Supreme Court Clarifies VAT Incentive for Domestic Businesses Under CREATE Act
- Yasser Aureada
- Sep 29
- 2 min read
The Philippine Supreme Court has ruled that domestic businesses are entitled to the same value-added tax (VAT) incentives as export enterprises under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
In an en banc decision penned by retired Justice Mario V. Lopez, the Court struck down provisions in the law’s implementing rules and Bureau of Internal Revenue (BIR) issuances that had limited the VAT zero-rating incentive only to exporters, thereby excluding domestic enterprises.
Background: VAT Perks Under the CREATE Act
Enacted in 2021, Republic Act No. 11534 (CREATE Act) grants Registered Business Enterprises (RBEs):
VAT exemption on importation, and
VAT zero-rating on local purchases of goods and services that are directly and exclusively used in their registered project or activity.
The law defines RBEs to include both domestic market enterprises (DMEs) and registered export enterprises (REEs).
Importantly, the law makes no distinction between the two—both were intended to enjoy VAT incentives.
Regulations Initially Excluded Domestic Enterprises
Despite the law’s wording, the Department of Finance (DOF) and Department of Trade and Industry (DTI) issued an IRR (Implementing Rules and Regulations) limiting VAT zero-rating to exporters only.
The BIR reinforced this interpretation through:
Revenue Regulations No. 21-2022
Revenue Memorandum Circulars Nos. 24-2022 and 49-2022
This effectively excluded domestic enterprises from claiming the VAT incentive.
The Subic Bay Freeport Chamber of Commerce, Inc. (SBFCCI) and taxpayer Benjamin E. Antonio III filed a petition before the Court, arguing that these agencies went beyond what the CREATE Act allows.
Supreme Court’s Ruling
The Supreme Court ruled in favor of the petitioners, declaring the IRR and BIR issuances null and void.
Key points from the ruling:
The CREATE Act covers all registered business enterprises, whether domestic or export-oriented.
Government agencies cannot limit or expand the scope of the law through implementing rules.
Only Congress has the power to grant or withdraw tax incentives.
As a result, domestic market enterprises (DMEs) are now confirmed eligible for VAT zero-rating on their local purchases, just like export enterprises.
What This Means for Businesses
Cost savings: Registered domestic enterprises can now avail of VAT zero-rating on eligible local purchases, reducing costs.
Improved competitiveness: This levels the playing field with exporters.
Legal clarity: The ruling reinforces that the letter of the law prevails over administrative issuances, protecting businesses from undue restrictions.
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