Ibon: DOF tax proposal won’t create benefits

The Department of Finance’s (DOF) proposed Corporate Recovery and Tax Incentives for Enterprises Act (Create) will most likely not benefit 34.7 million people that are employed in micro enterprises and unregistered non-large firms and non-enterprise workers, according to Ibon Foundation Inc.

The non-profit think tank’s Executive Director Sonny Africa said on Thursday that the tax reform package that mainly seeks to bring down the corporate income tax rate and rationalize incentives may only benefit 6.4 million workers under large firms and small medium enterprises.

In Tagalog, Africa said they see Create actually cover only a small segment of the population, which he pegged at 6.4 million. “’Yung actually mako-cover ng Create ay maliit na bahagi lamang ng populasyon: in terms of employment, 6.4 million employed lamang ang actually maaabot ng Create.”

Important point

HE said this is an important point that’s glossed over in the presentation of the government’s economic recovery program, which particularly excludes the 35 million that won’t benefit from Create.

Mahalaga rin ’tong punto kasi kung pinapalabas na sobrang sentro na bahagi ng economic recovery program ng gobyerno ang Create—’yung mismong disenyo niya—at most ang maabot lamang ay 6.4 million na employed sa Pilipinas, leaving 35 million employed na hindi rin actually matutulungan ni Create,” Africa said on Thursday in his group’s online forum.

While he said there may be some micro, small and medium enterprises (MSMEs) that may benefit from Create, he surmises that 75 percent of the benefits would most likely go to nearly 2,000 large enterprises.

Dubbed by the finance department as the “one of the largest economic stimulus measures in the country’s history,” Create seeks an outright 5-percentage point cut in the corporate income tax (CIT) to 25 percent rate this year from the current 30 percent. This would be followed by a yearly 1-percentage point reduction from 2023 until the CIT reaches 20 percent in 2027.

The passage of the measure would mean at least P667 billion in revenue loss for the government between 2020 and 2027.

Negligible impact

This revenue, Africa said, is equivalent to buying 222 million Polymerase Chain Reaction test kits or 2.9 million contact tracers or funding for the hospitalization of 4.7 million moderate cases or funding for hospitalization of 848,000 critical cases.

Aside from the cut in the CIT rate, Africa also said the impact of the enhanced net operating loss carryover for losses incurred in 2020, which is proposed to be extended from the current three years to five years for non-large taxpayers, is “negligible” as this would only result to a revenue loss of P2 billion in 2024 and P1.9 billion in 2025.

The total sum of P4 billion for MSMEs in these two years is small change, Africa said.

So kung sinasabing benepisyo ito sa micro, small and medium enterprises, sa totoo lang, ’yang suma niya na P4 billion for those two years, actually barya lang siya.”

Africa added that the Create proposal is only being stitched with attractive attire but its impact on MSMEs is negligible.

[“Binibihisan lamang ang Create [proposal] na kunwari para sa MSMEs pero pag nakita mo ’yung impact niya napakanegligible talaga.”]

Lambino’s belief

Earlier, Finance Assistant Secretary and spokesperson Tony Lambino told the BusinessMirror that MSMEs are the main beneficiaries of the Create proposal through the reduction of CIT rate, considered the highest among member-countries in the Association of Southeast Asian Nations.

Under the current setup, the finance official earlier argued that smaller businesses pay the higher corporate income tax rate at 30 percent while many of the largest companies are effectively paying 6 percent to 13 percent because of special tax treatment.

Although the DOF-backed measure failed to hurdle the Senate before the sine die adjournment on June 5, senators committed to pass it upon resumption of the session in July.

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