MANILA, Philippines — Investments at the Clark Freeport Zone may diminish if the government does not address locators’ concerns over a tax regulation, according to the Clark Investors and Locators Association (CILA).
In an email interview, CILA president Cristopher Magdangal explained that Congress has declared a 10-year status quo in all tax respects in relation to the CREATE Law.
“This period was disrupted by the new regulations.The regulations also disrupted the value added tax regime of both exporters and indirect exporters; it is evident that when indirect exporters are adversely affected, even exporters are adversely affected,”Magdangal told The STAR, referring to the implementing rules and regulations (IRR) of the CREATE Law, and Revenue Regulation 21-2021 and Revenue Memorandum Circular 24-2022 issued by the Bureau of Internal Revenue (BIR).
According to the group, there are only a few locators at the Clark Freeport Zone that are no longer considering expanding operations and others are reflecting on relocating from the Philippines as they expressed concern over the regulations, which effectively invalidated the cross-border doctrine,the rationale for the existence of freeport zones such as the Clark, Subic Bay and others.
“The removal of zero rating for indirect exports will prejudice local Small and Medium Enterprises (SMEs) who desire to participate in the global value chain if its goods or service sales in the freeport zones are not considered as constructive or indirect export,”the groups said.
It stressed that the additional liability to VAT and additional income taxes will make it cheaper for exporters to source inputs from suppliers outside the country thereby reducing the local component of our exports.
Anticipating the ill effects of a possible abrupt change in the tax characterization of indirect exporters, Congress provided for a 10-year status quo for the freeport zone,’according to CILA.
“We understood that the intent of Congress was to prevent any change for 10 years, especially because of the uncertainty that the COVID and subsequent world events would produce,” CILA said.
“Thus, the regulations which limit VAT exemptions to products and services directly and exclusively used in their production of goods and services without proper definition of what constitutes such services, will lead to confusion on how to determine criterion and will be a glaring opportunity for corruption,” it said.