THE Senate went on its scheduled break from October 17 to November15 without passing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill as several contentious provisions remained unresolved.
After lengthy interpellation of its sponsor, Sen. Pia Cayetano, the senators have yet to fully resolve two key issues—who should be covered by the bill and the length of tax incentives.
Senators earlier voted to reject a bid to split the bill into two so that the first part, reducing corporate income taxes from 30 to 25 percent, can be passed right away to help the pandemic affected businesses recover and lure new investors.
The second bone of contention involves the rationalization of tax incentives, of which at least P440 billion have been questioned by economic managers for being neither performance-based nor time-bound.
However, some senators are inclined to heed the repeated pleas of economic zone locators and business groups for the government not to touch existing incentives at a time when the economy has yet to recover more quickly from the adverse effects of pandemic-induced lockdowns.
According to Sen. Juan Edgardo Angara, “coverage of the bill and the length of the incentives [are] definitely involved,” when asked what he saw as the remaining sticking points in the pending tax reform, which economic managers have been prodding the Senate to approve. The House of Representatives approved its version on final reading eight months ago.
‘Grandfather rule’
One group of senators favor Senate President Pro Tempore Ralph Recto’s insertion of a so-called grandfather rule which allows existing investors to retain their current incentives.
This grandfather rule, however, was denounced Friday by fiscal watchdog Action for Economic Reform (AER) for effectively diluting the second main plank of the CREATE bill.
The AER opposed the “killer grandfather rule” in CREATE. It also denounced senators who had supported the move to split the bill, if only to expedite passage of the bill’s first plank, the 5-percent reduction of the current 30-percent corporate income tax (CIT).
“The CREATE bill, which has been undergoing interpellation in the Senate for the past four weeks, is now under a crucial period of amendments,” the AER noted in voicing its disappointment over the action of senators who it said had “made attempts to weaken the reforms.”
Killer amendment
The AER said one amendment that “threatens to weaken the reform is the grandfather rule,” that Recto proposed on October 15, where all existing investments will retain their current incentives, and all new investments will follow the incentive system mandated in CREATE bill.
Apart from Recto, the AER also denounced Senators Imee Marcos, Grace Poe and Minority Leader Franklin Drilon for supporting the grandfather rule, saying: “We believe that the grandfather rule is a killer amendment that destroys the very purpose of the bill.”
“Retaining the tax perks of existing registered enterprises without bounds and without transitioning to be subjected to CREATE goes against the very purpose of rationalizing fiscal incentives, which is to address the arbitrary dispensation of fiscal incentives, the AER said, adding that “our abuse-prone incentive system has been in dire need of reform for many years now.”
The AER lamented that P440 billion worth of government funds are currently being spent on granting fiscal incentives that are neither performance-based nor time-bound, suggesting that “in order to lessen those wasted funds, we need to harmonize the administration of fiscal incentives.”
The watchdog quoted Sen. Pia Cayetano, the main sponsor of CREATE and chief endorser of the bill as head of the Committee on Ways and Means, as saying that the grandfather rule will mean providing these incentives in perpetuity, noting the P15.6 trillion present value of such perks.
The AER earlier opposed “another dangerous proposal” to split CREATE into two bills: one for fiscal incentive rationalization, and another for corporate income tax reduction, recalling that in the October 15 session, the Senate voted on this proposal, with 10 senators opposing it. Four senators—Minority Leader Drilon, and Senators Imee Marcos, Richard Gordon and Francis Pangilinan—voted to split the bill.
The AER warned that splitting the bill would weaken the political support for the incentive rationalization bill. “We cannot split the CREATE bill, as both fiscal incentive rationalization and corporate income tax reduction must go hand in hand if we want this bill to serve both a stimulus during the economic downturn caused by the pandemic, as well an instrument to rationalize and modernize investment promotion and the fiscal incentive regime in the long term,” AER added.