Tax Articles

The recently released Implementing Rules and Revenue Regulations aim to clarify the provisions of CREATE MORE. However, some of these issuances introduce new concepts and procedures that appear inconsistent with the law. I hope the Bureau of Internal Revenue will address the following concerns, which have raised questions among many stakeholders:

First, the introduction of the Motion for Reconsideration (MR) in refund claims is a significant shift under CREATE MORE. Previously, taxpayers had no option but to file an appeal with the Court of Tax Appeals (CTA) if their refund claim was denied. Now, for VAT and excise tax refunds on petroleum, the BIR has the opportunity to reconsider its decision—though only on very limited grounds.

An MR is only allowed if the issue raised is a matter of law, not fact. Additionally, taxpayers cannot introduce new evidence or documents, nor can they revisit legal issues already addressed in the Notice of Denial. This raises an important question: What happens if a taxpayer has no new legal issues to present? Must they proceed directly to the CTA? If so, could the CTA rule that the appeal is premature due to the absence of the required MR?

This situation creates uncertainty. While the BIR enforces the new regulations, the CTA will also consider the law itself, which does not impose the same limitations. Taxpayers could face jurisdictional challenges from both the BIR and the CTA, leading to potential procedural roadblocks regardless of the path they take.

The BIR is given only 15 days to decide on an MR. In an ideal setting with ample resources, taxpayers could be assured of a thorough review. However, given the realities of administrative capacity, the effectiveness of this new procedure remains to be seen.

Second, the Implementing Rules and Regulations (IRR) of CREATE MORE state that Registered Business Enterprises (RBEs) that were already enjoying duty exemption on imports, VAT exemption on imports, and VAT zero-rating on local purchases before the original CREATE Law took effect—regardless of market orientation—may continue to do so until December 31, 2034.

This raises an important question: Does this mean that the provisions of CREATE MORE regarding the imposition of VAT on local purchases by Domestic Market Enterprises (DMEs) will not apply to those registered with an Investment Promotion Agency, such as PEZA, before the original CREATE law’s implementation? In other words, should there be a distinction in VAT treatment between DMEs registered before the CREATE and those registered afterward?

Third, as Atty Fulvio Dawilan discussed in this space last week, why is the BIR imposing different VAT payment methods on local sales by RBEs? If an RBE sells to a local entity, it must first determine whether the buyer is a business or an end consumer. If the RBE is selling to a business, the buyer is required to withhold and remit the VAT. However, if the RBE is selling to an end consumer, the RBE itself is responsible for remitting the VAT.

Wouldn’t it be more practical to apply the same VAT rules as ordinary local sales in both cases, especially since the cross-border fiction has already been abandoned? Requiring the use of BIR Form 0605 for each transaction, along with quarterly VAT returns, could lead to confusion and unnecessary administrative burdens for both the BIR and taxpayers.

There are undoubtedly many more questions surrounding the Revenue Regulations recently issued by the BIR. Ideally, these concerns will be addressed through amended regulations or revenue memorandum circulars. A tax system that is clear and efficient benefits not only taxpayers but also the BIR itself.