THE Senate, voting 20-1, passed on third and final reading on Thursday the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill providing reforms in corporate taxes and incentives, with Sen. Richard Gordon casting the lone negative vote.
The House of Representatives, where the counterpart bill had undergone two incarnations before CREATE and which had passed the measure nine months ago, sent word it would adopt the Senate version, thus averting the need to convene a bicameral conference committee.
Nonetheless, certain senators will be spending the upcoming session break—from November 27 to December 7—deep in work in the bicameral conference committee for the P4.5-trillion national budget for 2021, which the Senate also approved on final reading.
Earlier billed as the Corporate Income Tax Reform and Incentives Reform Act (Citira), CREATE—or Senate bill 1357—went through lengthy floor deliberations, with Sen. Pia Cayetano, its main sponsor, patiently negotiating disputes between the Executive and the senators on contentious measures—mostly on the bill’s second plank, on the rationalization of incentives.
The senators were able to vote on second and third reading in quick succession on Thursday because President Duterte had earlier certified it as an urgent, indispensable cog in the tax reform program.
CREATE reduces corporate income tax rates to 25 percent from the current 30 percent upon effectivity, with the rate going further down at 1 percent annually by year 2027 to 20 percent.
In voting against the measure, Gordon griped he was having misgivings over a provision in the bill granting the authority to approve or reject tax incentives to an existing Fiscal Incentives Review Board (FIRB), admitting that he was “really bothered” over the role of the interagency committee chaired by the Finance department.
Gordon had earlier sought to exempt existing freeport zones, including the Subic Bay Metropolitan Authority (SBMA) which he once chaired, from the CREATE law’s coverage, but the main sponsor of the bill, Senator Cayetano, rejected the amendment.
Cayetano clarified that the CREATE bill was crafted in order to make existing investment promotion agencies (IPAs) “accountable” through the FIRB.
Before the year ends
Finance Secretary Carlos Dominguez III, meanwhile, said he was optimistic that the long-overdue CREATE bill will be passed before the Philippines welcomes a new year.
“We see light at the end of the tunnel, and we expect this to be done by the end of this year,” Dominguez said in a recent webinar hosted by the Philippine Embassy in Washington, D.C.
The Finance chief described CREATE as the biggest stimulus package for the businesses currently in slump amid the coronavirus pandemic.
In 2021 and 2022, the forgone revenues arising from lower CIT are estimated at P97.2 billion and P107.6 billion, respectively, according to the Finance department.
The tax reduction is seen helping companies to channel more funds into their operations and to retain employees.
House adopts Senate version
The House Committee on Ways and Means said it adopted the Senate version of CREATE on Thursday.
Albay Rep. Joey Sarte Salceda, principal author and sponsor of the bill, said it was a “historic leap forward” for the country’s fiscal incentives, as the reform was pending for nearly three decades.
“Though it has evolved over time, the principles of a performance-based, targeted, time-bound and transparent tax incentive system has always been my advocacy. I am heartened that it is finally here,” he said.
Before adopting the Senate’s version, Salceda said the House bicameral contingent was reviewing its fiscal sustainability, but apparently changed his mind later.
“There are some provisions that I have reservations with, especially with the riders that the Senate adopted. As much as possible, I would have wanted a lean and efficient reform,” Salceda said.
“I made a commitment that if the final output is fiscally acceptable, I will take it. So, that’s what we’re studying now. The fiscal sustainability of the Senate version,” he added.
The House said it was pushing for a reform ensuring that the benefits of tax incentives will be given directly to the economy, workers and businesses.
Salceda said the committee was looking into the value-added tax (VAT) provisions and potential transfer pricing loopholes in the bill. With this, the Albay representative said he would like the tax exemptions on medicines to be given through a voucher system, and not to the pharmaceutical firms, under the VAT provisions.
“Of course whatever the Senate gives, I must recoup as House tax chair. Tax policy comes from my committee, so if the fiscal implication is too bad, I must either find new revenue sources somewhere else, or try to mitigate their impact in Create,” he added.
At the same time, Salceda said that the micro, small and medium enterprises (MSMEs) and the countryside locators will enjoy tax provisions as well.
“I was the first member of either House to push for large CIT [corporate income tax] cuts to mitigate Covid-19’s economic impacts. So I support the sizable cuts to CIT for MSMEs. That is what made the pre-Covid US economy so strong,” Salceda explained.
Meanwhile, Salceda also welcomed the adoption of provisions to “help the country tailor-fit incentives to large and highly beneficial investors.”