Finance Secretary Carlos Dominguez III wants the newly reconstituted Fiscal Incentives Review Board (FIRB) to meet at the earliest possible time to discuss the body’s expanded functions under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act once this law takes effect this month.
CREATE was signed into law by President Duterte as Republic Act (RA) No. 11534 on March 26, and published in a national newspaper on March 27, which makes it effective on April 11, or 15 days after publication in the Official Gazette or a newspaper of general circulation.
RA 11534 will actually take effect on April 12, because the 11th falls on a Sunday.
The law’s implementing rules and regulations (IRR) is being finalized by the Department of Finance (DOF) and the National Tax Research Center (NTRC).
CREATE is the largest fiscal stimulus program for the private sector in the country’s history, providing an estimated P1 trillion worth of tax relief to enterprises over the next 10 years.
In 2021 and 2022, the law is expected to provide tax savings to businesses totaling around P251 billion, which will help keep them afloat and retain jobs as they recover from the crippling effects of the pandemic-induced global economic upheaval.
The law provides an immediate 10 percentage-point reduction to the previous 30 percent corporate income tax (CIT) rate of domestic micro, small and medium enterprises (MSMEs) and a 5-percentage point cut for all other corporations, effective July 2020.
CREATE also redesigned the fiscal incentives system to make the grant of generous incentives to companies performance-based, time-bound, targeted and transparent.
The CIT cut and the rationalization of the tax incentives system are aimed at helping the country attract high-value foreign direct investments (FDIs) by making the cost of doing business in the Philippines more competitive, especially at this time when the government is putting in place the country’s economic recovery program.
Dominguez chairs the reconstituted FIRB under the CREATE Law with Department of Trade and Industry (DTI) Secretary Ramon Lopez as co-chairman.
“I want to call a meeting right away,” Dominguez told Assistant Secretary Juvy Danofrata during a recent DOF executive committee (Execom) meeting.
Danofrata, who heads the Strategic, Economics and Results Group (SERG) of the DOF, said the meeting of the FIRB can be held as early as the week of April 12, given the aforementioned effectivity of the law.
Dominguez said the new menu of generous corporate tax incentives to be offered under CREATE will enable the government to attract the right kind of investors to do business in the country, particularly those offering quality jobs and technology transfer, and introducing new industries that would allow the economy to flourish.
Under the CREATE Law, the FIRB’s functions are expanded to cover not only tax incentives given to government-owned or -controlled corporations (GOCCs), but also those granted by investment promotion agencies (IPAs) and other state-run agencies to their respective registered business enterprises.
The reconstituted FIRB is also tasked to, among others, determine the target performance metrics as conditions for enterprises to avail of tax incentives; and conduct regular monitoring and evaluation of investment and non-investment tax incentives, such as cost-benefit analysis to determine their impact on the economy and whether agreed performance targets are met.
It is also responsible for reviewing the compliance of other government agencies administering tax incentives, with respect to the administration and grant of such tax perks, and impose sanctions, such as, but not limited to, the withdrawal, suspension or cancellation of their power to grant tax incentives.
The grant of tax incentives to registered projects or activities with investment capital of P1 billion and below is delegated by the FIRB to the IPAs. The FIRB is given the discretion to increase this threshold amount under the CREATE law.
The new FIRB will have as members the Executive Secretary (ES), the Secretary of the Department of Budget and Management (DBM) , and the Director-General of the National Economic and Development Authority (NEDA).
Its technical committee will be chaired by a DOF undersecretary, with the following members: the Undersecretaries or Assistant Secretaries from the Office of the ES, DTI, Board of Investments (BOI), and DBM; a Deputy Director General from NEDA; the Commissioner or Deputy Commissioner of the Bureaus of Internal Revenue (BIR) and of Customs (BOC); Commissioner of the Philippine Competition Commission (PCC); and the chairpersons or administrators of IPAs whose scope will be limited to matters concerning their respective IPAs.
The FIRB Secretariat will be staffed by the NTRC and headed by a DOF Assistant Secretary.