FINANCE Secretary Carlos G. Dominguez III is optimistic the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill will be submitted to President Duterte’s signature this December.
This, as he welcomed the Senate’s passage of the bill, which the Department of Finance (DOF) said will finally put in place long-needed reforms in the country’s corporate tax and fiscal incentives system.
“We thank the Senate under the leadership of Senate President Vicente Sotto III, Senate Majority Leader Juan Miguel Zubiri, and Senate Committee on Ways and Means Chairman Pia Cayetano, for tirelessly working to ensure that the CREATE bill is approved in time for pandemic-hit enterprises to benefit from this measure,” Dominguez said in a statement at the weekend.
The Finance department has also since dubbed the measure as one of the largest economic stimulus measures in the country’s history to help people recover from the economic turmoil caused by the Covid-19 pandemic.
CIT cut retroacts to July 1
“This will allow taxpayers to properly adjust their books and returns for the filing season as the reduction of the CIT [corporate income tax] rate will be retroactively applied to July 1 of this year,” Dominguez said.
On Thursday, the Senate approved on third and final reading the CREATE bill after 14 months of working closely with DOF.
Under the Senate’s version of the CREATE bill, domestic corporations with total assets, excluding land, of not more than P 100 million and net taxable income of P5 million and below will enjoy an immediate 10 percentage point reduction in the CIT rate, from 30 to 20 percent.
All other corporations will benefit from an immediate reduction of the CIT from 30 percent to 25 percent.
Moreover, taxpayers whose gross sales or receipts do not exceed the value-added tax (VAT)-exempt threshold of P3 million and are subject to the 3 percent percentage tax shall only pay 1 percent instead from July 1, 2020 to June 30, 2023.
Proprietary and non stock educational institutions and hospitals are also among the major beneficiaries of the Senate version, as it reduces the preferential tax rates enjoyed by these entities from 10 percent to 1 percent from July 1, 2020 to June 30, 2023.
The DOF added that the bill also paves the way for a long overdue fiscal incentives reform, especially now that the Fiscal Incentives Review Board (FIRB) will be supervising the investment promotion agencies although they will be maintaining their key functions and powers under their respective charters.
Aside from this, the FIRB is also in charge of approving the incentives for investments with capital exceeding P1 billion.
Dominguez said placing the governance of tax incentives under the FIRB—chaired by the DOF and cochaired by the Department of Trade and Industry—mirrors international best practice and is a major win for the Filipino people, adding that it ensures the accountability and transparency in the grant of tax incentives.
On top of this, the DOF said the flexibility of incentives system is also enhanced under the bill to proactively attract investments that will bring exceptional benefits to the Filipino people.
Netting the relocated business
“These reforms in the fiscal incentives system are crucial for us to be able to compete for high-value investments, which are what we want to attract. The passage of CREATE is timely as many investors located in China are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier when parts of China were locked down to prevent the spread of Covid-19,” Dominguez said.
Under CREATE, a Strategic Investment Priority Plan (SIPP) shall be formulated every three years to identify priority projects or activities that will receive incentives.
The DOF also pointed out CREATE corrects the granting of incentives without a mechanism in place to assess their benefit to the economy.
A DOF study utilizing data made available through the Tax Incentives Management and Transparency Act (Timta) revealed that the government gave away P477.17 billion in tax discounts and exemptions to favored enterprises in 2018 alone.
The country’s finance chief also took a swipe at some sectors’ claim that CREATE has created uncertainty in the business community, arguing that “many investors have told us that they were waiting for the congressional passage of this corporate tax reform.”
“The success of TRAIN, CREATE, and other tax reform measures cannot be attributed exclusively to current efforts. In fact, our tax reform program is a logical continuation of the decades of reforms arduously passed by previous administrations, notably under Presidents Arroyo and Aquino,” he said. With CREATE, the Duterte administration has delivered five packages of its Comprehensive Tax Reform Program (CTRP), he noted.
To recall, the CREATE bill, was certified urgent by President Duterte, allowing the Senate on Thursday (November 26) to skip the required three-day rule between second and third readings of a bill under consideration. The House of Representatives had already approved the earlier version of CREATE, then known as the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, in September last year.
Deliberations in the Senate became more protracted because the onset of the pandemic and its crippling lockdowns in March required tweaking the main goals of the measure, i.e., not just to reform tax systems but provide a stimulus for recession-hit businesses.
“We also thank the House of Representatives for passing last year its version of the corporate tax reform from which the Senate had adopted many features,” Dominguez said.