Albay Rep. Joey Sarte Salceda has asked the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to resolve remaining issues with value-added tax exemptions and VAT zero-rating of registered business enterprises (RBEs) with tax incentives on or before June 20, the next date of the monthly physical filing of VAT returns.
This, “so that the VAT problem stops getting bigger for locators as soon as possible.”
Salceda made the “urgent request” during Tuesday’s committee meeting of the House tax panel chaired by Salceda. Salceda, House ways and means committee chair, explained the actions taken by the committee to address House Resolution (HR) 490, authored by Representative Gloria Macapagal-Arroyo, which directed the Committee to determine inconsistencies between the CREATE Law and its corresponding administrative issuances regarding VAT privileges of registered business enterprises.
Salceda said that the committee found that “There are substantial inconsistencies between the CREATE Law and the IRR and BIR issuances.”
“Registered business enterprises inside ecozones were entitled to VAT zero-rating privileges under the cross-border doctrine. The privilege was withdrawn, invoking TRAIN law provisions and the veto message principle that the zero-rating privilege should only apply to exporters.”
“TRAIN did not repeal the cross-border doctrine. It did not repeal the provisions designating ecozones as separate customs territories. And a veto message is not a law,” Salceda said.
Salceda also pointed out that “The purchases of registered domestic enterprises catering to registered export enterprises were subjected to VAT, which they cannot pass on to their clients.”
Salceda added that “The VAT exemption and zero-rating privileges of some domestic market enterprises previously enjoying the 5 percent GIE rate were withdrawn, despite the CREATE transition period – for solving by issuing an RR consistent with the letter and spirit of the CREATE transition period, which was to retain the “in lieu of all taxes” privilege for those under the 5 percent GIE rate.”
Salceda acknowledged that some concerns have already been addressed by RR 3-2023, which effectively expanded the definition of which transactions of registered exporters by setting a narrow negative list of what cannot be counted as “directly and exclusively used” for export activities, and by Revenue Memorandum Circular No. 24-2023, which entitled logistics service enterprises serving registered exporters to VAT zero-rating.
Salceda added, however, that the “stickiest point” remains the VAT privileges of domestic enterprises enjoying a VAT exemption prior to the enactment of CREATE, but whose privileges were withdrawn “in direct contravention of the transition period under the law, where they enjoy whatever they had prior to the law.”
“I urge the BIR and the DOF to respect the letter and spirit of Section 311 of the Tax Code, under the CREATE Law, which was an assurance to investors that status quo stays for ten years to give them time to adjust. We should honor the promises we make,” Salceda said.
“Given their ROE, the electronics sector, petrochemicals, and food manufacturing – all essential sectors – will be among the first to take the hit with these VAT issues. With high power costs and soaring interest rates in the global environment, they’re in a serious bind. We don’t want them to leave.”