By Erika Mae P. Sinaking
THE Supreme Court (SC) said domestic market enterprises (DMEs) registered under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act are entitled to Value-Added Tax (VAT) zero-rating on local purchases.
In an en banc decision made public on Sept. 29 and written by Associate Justice Mario V. Lopez, who has since retired, the SC struck down Rule 18, Section 5 of the CREATE Act IRR and BIR issuances — including Revenue Regulations No. 21-2022 and Revenue Memorandum Circulars No. 24-2022 and 49-2022 — which had limited VAT incentives to registered export enterprises (REEs).
“The issuances altered the provisions of existing law by carving out DMEs from those entitled to the VAT zero-rating incentive,” according to the ruling, declaring the rules “ultra vires” (beyond legal authority) and void.
The CREATE Act, signed in 2021, exempts all registered business enterprises (RBEs), including DMEs and REEs, from VAT on imports. It also allowed VAT zero-rating on local purchases of goods and services directly used in their registered projects.
Benjamin E. Antonio III, Subic Bay Freeport Chamber of Commerce, Inc. chairman, had mounted a legal challenge to the IRR and BIR rules, claiming they unfairly excluded DMEs from the exemption, forcing them to pay 12% VAT on purchases from local suppliers.
“There is no distinction between DMEs and REEs under the CREATE Act. All registered enterprises should enjoy the same benefits,” Mr. Antonio said in his filing.
His legal challenge was initially dismissed at the Regional Trial Court level, but the SC exercised its discretion and intervened due to the “strong public interest involved.”
The High Court ruled that government agencies cannot expand or restrict incentives beyond what the law permits. “The legislative power to grant or withdraw tax exemptions is vested exclusively in Congress,” it read.
Senior Associate Justice Marvic M.V.F. Leonen, in a concurring opinion, supported the SC’s deviation from normal procedure, noting the urgent need to correct the unlawful exclusion of DMEs.
The ruling places DMEs on equal footing with export enterprises in enjoying VAT zero-rating.
