THE Corporate Recovery and Tax Incentives for Enterprises Act (Create Act) introduced amendments to our National Internal Revenue Code (Tax Code), which were aimed at eliminating tax uncertainty, offering tax assistance to struggling enterprises affected by the Covid-19 pandemic, and streamlining the complex and fragmented tax incentives system in the country. Tax policies aimed at enticing investments were implemented with the goal of advancing the national economy and enhancing our global competitiveness.
In an effort to bolster the amendments introduced by the Create Act, the House of Representatives seeks to enact further amendments to the Tax Code. This effort is encapsulated in House Bill 8968, or the "Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act (Create More Bill)."
The Create More Bill aims to establish a simplified tax refund system for registered business enterprises (RBEs) and implement a risk-based classification of claims and audit framework in collaboration with the Commission on Audit. Additionally, it will enable the collection of the local government unit (LGU) share from 5 percent Special Corporate Income Tax (SCIT) through the investment promotion agencies rather than being directly remitted to local government units.
Significantly, the Create More Bill clarifies the VAT regime of RBEs and effectively seeks to restore the VAT zero-rating of suppliers of registered export enterprises or REEs.
To recall, Republic Act (RA) 10963, or the "Tax Reform for Acceleration and Inclusion Law (Train Law)," amended the Tax Code to provide that the VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services which are directly and exclusively used in the registered project or activity by an RBE. The proposed amendment under the Create More Bill eliminates the requirement for "direct and exclusive use" and instead lists the transactions of RBEs, which should be VAT-exempt or zero-rated, as follows:
Exempt from VAT:
a. Sales to and sales by an RBE located in a freeport or special economic zone and pursuing purely registered activity within that zone
b. Sales to REEs by suppliers whose sales to REEs exceed 70 percent of their total sale
c. Sales by RBEs, whether domestic or export, currently availing of the SCIT to REEs
d. Sales by RBEs of VAT-exempt imported capital equipment, raw materials, spare parts and accessories to REEs.
VAT zero-rated:
a. Sales to REEs by suppliers
b. Sales by REEs currently availing of income tax holiday to REEs
c. Sales by suppliers within customs territory to existing REEs
d. All other purchases by RBEs used for their registered project or activity.
As a positive move, the Create More Bill, thus, effectively proposes to restore zero-rating to sales by suppliers to REEs, without any qualification as to the utilization of the input VAT arising from the purchase of goods and services.
Further, on top of the incentives previously granted by the Create Act, the Create More Bill proposes that enterprises opting to avail of the Enhanced Deduction Regime be afforded a further deduction of 50 percent for power expenses for the next five years. This is in addition to the existing additional deduction of 50 percent. Furthermore, those under the Enhanced Deduction Regime are entitled to a reduced income tax of 20 percent of taxable income.
The bill seeks to allow the IT-BPO sector registered with ecozones, Board of Investments, and Regional Board of Investments to implement work-from-home arrangements, with a requirement for a minimum on-site workforce of 30 percent. Additionally, the bill proposes to clarify the transitory provision by explicitly exempting transitory RBEs under the 5 percent gross income earned regime from all national and local taxes, including VAT and duty incentives.
Lastly, the bill grants the President the authority to grant incentive packages provided under Title XIII of the Tax Code autonomously. This effectively eliminates the role of the Fiscal Incentives Review Board (FIRB) in assessing and recommending fiscal incentives. Currently, the President holds residual power to grant incentives to enterprises, but such decisions are typically guided by the criteria and recommendations put forth by the FIRB. This proposed amendment, however, will grant fiscal incentives without going through the FIRB process.
With the approval of the Create More Bill urgently sought, it is currently undergoing deliberations with the House Committee on Ways and Means, and taxpayers are on the watch for further developments on the proposed measures.
Lew Earvin H. Manarin is a CPA-lawyer and an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any questions or comments regarding this article, you may email the author at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com.
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