The Philippine Chamber of Commerce and Industry (PCCI) expressed its support to Senate Bill 2654 or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill underscoring its importance to the survival and growth businesses, especially small and medium enterprises (SMEs) and retaining and attracting more foreign direct investments (FDIs).

In a letter to Senate Committee on Ways and Means chair, Senator Sherwin Gatchalian, PCCI noted the inconsistencies in the CREATE Act and corresponding administrative issuances relating to taxes and incentives enjoyed in freeport and economic zones.

Administrative issuances implementing CREATE limited the applicability of the VAT exemption on importation and VAT zero-rating on local purchases by a registered export enterprise.

PCCI pointed out that under the CREATE Act, such incentive is granted to “Registered Business Enterprises (RBEs)” in general and does not make a distinction between an export enterprise and a domestic market enterprise inside separate customs territories.

The distinction made between between export and domestic enterprises has disadvantaged the latter 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 ten (10) more years as specified in the transitory provisions of the CREATE Law, PCCI said.

“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, and which they pass on to the consumers making them uncompetitive in the global market,” PCCI president Enunina Mangio emphasized.

PCCI further supported CREATE MORE’s intent to improve the country’s tax refund process, which currently takes an average of four to six years to process and approve.

Under the 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.

“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 investment. These are taxpayers’ money trapped with the government, idle, instead of being used to generate economic activities. Bureaucratic inefficiencies in the VAT refund system has resulted to higher costs of doing business in the country as compared with other countries vying for the same market or investment,” Benedicta Du-Baladad, PCCI’s director for taxation and investment policy and promotion of PCCI lamented.

Du-Baladad outlined the following specific provisions of the CREATE MORE bill that PCCI welcome:

1. The duty exemption on importation, VAT exemption on importation and VAT zero-rating on local purchases on goods and services directly attributable to the registered project or activity of a registered business enterprise inside economic zones with no distinction whether these are export or domestic enterprises, consistent with the CREATE Act.

2. 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.

3. 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 five percent (5%), including all corresponding exemptions from local and national taxes for a period of ten (10) years or up to December 31, 203_.

4. 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, as follows:

a. Manufacturing Industry – 1%

b. Service Industry – 0.5%

To further strengthen CREATE MORE, PCCI recommended that CREATE MORE expressly provide that existing RBEs which 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 project or activity with the IPA.

Finally, that CREATE MORE streamline and simplify the VAT refund system with a set timeline for processing of applications.

“Amid the aggressiveness of the current administration to draw in foreign direct investments and strengthen the local economy, we must be able to improve our absorptive capacity by easing and making the cost of doing business more competitive,” Mangio said.