency (IPA) continue to enjoy indirect tax incentives such as duty exemption on importation, VAT exemption on importation, and VAT zero-rating on local purchases for the duration of the period of registration of such projects or activities with the IPA.

The group said the CREATE MORE bill should also streamline and simplify the VAT refund system with a set timeline for processing applications. —VBL, GMA Integrated News