Clark investors want IRR of CREATE Act, BIR issuances suspended

CLARK FREEPORT – Investors here have warned that their viability and competitiveness would be in peril if the government does not suspend the Implementing Rules and Regulations (IRR) of the so-called Create Act, along with two issuances of the Bureau of Internal Revenue.

In a Manifesto, the Clark Investors and Locators Association (CILA) branded as “unfair and inequitable” some of the provisions of the IRR that was crafted by the Department of Finance (DOF). The organization said the questionable provisions of the IRR run counter with the intent of Republic Act 11534 or the CREATE Act passed by Congress on February 3, 2021. 

CILA also assailed BIR issuances Revenue Regulations 21-2021, and Revenue Memorandum Circular 24-2022 that were issued on December 3, 2021 and February 23, 2022, respectively.

The Manifesto was issued during the very first General Membership Meeting of CILA this year, held Monday, March 27, with Sen. Risa Hontiveros serving as guest of honor and speaker. 

The organization fears that there will be “massive opportunity costs for the Philippine economy in terms of job creation, foreign direct investments and exports.” 

As of December 2022, there are 1,096  foreign and local investors here. Possible closure of Clark enterprises would also jeopardize around 128,000 jobs, which CILA said would definitely put a setback to the nation’s economy as Clark Freeport investor-firms have combined investments of US$5.42 billion while the exports have been valued at US$5.47 billion.

These assailed revenue regulations issued by the BIR “went beyond bounds and are contrary to the original intent of the CREATE Act”, the Manifesto stated. CILA echoed this observation first made by Rep. Joey Salceda, chairman of House and Ways and Means Committee, Rep. Gloria Macapagal-Arroyo, Senator Risa Hontiveros, Senator Aquilino Pimentel, Jr. and former Justice Elpidio Vega, Head of the Office for Government Corporate Counsel. 

“We continue to make an appeal for the government to cure the situation by ordering the review and amendment of the IRR and the immediate suspension of RR-21-2021, RMC 24-2022 in order to preserve the original intent of the CREATE Act.” 

“While the CREATE Act passed by Congress, extended a sunset provision of 10 years  for all registered business enterprises (RBEs) currently enjoying fiscal perks, the IRR that was crafted by the DOF introduced a distinction between export enterprise (EE) and domestic market enterprise (DME) and prescribed different treatments for each category.  This has resulted in the loss of fiscal perks for several RBEs that were supposed to be covered by the CREATE Act,” the Manifesto furthered. 

The aforesaid BIR issuances have led to the premature imposition of VAT on investors in Clark and other Freeport and Economic Zones whose locators are to pay only 5 percent of their Gross Income Earned (GIE) as part of the incentives.   

These subsequent issuances after the adoption of IRR “negated the cross-border doctrine and created enormous confusion among investors and taxpayers alike and may lead to divergent interpretations in the treatment of VAT and all other related taxes.”

Failure on the part of government to immediately address this conflict with the CREATE Act may, the CILA added, lead to “further erosion of the Philippines’ competitiveness in comparison to its ASEAN neighbors and other comparative economies and the exclusion of small and medium enterprises (SMEs) outside of the freeport zones from participating in the global value chain.”

For her part, Senator Hontiveros said that the IRR and said BIR issuances run counter to the intent of the CREATE law.

“I believe this is a serious issue, and risks driving investments away from the country, and deviates from the policy embodied in the CREATE Law which is, among others, to attract investments by developing a more responsive and globally-competitive tax regime, “ she said in her speech at Widus Hotel here. 

“The deviation of the aforementioned issuances from the intent of the CREATE Law risks directly and adversely affecting the cost of doing business for domestic industries,” she added.

Hontiveros, together with Rep. Gloria Macapagal-Arroyo at the House of Representatives, has championed the cause of Clark locators. She has filed a resolution that calls for the congressional oversight committee on tax reform program to address the conflict. 

Arroyo, on the other hand, has filed a separate resolution that urges the House Ways and Means Committee to look into the cross border doctrine that should apply at Freeports which are separate customs territory.  The resolution stated that that the cross border doctrine has been rendered “ineffectual and inoperative” and is inconsistent with the Create Act.