Philexport pushes CREATE MORE to plug gaps in law

THE country’s umbrella organization of exporters is calling for the swift approval of the CREATE MORE bill, a measure to iron out inconsistencies on value-added tax ( VAT) zero-rating and tax administration on domestic enterprises, among others. “The Senate’s consideration of our recommendations above will go a long way in ensuring that we remain on track in achieving the principles and objectives of inclusive growth and development,” Philexport President Sergio R. Ortiz-luis Jr. said in a statement on Friday.

The Philexport chief said this as he outlined “uncertainties” in the implementation of (Corporate Recovery and Tax Incentives for Enterprises) CREATE Act that must be addressed. These, he said, have “seriously and unfairly impacted the operations and competitiveness of existing companies and are inconsistent with the current efforts of the Marcos administration to attract investors.”

The strong support for CREATE MORE is contained in a recent position letter signed by Philexport president Sergio R. Ortiz-luis Jr. and addressed to Senator Sherwin Gatchalian, who introduced Senate Bill 2654 last May 6.

In the position letter, Ortiz-luis noted that the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act was enacted with the good intention to raise the country’s regional competitiveness by lowering corporate income tax rates and rationalizing fiscal incentives granted to registered business enterprises (RBES).

However, he also pointed out that three years after the passage of CREATE, inconsistencies have come up between this law and the corresponding administrative issuances on taxes and incentives enjoyed in freeport and economic zones.

“These issues have seriously and unfairly impacted the operations and competitiveness of existing companies and are inconsistent with the current efforts of the Marcos administration to attract investors,” said Ortiz-luis.

Among these contradictions is the distinction being made between registered domestic enterprises and export enterprises inside separate customs territories when applying VAT privileges. This distinction is being done when CREATE itself does not make such a distinction, Ortiz-luis said.

“Under the CREATE Act, VAT zero-rating on local purchases is granted to registered business enterprises [RBES] in general,” the business leader said.

However, Ortiz- Luis noted the law’s Implementing Rules and Regulations ( IRR) and subsequent administrative issuances of the Bureau of Internal Revenue ( BIR) limited the application of VAT exemption on importation and VAT zero- rating on local purchases to ‘ registered export enterprises.’

Consequently, this distinction puts domestic market enterprises inside separate customs territories at a disadvantage as they have now ceased to avail themselves of the incentives, including the 5- percent tax on gross income earned (GIE) that they are supposed to enjoy for 10 more years under the transitory provisions of the CREATE Law.

According to the letter of the Philexport chief, this has “disincentivized” domestic manufacturers who must now absorb the VAT passed on to them by local suppliers and must pass on the cost to consumers.

Meanwhile, the two other concerns raised relate to the transition period prescribed under Section 311 of the Tax Code on the VAT privileges attached to the preferential 5 percent tax on GIE and the “tedious” VAT refund process.

On VAT refund, Ortiz-luis observed that while the BIR is required to process VAT refund or tax credit claims within 120 days, “the BIR usually takes an average of four to six years to process and approve such claims.”

These refund delays, he noted in his letter, hurt the cash flow of businesses, especially (micro, small and medium enterprises) MSMES, and prevent them from putting their money to productive use.

Supporting the position of the Philippine Chamber of Commerce and Industry ( PCCI), Philexport made recommendations to ensure CREATE MORE responds better to the needs of exporters and MSMES.

Among the recommendations is to “Implement 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 an RBE inside economic zones with no distinction between export and domestic enterprises, consistent with the CREATE Act.”

Another proposal is to “deputize” the Department of Trade and Industry (DTI) Export Marketing Bureau to implement VAT zero-rating for exporters outside the Board of Investment ( BOI) jurisdiction and zones.

“Apply VAT zero- rating to customs brokerages [for export shipments}, trucking services [for export containers], and forwarding services [for export shipments] because these services are essential in moving the export shipment from the factory to the port,” the Philexport chief recommended.

Ortiz-luis also underscored the need to streamline and simplify the VAT refund system with a set timeline for processing of applications, among others.

The PCCI, one of the major business groups in the country, is also pushing for the immediate passage of the CREATE MORE bill. (See: https://BUSINESSMIRROR.com.ph/2024/05/31/pcci-pushes-passage-of-create-more/)