Senator asks peers to review contradictions in gov’t enforcement of Corporate Recovery law

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A RESOLUTION that seeks to review the government’s enforcement of a law that extends fiscal relief to local and foreign corporations in the Philippines has been filed at the Senate.

Senator Ana Theresia N. Hontiveros-Baraquel in Senate Resolution 219 called on her peers to convene as an oversight committee to review the rules that enforce the Corporate Recovery and Tax Incentives for Enterprises Act.

The law’s implementing rules could block local companies from qualifying for exemptions from the value-added tax (VAT) and zero-rating on local purchases, she said.

The rules and Revenue Regulation No. 21-2021 appear to be inconsistent with the language and spirit of the National Internal Revenue Code, which is to make VAT exemption on imports and zero-rating on local purchases available to both export and domestic enterprises, she added.

On June 21, the Finance and Trade departments approved the rules that will enforce the law, modifying the scope of the tax incentives and exemptions.

Under section 5 of the rules, VAT exemptions and zero-rated sales only apply to goods and services used in registered projects of export enterprises for up to 17 years.

The law allows any registered businesses to apply for VAT exemptions and transactions traced to zero-rated sales — transactions made by VAT-registered taxpayers that do not result in any output tax.

Ms. Hontiveros noted that the rules have affected the cost of doing business for 212 domestic industries, while potentially discouraging local companies from registering with investment promotion agencies.

These state-run agencies seek to attract investors by linking them to local suppliers and companies.

The Corporate Recovery law, which took effect in April 2021, reduced the corporate income tax on domestic companies by 5 percentage points to 25%.

“This disparity has to be examined promptly, so that the intended effects of the law may be fulfilled and our already overwhelmed local economy can be prevented from collapsing,” Ms. Hontiveros said. “We can’t claim to be foreign investor-friendly while at the same disincentivizing foreign investments.” — John Victor D. Ordoñez

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