BIR Issuances – RMC 21-2024

Registered Export Enterprises (REEs) enjoying the 5% GIT or SCIT located within freeport zones or special economic zones, which directly import petroleum products and do not have other activities subject to VAT, shall be permitted to register as a VAT taxpayer to allow them to file for refund of input VAT incurred from importation of petroleum attributable to zero-rated sales pursuant to RR No. 4-2022.

Revenue Memorandum Circular (RMC) No. 21-2024

7 February 2024

The BIR issued this circular to address the concern pertaining to the application of the answer in Q & A No. 31 of RMC No. 24-2022, as revised by RMC No. 49-2022, in relation to RR No. 4-2022, implementing Section 295 (F) of the Tax Code of 1997, as amended by Republic Act No. 11534 or the CREATE Act.

The revised answer in Q & A No. 31 pursuant to RMC No. 49-2022 required the following types of Registered Export Enterprises (REE) to change their registration status from value-added tax (VAT)-registered entity to non-VAT:

1. Within two (2) months from the expiration of their Income Tax Holiday (ITH): Those whose sales are generated only from the registered activity and have shifted from ITH to 5% Gross Income Tax (GIT) or Special Corporate Income Tax (SCIT) regime; and

2. Within two (2) months from the effectivity of RMC No. 49-2022: Those enjoying 5% GIT regime but are still VAT-registered at the time the CREATE Act took effect.

The said RMC likewise provides that if the taxpayer has other activities other than those registered with the Investment Promotion Agency (IPA) that are subject to VAT (i.e. VAT at 12% and 0%), it shall remain as a VAT taxpayer and shall report the sales in the VAT returns as VATable, zero-rated and/or VAT-exempt, as the case may be.

On the basis of the said guidelines, some importers of petroleum products located in freeport zones or special economic zones which do not have other activities other than those registered with the IPA changed their registration status from VAT-registered entity to non-VAT in order to avail of either the 5% GIT or SCIT regime.

However, a disparity of treatment inadvertently arose between petroleum importers located inside the freeport zone or special economic zone and those located within the customs territory in the application of the guidelines in Q & A No. 31 of RMC No. 49-2022 in conjunction with the intention of Section 295 (F) of the Tax Code of 1997, as amended.

Accordingly, REE petroleum importers, including those located inside the freeport zones or special economic zones, were required to pay the applicable duties and taxes on their import transactions including VAT. Correspondingly, they may be refunded of the duties and taxes for the direct or indirect export of petroleum products, and/or tax-exempt sales pursuant to RR No. 4-2022.

However, under Section 112 (A) of the Tax Code of 1997, as amended, provides that only VAT-registered persons or entity may file for VAT refund.

Therefore, the BIR clarifies that REEs enjoying the 5% GIT or SCIT located within freeport zones or special economic zones, which directly import petroleum products and do not have other activities subject to VAT, shall be permitted to register as a VAT taxpayer to allow them to file for refund of input VAT incurred from importation of petroleum attributable to zero-rated sales pursuant to RR No. 4-2022.

Further, BIR emphasized that this circular shall be APPLIED PROSPECTIVELY. Previous transactions of petroleum products importers located in freeport zones or special economic zones, which changed their status from VAT to non-VAT pursuant to RMC No. 49-2022, are not covered by this circular.

Copy of the RMC can be accessed below.