THE “recalibrated” tax reform package now known as Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) is seen to produce at least 1.1 million jobs over five years and trigger a V-shaped recovery for the country’s economy next year.
According to House Ways and Means Committee Chairman Albay Rep. Joey Salceda, the number of jobs to be produced as a result of the passage of the CREATE bill—formerly known as Corporate Income Tax and Incentives Rationalization Act (Citira)—will be equivalent to half of the lower end of his estimates that 2.2 million to 4.4 people will be unemployed this year amid the Covid-19 pandemic.
“I think a good strategic objective would be recover at least 50 percent of that this year; let’s recover at least 50 percent. That would go for something like 1.1 to 2.2 million jobs,” Salceda told finance reporters in a virtual press conference on Tuesday.
The economist-lawmaker also sees the CREATE bill contributing an additional 1.2 percent per year in the country’s GDP growth.
He also expressed optimism that the country can hit 8-percent growth next year given the base effect.
The Cabinet-level Development Budget Coordination Committee is projecting the country’s economy to grow by 7.1 percent to 8.1 percent by 2021. For this year, the DBCC expects the economy to contract by 2 percent to 3.4 percent in what could be the worst GDP growth rate of the country since the 6.9-percent GDP contraction in 1985.
“I think we need CREATE in order to trigger a V-shaped recovery next year,” he added.
With just a few session days left before Congress adjourns sine die, both Senate Ways and Means Committee Chairman Pia Cayetano and Salceda said their colleagues have also expressed support to the bill.
The Citira bill was approved by the House of Representatives last year and is awaiting approval in the Senate. It has also been certified as urgent by President Duterte in March.
“If that would not be passed in the next five session days, then the commitment is to really pass it as soon as we resume because I believe that more than a majority of the senators are supportive. It’s just a question of what bills have to be prioritized as I mentioned because there’s only five remaining days but I think I can say candidly that it’s a question of do we pass it in June or August,” Cayetano said in the same press conference.
For his part, Salceda reiterated that the House is willing to adopt the Senate version of the modified Citira to fast-track the approval of the measure as long as it is fiscally sound.
But should Congress fail to pass the measure, Finance Secretary Carlos G. Dominguez III said there is a possibility the President may call Congress to a special session to discuss the passage of urgent bills.
“Well, it would be best if we pass it now. That’s the ideal. However, there is really also the option which we haven’t discussed at length but just briefly of the President holding the legislature to session to address the urgent bills that are pending and that have been filed already by the different houses, but that’s a possibility. Again, it hasn’t been discussed at length with the administration nor with the legislature,” Dominguez said.
Meanwhile, Dominguez said now is the best time to pass CREATE, designed to be the largest fiscal stimulus program for businesses in the country’s history.
The recalibrated measure, he said, aims to squarely meet the challenges that enterprises face in the time of the pandemic by addressing most of the concerns by business and industry groups.
“Hence, there is no better time to reform our corporate income tax [CIT] system and modernize our fiscal incentives than now. This could be the most important economic reform in decades. As the statements of our partners in industry and civil society show, the economy can no longer bear any delay in this reform. Now is the time do it,” he said.
The CREATE seeks an outright cut in the country’s CIT rate from 30 percent to 25 percent, making it “the first-ever revenue-eroding package proposed by the Department of Finance (DOF).”
The country’s CIT rate of 30 percent is the highest in the region.
The CIT will be reduced further by 1 percentage point every year from 2023 to 2027 until it reaches 20 percent under the bill.
The government’s losses due to the reduction in CIT may reach at least P667 billion between 2020 and 2027, according to the DOF.
With the outright cut in the CIT rate to 25 percent by July this year, the government is expecting revenue losses of P42 billion for this year. Between 2021 and 2025, the government is projecting total revenue losses to reach P625 billion. The DOF has yet to release the specific projections on the revenue impact of CIT reduction for 2026 and 2027, when CIT is expected to further decrease.
The CREATE bill also extends the net operating loss carryover (Nolco) for non-large taxpayers from the current three years to five years, which will be credited for losses incurred in 2020.
Several business groups have earlier expressed support to the drastic cut in the CIT rate to 25 percent this year.
The Makati Business Club (MBC) also urged Congress for the swift passage of the bill to end two years of uncertainty for investors.
However, MBC urged the DOF and Congress to add five years to the sunset provisions in Citira for existing investors, and offer new investors at least 10 years, given the impact of Covid-19.
Under the CREATE bill, there will be a longer sunset transition period for firms currently enjoying the special rate of 5 percent on gross income earned (GIE) incentive.
A transitory period of four years is being proposed for those companies enjoying the GIE incentive for more than 10 years, sunset period of five years for those enjoying the GIE incentive for five to 10 years, seven-year transition period for firms enjoying GIE below five years and nine-year sunset period for 100 percent exporters with at least 10,000 employment and footloose projects or activities.
But Dominguez told reporters: “Right now, I think our proposal is already very generous as it is.”
Salceda added he is not keen on adopting the proposal of MBC, arguing that investors could opt to switch to the new framework.
“Yung five years, sagad na ako… Pwede naman sila mag-switch dun sa bago e. Kitang-kita naman ang spirit of Citira is toward attracting new investment. So kung naliliitan sila sa additional two, gusto pa nila ng additional five…I think they could easily get the same amount of fiscal risk adjusted financial rewards by considering the switching to the new attraction…,” he said.
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