AS of this writing, the Corporate Recovery and Tax Incentives (Create) bill is still waiting to be signed by President Duterte after it has already been approved by both houses of Congress. When approved, among its important feature is the reduction of the corporate tax to 20 percent to 25 percent effective July 2020.
A legislator is already planning to seek a one-month extension of the deadline from April 15, 2021 to May 15, 2021, to give enough time to adjust the rates.
The Create bill also reduced the minimum corporate income tax rate to 1 percent instead of 2 percent for the period beginning July 1, 2020 until June 30, 2023. Furthermore, all dividends received by a domestic corporation shall be exempt from income tax. Adjustment of the threshold for VAT (value-added tax) exempt sale of residential real property for a residential lot to P2,500,000 and below and a house and lot and other residential dwelling to P4,200,000 and below is also one of the more important features that will greatly benefit most Filipinos.
If approved by the President, this can greatly help ease the burden of businesses because of the losses incurred during this pandemic. The Financial Executives Institute of the Philippines (Finex) is one of the 32 local and foreign business organizations that have called on Congress to quickly act and deliberate on this. They manifested that a further delay in the approval of the bill will bring about more job losses and business closures.
At the start of the year, businesses are already facing the burden of having to pay several taxes what with the city permits and business taxes becoming due by January 2021 and property taxes deadline looming at the start of the year. Still, the deadlines of certain cities were much earlier; meaning even due as early as December 31, 2020. Many did not anticipate that this pandemic will linger through 2021 and cash flow projections will have to be revised. Although the vaccine can be possibly made available in the middle of the year, being back to “real normal” may not occur within the year. This means business recovery may not even be possible this year.
The Create bill can at least lessen the burden of the taxes to be paid this tax season with corporate taxes slashed from 30 percent to 20 percent to 25 percent depending on the amount of net taxable income and total assets of corporations. If this is the best way our country can afford to help businesses from bleeding and ultimately face an untimely “death,” this should be done in the soonest possible time.
Other countries, such as the United States of America, had dedicated at the early start of the pandemic more than $650 billion in business loans, which do not have to be repaid if firms maintain staffing levels and spend the majority on wages within two months. This is with the hope that if employees are retained, the economy will bounce back quickly.
More generous wage subsidies are being made with The Netherlands having the most generous plans, pledging to replace up to 90 percent of wage cost for those companies which can qualify. Another country with the most generous plan is France, covering up to 84 percent of the gross wage and even to a maximum of 100 percent if a worker makes minimum wage. (Source: bbc.com/new/business dated May 7, 2020)
There are countries that provide cash transfers aside from wage subsidies. But in European countries, in contrast, many countries have avoided these cash transfers and are providing wage subsidies and other safety-net programs like the United Kingdom’s Universal Credit to provide support for the people’s needs.
These are rich countries and surely can afford all of the above subsidies. On the other hand, for a poor country like the Philippines, passing a Create bill will surely go a long way to helping businesses sustain their operations. There were cash transfers made by the government but its effect is just temporary and mostly exposed to corruption especially since this is distributed down to the barangay level which may be difficult to control.
If the Create bill will be approved by President Duterte, there is still the need for an information campaign and for the tax people to prepare the logistics needed to implement the new rates. There may be enough time. But if there is a need to extend the BIR deadline to one month, surely the taxpaying public will truly appreciate this.
This is a unique and challenging time in the history not only of our country but of the world and it calls for special solutions and flexibilities to make our economy and our country recover from the “ashes” of an economic downturn.
Wilma Miranda is the Chairman of FINEX Media Affairs Committee, Managing Partner of Inventor, Miranda & Associates, CPAs, Board of Directors Member of KPS Outsourcing Inc. and Treasurer of Negros Outsourcing Services Inc. The views expressed herein do not necessarily reflect the opinion of these institutions and the BusinessMirror.