Resolving uncertainty on B2B local sales
By Senen Quizon and Roi Borja
The Create More (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) Act or Republic Act 12066, was signed into law in November 2024, introducing further reforms to the Philippine tax regime and fiscal incentive framework institutionalized by the Create Act.
While Create More is aimed at making the Philippines more competitive in the global market, its enactment may have brought upon some struggles to Filipino taxpayers who grapple with properly interpreting the amended provisions and applying them into the realities of their respective businesses.
One of the biggest pain points that domestic market enterprise (DME) taxpayers have identified is the emergence of input value-added tax (VAT) that can neither be refunded nor be used as a credit, since DMEs do not enjoy VAT zero-rating incentives unlike other registered business enterprises (RBEs) such as export-oriented enterprises.
In the Philippine tax system, VAT operates on a credit invoice mechanism where businesses collect VAT on their sales (output VAT) and at the same time incur VAT on their purchases (input VAT). Input VAT represents the tax paid on goods, services, or properties acquired for business use while output VAT is the tax collected from customers on taxable sales.
At the end of each taxable quarter, a VAT registered entity offsets its input VAT against its output VAT. If the output VAT exceeds the input VAT, the difference is considered as a tax liability and is remitted to the Bureau of Internal Revenue (BIR). Conversely, if input VAT is higher, the taxpayer may carry over the excess to the next period or, in the case of zero-rated transactions such as export sales, apply for a refund or tax credit. This flow ensures that VAT is ultimately borne by the final consumer, while businesses act as intermediaries in collecting and remitting the tax.
Under the Implementing Rules and Regulations of the Create More Act, RBEs are classified into three groups: registered export enterprise (REE), high-value domestic market enterprise (HVDME), and DME. The first two types, REE and HVDME, enjoy VAT zero-rating on their purchases, regardless of location of the sale of goods or services. On the other hand, purchases by DMEs are subject to 12-percent VAT on the net book value of the capital equipment, raw materials, spare parts, or accessories thereof.
Further to this, local sales of all RBEs are subject to 12-percent VAT unless otherwise classified as exempt or zero-rated. Accordingly, under Revenue Regulations (RR) 09-2025, the burden of remitting the output VAT in local business-to-business (B2B) sales of RBEs is shifted from the seller to the buyer. As a result, the entity holding the input VAT credits (the seller) is left unable to offset nor refund the same, creating unrecoverable costs that increase the effective tax burden and reduce liquidity.
On 16 February 2026, the BIR issued RR 01-2026 to change and clarify certain provisions of RR 09-2025. The new regulations narrowed the coverage of VAT-able transactions, aligning the implementing rules more closely with the statutory language of the Create More Act. Under the new issuance, only sales that do not qualify as export or zero-rated transactions are subject to VAT, thereby resolving prior ambiguities in the application of the law.
Importantly, RR 01-2026 amended the treatment of B2B transactions involving DMEs. Local sales of DMEs are no longer subject to the buyer’s remittance of VAT. Instead, VAT-registered DMEs should file and pay the VAT due in the same manner as regular VAT taxpayers.
In effect, RR 01-2026 reconciled inconsistencies between RR 09-2025 and the law, providing clearer guidance to taxpayers and reducing the risk of unrecoverable input VAT. This amendment harmonizes administrative practice with legislative intent and provides greater clarity for businesses operating under the Create More framework.
The Create More Act is definitely a step forward in modernizing the Philippine tax system; however, the constant changes in tax rules add a major administrative responsibility to taxpayers. Businesses have to keep updating their accounting systems and processes and even small mistakes in interpreting the law’s provisions can lead to disallowed expenses, deficiency assessments, and penalties.
Ambiguities and inconsistencies between regulations and practical applications and the burden of compliance all weigh heavily on taxpayers. What is needed now is clearer guidance from the BIR, consistent application of Supreme Court and Court of Tax Appeals rulings, and simpler processes to make sure the law achieves its goal: boosting global competitiveness while protecting taxpayer rights.
Senen Quizon is the business tax leader at Deloitte Philippines, a member firm of the Deloitte network. Roi Borja is an assistant manager with the Tax & Legal practice at Deloitte Philippines.
