By Jovee Marie N. Dela Cruz & Butch Fernandez
DESPITE a tight schedule before the June 5 adjournment, Congress hopes to endorse for President Duterte’s approval the new version of the Corporate Income Tax and Incentives Reform Act (Citira)—a measure that both economic managers and lawmakers agree will now focus on boosting economic recovery and luring more investments.
House Committee on Ways and Means Chairman Joey Sarte Salceda said at the weekend the new Citira, to be called the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), is “like a signal for countries seeking refuge from the US-China trade tensions, and from slower-growing economies that the Philippines will provide them economic asylum.”
“The new Citira is expected to pass before June ends, allowing firms to benefit from the CIT [corporate income tax] cut as early as July 2020,” said Salceda.
Finance Secretary Carlos Dominguez III, speaking at a Committee of the Whole hearing last week, had urged senators to pass the measure before adjourning, saying it’s the first major step for getting the Covid-devastated economy back on its feet, as it fast-tracks the CIT rate cuts, allows businesses to keep existing incentives longer and draws investors exiting other countries.
Asked for comments on Dominguez’s appeal, senators gave assurances over the weekend that priority will be given to passing the revised Citira before their fast approaching adjournment of sessions.
In a text message to the BusinessMirror, Senate President Vicente Sotto III affirmed they will give it their “best shot,” even as Minority Leader Frank Drilon said the minority bloc will not move to block the Palace-certified bill. However, he added quickly: “we will fiscalize.”
Asked if the Senate can still heed the plea of the Finance chief for lawmakers to pass the Citira before Congress adjourns on June 5, Senate President Pro Tempore Ralph Recto held out hopes this can be granted.
“Yes. We will also make improvements,” Recto said on Sunday but did not elaborate.
Sen. Juan Edgardo Angara, former Ways and Means committee chairman, exuded qualified optimism, though.
“It’s possible but it’s also rather tight, given only five session days left before the congressional recess,” he said in a text message.
For his part, Sen. Francis Pangilinan indicated that the minority bloc will not stand in the way of the timely approval of Citira before the upcoming congressional recess from June 6 to July 26.
“We will prioritize the lowering of corporate income taxes under the CREATE bill,” Pangilinan said in a separate text message to the BusinessMirror, referring to the consensus between the economic managers and lawmakers to fast-track the CIT cut to 5 percent—from 30 percent down to 25 percent—on the first year of implementation, instead of just 1 percent.
The Citira, which has two major components—the CIT rate cut and the rationalization of fiscal incentives—was passed by the House of Representatives in September 2019, but was pending in the Senate when the Covid-19 outbreak began and forced a recalibration of its key features. Salceda had said earlier the revisions crafted by House economists—to include the pandemic factor—will be introduced when the Senate and House meet in bicameral conference once the Senate approves Citira.
In the latest consultations between chambers, however, Salceda hoped there would be little need for convening a bicameral panel.
Pangilinan said that the other part of the CREATE (Citira’s new name) bill that’s also on their priority list is the provision allowing firms to retain incentives amid the economic slowdown.
“Yes. That, too, given the beating these corporations are facing in view of the economic downturn,” Pangilinan stressed.
Extended to June 5
The Office of the House Secretary General on Sunday announced that the plenary session will be extended until Thursday to tackle the chamber’s priority measures before it adjourns sine die next week, June 5. The CREATE bill is one of the priority measures of the lower chamber.
Moreover, Salceda said 16 senators have already expressed support for the passage of the proposed CREATE.
The lawmaker had said no bicameral conference committee meeting is needed if the Senate version of the bill is “fiscally sound.”
Also, Salceda said the proposed CREATE will now include key recommendations made by House members during conversations with the economic managers and in hearings of the Defeat Covid-19 Committee.
He said House members secured “commitments from the economic managers about amendments to lower corporate income tax, provide tax relief for small and medium enterprises that are incurring losses, and allow the country to compete for very attractive investments.”
Salceda credited “the efforts of the Speaker and the Majority Leader to be very proactive” for this development. “Remember, we were already holding consultations even before any recovery plan was in place. Speaker Alan [Peter Cayetano] and Majority Leader Martin [Romualdez] were very wise to assign us our duties in the House very early. It allowed us to act very swiftly and get the points of the House across effectively.”
Opportunity cost
Salceda also explained that the amendments should once and for all end the “opportunity costs of being on the fence with Citira.”
“I’m an economist. I think in terms of opportunity costs. The House approved this in 2019. If we enacted it before that year ended, I estimate that we would have had a jobs cushion of between $5 billion and $12 billion in new investments. That’s what used to rile me up about those who delay the passage. They think in terms of what it will cost them in accounting costs —and I dared them to show me, because I don’t believe there would have been losses for most firms—but not in terms of the lost opportunities to do business with new investors in the country,” Salceda said.
“Anything that adds new business to the Philippines while preserving the existing economic base is a net benefit to the people. This bill definitely does it. Anything that delays that also delays the benefit. New potential investors do not have all the time in the world to wait for us to pass this reform, especially those in search of new homes. We should act at once. That’s why the House will adopt the Senate version if it is fiscally sensible” Salceda added.
The new proposal will now reduce corporate income taxes faster, from 1 percent every year to 5 percent immediately on the first year, and then 1 percent until it reaches 20 percent.
It will also be providing a net operating loss carry over (Nolco) benefit that is available to 99 percent of corporate taxpayers.
“Essentially, non-large taxpayers will be allowed to carry-over period their net losses in 2020 for two more years. That’s very useful for those who were not able to anticipate the size of losses they would incur this year, and it’s also an incentive to survive basically, because you have to keep operating for the whole validity of the Nolco benefit,” Salceda added.
Also, Salceda said the sunset period for activities currently receiving incentives is now also extended, from the previous two to five years, to four to seven years.
The Fiscal Incentives Review Board (FIRB), whose functions will be expanded under the bill, will also have the power to recommend the grant of longer tax incentives and non-fiscal incentives to deserving companies.
“A powerful amendment is the ability of the FIRB to mix and match suitable fiscal and non-fiscal incentives for deserving investments. The House version first came up with that idea of a mix-and-match type of fiscal incentives system in the original Citira, but under the new version, this power is more pronounced, since the FIRB can now also recommend the grant of non-fiscal incentives. It doesn’t get much attention, so I advise the economic team to drum it up more and show examples of which firms would qualify,” said Salceda.
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