Up to now, Japanese investors mostly in the Philippines' manufacturing sector are still awaiting the refund of value-added tax (VAT) credits totaling P200 billion from the government, a chamber official said.
Moving forward, Japanese firms in the country are "fully" supporting the passage of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill to fast-track VAT refunds, Japanese Chamber of Commerce and Industry of the Philippines (JCCIP) vice president and executive director Nobuo Fujii told Manila Bulletin on the sidelines of a business matching event on Friday, Sept. 13.
The CREATE MORE bill was aimed at addressing some of the problems that foreign investors supposedly encountered when the CREATE Law was enacted in 2021, at the height of the pandemic-induced economic recession. The bill has already hurdled the two houses of Congress, and is just awaiting the President's signature to become law.
No less than President Marcos himself had asked legislators to prioritize the passage of CREATE MORE. The President had reportedly received a flurry of complaints about CREATE, specifically on the refund of the 12-percent VAT slapped on imported production inputs, from foreign investors—especially the Japanese—during his many overseas trips.
These VAT refunds formed part of foreign investors' fiscal incentives to set up shop in the country.
Unfortunately, VAT refund claims have piled up since the implementation of CREATE three years ago.
Fujii claimed that with the CREATE Law in place, about 30 percent of prospective and current Japanese locators in the Philippines put on hold establishing presence here and expansion plans, respectively.
Some existing companies have even considered pulling out of the country because of this concern, he noted.
While ongoing VAT refund cases—the biggest of which involved Japanese trading giant Itochu Corp.'s subsidiary Dole Philippines—are currently being resolved with the help of the government, Fujii pointed out there's "still a big amount of money we cannot refund."
Under CREATE, VAT exemption on imports and VAT zero-rating on local purchases applied only to goods and services "directly and exclusively" used by registered projects.
Also, a tedious refund process in which investors shouldered administrative costs to prepare extensive documentary requirements did not help.
The CREATE Law's guidelines, issued and being implemented by the Bureau of Internal Revenue (BIR), had "affected the predictability, speed of lodging, high percentage of denial of VAT refund claims and, if approved, the length of time the refund is released and the availability of funds," according to a government document explaining the problem last year.
It was ironic because the CREATE Law had been intended as a relief to struggling businesses during the harder times wrought by COVID-19, but instead caused some troubles to foreign investors.
The Board of Investments (BOI) and the BIR last year both claimed that the VAT refund system was already streamlined and pending issues were being addressed.
Trade Undersecretary and BOI Managing Head Ceferino S. Rodolfo had said the BIR slashed supporting VAT refund documents to a minimum of nine and a maximum of 17 documents, from 30 previously.
The BIR also now allows non-submission of scanned copies of sales invoices or official receipts, while the government had reduced the number of offices that processed VAT refund claims.