Senators will give priority to two bills boosting the economy and the financial sector when the Senate reconvenes on January 18, Majority Leader Juan Miguel F. Zubiri said last Sunday.
The first is the Palace-endorsed Corporate Recovery and Tax Incentives for Enterprises (Create) bill, a key plank of the Duterte administration’s tax reform that underwent major tweaks as businesses were hit hard by lockdown measures against the Covid-19 pandemic. The second is the amendments to the 2001 Anti-Money Laundering Act (Amla), which Manila is under pressure to pass to avert landing on a grey list that could complicate international financial transactions such as remittances of migrant workers.
The Senators approved the Amla measure on second reading before their yearend holiday break.
On the other hand, Senators rushed to approve on third and final reading the Senate version of Create last November 26, since the House of Representatives had passed its own version months ago. Shortly after the Senate version was approved, the senators got word—from Ways and Means chairman Rep. Joey Salceda—that the House will simply adopt the Senate version in order to avoid convening a bicameral conference panel; thus hasten signing of the bill into law before the Christmas break.
However, two weeks later, the House leadership decided to have the measure undergo full bicameral deliberations and designated its members for the panel.
This prompted Sen. Pia S. Cayetano, Salceda’s counterpart, to make a manifestation before the Christmas break, expressing her dismay.
“I would like to put on record that the delay in the passage of Create this year is a huge setback,” Cayetano said. “We recognize the importance of this bill particularly for the MSMEs [micro, small and medium-scale enterprises] and the business sector.”
The latter would have benefited from the instant 5-percent reduction provided by the bill in the corporate income tax.
Cayetano recalled: “We had daily deliberations to the extent of setting aside other very important bills because we recognize the importance of this bill particularly for the MSMEs and the business sector.”
“It will be noted that the Create version of the Senate immediately lowers the corporate income tax from 30 percent to 25 percent,” while the House version “is only a lowering of Corporate Income Tax by one percent every year,” the lawmaker added.
Further, MSMEs earning less than P5 million would only be paying 20 percent corporate tax in the Senate version, Cayetano said.
Incentives issues
THE second part of Create—the incentive portion—was the more contentious. But Cayetano noted how, despite their fierce debates, senators reached a “fair and happy” compromise on each issue.
The incentives portion was so important, the senator emphasized, “because we wanted to plug the leakages and we wanted accountability. There is roughly P400 billion last recorded—I believe that was 2017—unaccounted for incentives that are being given away.”
She noted that “the importance of this measure was simply for accountability and transparency.”
“These are incentives that otherwise would have been tax collections by the government,” Cayetano said. “And that’s why I mentioned MSMEs [because they have no] incentives. They pay taxes.”
Under the measure, if government incentivizes a business and says, “You are entitled not to pay taxes, you’ll get incentives.” All the bill seeks to do, the lawmaker explained, “is to ensure that there is accountability; that there is the FIRB [Fiscal Incentives Rationalization Board] that will ensure that [these] incentives [are in order] and that the commitment of those companies would be delivered – commitment to create jobs, etc, etc.”
The Senate version, she noted, was a package that “was really well thought of.”
“There’s a 10-year transition period for companies that are currently receiving incentives, much longer than the version of the House, even longer than the original version of the Senate,” Cayetano said. “And then, when they apply, for new applicants or those who will reapply; also very generous provisions.”
Even the advocacy group Action for Economic Reforms (AER), which tangled with senators during deliberations, conceded that the final version was good enough.
The Senate version, the AER said, “has met its primary objectives of making incentives time-bound and performance-based and rationalizing the governance of incentives through the FIRB.”
“We also hope that the sharp reduction of corporate income tax can be responsive to the stimulus and in the longer term, help make Philippine businesses competitive,” the AER added.
While compromises were made, specifically in having a longer transition for the ending of incentives, the AER said, “these compromises are tolerable and will do no harm.”
“We understand that the dynamics of the political economy led to these compromises.”
Meanwhile, Cayetano lamented that with the House deciding—after two weeks—not to skip the bicameral process, the Create bill was not signed into law before Christmas.
And this means “there will be no immediate decrease in the Corporate Income Tax, there will be no rationalization and certainty,” she added.
“What the businessmen had asked us is certainty. So that when the new year starts, they know” what ventures to invest in or expand, or forgo, according to Cayetano.