THE House of Representatives on Monday approved on second reading CREATE MORE or CREATE to Maximize Opportunities for Reinvigorating the Economy, which seeks to modify income tax rates for domestic corporations, adjust tax brackets for individuals, introduce a new tax bracket for high-income earners, and revise tax incentives for certain industries.
Committee on Ways and Means Chairman Joey Sarte Salceda said House Bill No. 9794, which was approved through viva voce voting, aims to build upon the successes of the CREATE Act and adapt to changing dynamics in the global economy.
“CREATE MORE builds on the progress achieved by the CREATE Act and responds to emerging developments in the global economy,” said Salceda.
Recognizing the global shift towards a minimum corporate tax rate of 15 percent, Salceda said the proposal advocated for a tax regime that aligns with this global standard while remaining competitive.
The proposed reduction in the tax rate for enterprises under enhanced deductions, from 25 percent to 20 percent, aims to facilitate this alignment and support eligible enterprises in transitioning from special corporate income tax (SCIT) to enhanced deductions.
“Our incentives must also respond to the global minimum corporate tax. The world is moving towards a tax rate of 15 percent, and companies that pay less than that abroad are being required by home countries to pay the balance at home. So, our ITH [income tax holiday] and SCIT regime of 0 and 5 percent will only result in origin countries imposing a top-up tax. It will defeat the purpose of our incentives,” he said.
Moreover, Salceda highlighted the positive outcomes achieved through the CREATE Law, emphasizing its role in generating an additional 366,650 jobs across the economy and securing commitments for 112,464 jobs from the approved P1.1 trillion investments.
The tax incentives provided by CREATE have proven instrumental in advancing the nation towards its ten-year goal of creating 1.4 million jobs.
“That means that CREATE is on track to meet its 10-year job creation target of 1.4 million jobs due to lower corporate income taxes and a harmonized tax incentives regime,” said Salceda.
Salceda added that the CREATE Law has also shielded the Philippines from global investment challenges, with the nation’s FDI performance surpassing 2019 levels despite a decline in global FDI levels due to factors like higher Fed rates, the Covid-19 pandemic, and a slower-growing China.
“The oversight and policymaking powers of the Fiscal Incentives Review Board have allowed us to evaluate tax incentive performance through the annual FIRB report. This helps us craft investment promotion strategies to make the country more competitive against our very ambitious neighbors,” he added.
Acknowledging the shifting global landscape since the enactment of CREATE, Salceda pointed out key areas that demand attention.
“Nonetheless, the global environment has also changed rapidly since the enactment of CREATE, particularly in three key areas: the rapid decline of China as the global manufacturing hub, the introduction of the global minimum corporate tax, and the increase in global commodity prices, particularly fuel, due to ongoing world conflicts,” he said.
“In this regard, we cannot afford to bungle our tax treatment of investors,” he added.
To address potential ambiguities in the CREATE Law and ensure a streamlined tax treatment of investors, Salceda stressed the need for clarity in the VAT regime, a transparent incentives regime during the CREATE transition period, and an effective VAT refund system.
“The VAT regime must be simple, clear, and transaction-based. The incentive regime under the CREATE transition period must be without any ambiguity. And the VAT refund system must work,” he said.
The CREATE MORE Act, he added, aims to maintain an agile tax incentive approval mechanism, reverting the power to grant incentives to investment promotion agencies (IPAs) while retaining the Fiscal Incentives Review Board’s (FIRB) policymaking and oversight functions.
“Our tax incentive approval mechanism must also be agile while maintaining the government’s oversight of the process. That is why the power to grant incentives is being reverted to the Investment Promotion Agencies [IPAs], but the FIRB’s policymaking and oversight functions are being maintained,” he said.
Salceda also highlighted the impact of CREATE on job creation, noting that while it improved job numbers in the services sector, the manufacturing sector faced challenges, losing 41,840 jobs more than usual annually due to misinterpretations in the CREATE IRR.
Salceda emphasized the critical role of addressing high power costs, especially in the manufacturing sector, proposing an enhanced deduction for power costs to boost competitiveness and job creation in industries dependent on affordable power rates.
The bill grants additional deductions, including a 100-percent deduction for power costs accumulated in the taxable year.
It also includes a 100-percent additional deduction for expenses for trade fairs, missions, or exhibitions and the inclusion of the tourism industry in the coverage of the reinvestment allowance.
The bill also introduces a Special Skills Visa for foreign nationals with highly specialized skills and working visas for foreign nationals in executive, technical, and advisory positions.
The measure provides clarity on the duty and VAT application of goods and services directly attributable to registered projects or activities.
The proposed CREATE MORE sets up a separate unit within the Bureau of Internal Revenue (BIR) to facilitate transactions for registered business enterprises (RBEs).