THE Supreme Court has upheld the law granting zero Value Added Tax on local purchases and VAT exemption on importations for all registered business enterprises or RBEs.
In a ruling dated February 4, 2025, the Court en banc, through Associate Justice Mario Lopez, declared Rule 18, Section 5 of Republic Act 11534, or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act’s IRR and several Bureau of Internal Revenue issuances “void” for “unlawfully limiting” which business could avail of the VAT incentive.
The law, which was passed in 2021, grants RBEs VAT exemption on importation and VAT-zero rating on all local purchases of goods and services that are directly and exclusively used in their registered project or activity.
RBEs include both domestic market enterprises (DME) and registered export enterprises (RES).
But the Department of Trade and Industry and the Department of Finance later issued the IRR, excluding domestic market enterprises from enjoying zero-rated VAT incentives on their business purchases.
The Bureau of Internal Revenue followed with the issuance of Revenue Regulations No. 21-2022 and Revenue Memorandum Circulars No. 24-2022 and 49-2022, which clarified that only registered export enterprises were entitled to the VAT incentive.
With this, the Subic Bay Freeport Chamber of Commerce, Inc. (SBFCCI) and taxpayer Benjamin E. Antonio III filed a petition for declaratory relief, arguing that the IRR and the BIR regulations unfairly excluded domestic market enterprises from the benefits granted by the law.
The en banc decision sided with SBFCCI and Antonio, as it held that the IRR and the BIR regulations were invalid for adding restrictions not found in the Create Act.
It added that the law clearly covers all RBEs, including domestic market enterprises, and that the DTI and DOF cannot go beyond what the law allows.
The SC stressed that since the law includes domestic businesses as RBEs, the IRR cannot exclude them from receiving the VAT incentives.
“We stressed that the power to promulgate rules in the implementation of a statute is necessarily limited to what is provided in the legislative enactment. Its terms must be followed for an administrative agency cannot amend an act of Congress. Thus, the rule-making power must be confined to details regulating the mode or proceeding to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. If a discrepancy occurs between the basic law and an implementing rule or regulations, the former prevails,” the en banc ruled.
With this, the en banc held that Rule 18, Section 5 of the CREATE law and the BIR issuances insofar as they limited the VAT-zero rating on local purchases of goods and services to RES are ultra vires, or acting beyond one’s legal power or authority.
“They altered the provisions of existing law, the Create ACT, by carving out DMEs from those entitled to the VAT-zero incentives,” it added.
