With just more than a week left before Congress adjourns, Finance Secretary Carlos G. Dominguez III urged the Senate to pass the economic team’s proposal to drastically cut the corporate income tax (CIT) rate from 30 percent to 25 percent this year along with other “investor-friendly measures.”
Through the urgent passage of the “calibrated” Corporate Income Tax and Incentives Rationalization Act (Citira), Dominguez, who heads the government’s economic team, said Congress can help stimulate the economy amid the Covid-19 pandemic given that the measure would free up almost P42 billion in business capital for 2020 alone and P625 billion over the succeeding five years.
The former Citira was renamed by the economic team as Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) as this was integrated into the country’s economic recovery program.
“The large and immediate rate cut in the second half of 2020 also sends a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains,” said Dominguez in his recent report to the Senate on the government’s ongoing socioeconomic efforts to defeat the Covid-19 contagion.
Should Congress pass the measure before it adjourns next month, the across-the-board CIT
reduction can be implemented by July this year.
Described by Dominguez as “one of the largest economic stimulus measures in the country’s history,” CREATE seeks an outright 5-percent tax cut in 2020 and a 1-percentage-point reduction in the CIT each year starting 2023 until it reaches 20 percent by 2027.
Unlike the revenue-neutral former version of the bill, Dominguez said CREATE is now “revenue-negative”—intended to leave more resources in the hands of business owners to fund operations and retain employees.
Aside from the immediate reduction in the CIT rate, existing investors will also continue to enjoy their existing incentives in the short to medium term.
“For existing investors currently enjoying the gross income earned [GIE] incentive, our proposal is not to change anything in their incentives in the next four to nine years to give them time to adjust to and recover from Covid. As we keep on repeating, after this initial transition, we are not taking away incentives as businesses can always apply again for incentives under the new regime,” Acting Socioeconomic Planning Secretary Karl Chua said at the recent Sulong Pilipinas workshop.
Other salient provisions of the corporate tax reform will be retained, such as targeting incentives to support investment in the countryside and expanding the role of the existing Fiscal Incentives Review Board, which will streamline the management and governance of tax incentives.
An enhanced net operating loss carryover, extended from three to five years for losses incurred in 2020, is also part of the proposal and will be applicable to all businesses that are not large taxpayers.
Aside from CREATE, Dominguez said they are also encouraging both the House and the Senate to pass several pieces of pending legislation, such as the proposed Philippine Economic Stimulus Act and the Philippine Financial Industry Resiliency Act.
He also told senators they would like to also infuse capital in the banks, particularly in the Land Bank of the Philippines and the Development Bank of the Philippines, as well as the Philippine Guarantee Corporation (PhilGuarantee).
Under the P131-billion Bayanihan II proposal of the Cabinet-level Development Budget Coordination Committee, P50 billion will be infused to LandBank, DBP and Small Business Corporation for wholesale lending and equity infusion through a joint venture, while P20 billion will be infused for credit guarantee through PhilGuarantee.