The Philippine Economic Zone Authority (PEZA) will seek rectification of provisions in a tax measure that strips registered business enterprises (RBEs) value-added tax (VAT) exemption .
“With the incoming administration, we’d like to request them to revisit and reconsider our position on the VAT exemption,” said Tereso Panga, PEZA deputy director-general.
PEZA is firm the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act did not remove the exemption on local supplies, utilities, facilities, logistics service providers although the implementing rules and regulations (IRR) run in conflict with the provisions of the law by putting a cap on the exemption which would make the Philippines less competitive.
Panga said the Ways and Means Committee at the House of Representatives backed PEZA’s position.
“There was a categorical position by the chairman (of the House ways and means committee), that the IRR of CREATE went beyond the intent and spirit of the law and therefore the IRR being made as a basis for crafting the revenue memorandum circulars (of the Bureau of Internal Revenue) would appear as flawed and void from the beginning,” Panga said.
He added: “There was a big mistake that the BIR rendered ineffectual the cross border doctrine because the separate customs territory status of the ecozones was never repealed.
It’s not in keeping with the best practice of ecozones worldwide where the selling point of ecozones is how they’re able to bring in goods tax and duty- free.”
Panga said “it is not right” to put a cap of 17 years for VAT zero-rating because “eventually, locators will no longer be viable to operate in the Philippines.”
He said even with the 10 years sunset period, RBEs will not be viable.
“By the time they will graduate to the regular income tax rate, the rates in Asean countries would have been a lot lower. Unless the Philippines is able to achieve an income tax rate parity with the rest of Asean, then we can agree to these companies graduating to the regular income tax rate,” Panga said.
Under the IRR, the VAT zero-rating and exemption of RBEs shall apply for a maximum period of 17 years from the date of registration. Those registered prior to the CREATE Act , the VAT zero-rating on local purchases will only apply to goods and services that are directly attributable to and exclusively used in the registered project or activity of the RBE that us located inside the ecozones and freeports until the expiration of the 10-year transitory period.