MANILA – The Supreme Court (SC) has ruled that domestic market enterprises are entitled to enjoy the zero-rated Value-Added Tax (VAT) incentive under Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

In a decision penned by retired Associate Justice Mario V. Lopez, the SC en banc declared Rule 18, Section 5 of the CREATE Act’s Implementing Rules and Regulations (IRR), along with several Bureau of Internal Revenue (BIR) issuances, void for unlawfully restricting which businesses may avail of the VAT incentive.

The CREATE Act, enacted in 2021, grants registered business enterprises (RBEs) VAT exemption on importation and VAT zero-rating on local purchases of goods and services directly and exclusively used in their registered project or activity. Covered RBEs include both domestic market enterprises and registered export enterprises.

However, the Department of Trade and Industry (DTI) and the Department of Finance (DOF) issued the IRR limiting the incentive only to export enterprises. The BIR followed with Revenue Regulations No. 21-2022 and Revenue Memorandum Circulars No. 24-2022 and 49-2022 reiterating the exclusion.

The Subic Bay Freeport Chamber of Commerce, Inc. and taxpayer Benjamin E. Antonio III petitioned the courts, arguing that the IRR and BIR issuances unlawfully deprived domestic businesses of benefits granted by law. While the Regional Trial Court dismissed the case for lack of jurisdiction, the SC exercised its discretion to resolve the issue due to its significant public interest.

The SC ruled that the IRR and BIR regulations added restrictions not found in the CREATE Act, stressing that government agencies cannot go beyond the provisions of the law. Since the CREATE Act expressly covers all RBEs, the Court said domestic market enterprises cannot be excluded from VAT incentives.

Senior Associate Justice Marvic M.V.F. Leonen, in a concurring opinion, agreed that the case warranted an exemption from the strict rule on exhaustion of administrative remedies, noting the compelling public interest. He emphasized that the issuances were ultra vires for introducing qualifications beyond what the law provides.