DOF, DTI OK amendment to CREATE’s IRR amid VAT zero-rating issues

The Department of Finance (DOF) and the Department of Trade and Industry (DTI) have approved the amendment to Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act’s implementing rules and regulations (IRR) amid issues on value-added tax (VAT) zero-rating among registered business enterprises (RBEs).

In a statement, the DOF said Finance Secretary Benjamin Diokno and Trade Secretary Alfredo Pascual gave their go-signal for the amendment.

Specifically, the amendment was on Rule 18, Section 5 of the CREATE Act IRR, which refers to “non-income related tax incentives" of RBEs enjoying tax incentives prior to CREATE law's effectivity.

The DOF said the amendment was made in response to the Office of the President’s directive to review and address VAT-related issues concerning both domestic market enterprises (DMEs) and registered export enterprises (REEs), especially those seeking to avail of VAT zero-rating.

Under the said section of the CREATE IRR, VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or investment of the registered enterprises until the expiration of the 10-year transition period.

With the amendment, transitory registered DMEs inside the economic or freeport zones availing of the 5% gross income tax (GIT) regime will now have the option to register as VAT taxpayers.

The DOF said 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.

Meanwhile, transitory REEs whose income tax-based incentives have expired may now continue to enjoy VAT zero-rating on their local purchases until the electronic sales reporting system under Section 237-A of the Tax Code, as amended, is fully operational or until the expiration of the 10-year transitory period, whichever comes earlier, according to the DOF.

“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,” said Diokno.

Before the approval of the CREATE IRR amendment, the DOF said a technical working group (TWG) on VAT led consultations with investment promotion agencies and other relevant stakeholders.

The TWG is composed of representatives from the DOF, DTI, and BIR.

The CREATE law lowered the corporate income tax (CIT) and rationalized fiscal incentives.

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.

For small local companies, an outright reduction to 20% was implemented.—AOL, GMA Integrated News