Finance Secretary Carlos Dominguez III has lauded the timely enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, a law signed by President Duterte primarily to provide businesses, especially micro, small and medium enterprises (MSMEs), with one of the largest stimulus packages ever in the country’s history in the form of sizable cuts in corporate income taxes (CIT) and a redesigned fiscal incentives system to better attract investments and create jobs.
“The CREATE Law will right away benefit MSMEs by way of lower CIT rates and other tax relief measures. This culmination of years-long intense discussions on the rationalization of tax incentives for businesses spells finis to the prolonged investor uncertainty over the final shape of this corporate taxation reform and signals to the rest of the world that the Philippines is back in the game to attract investments, create jobs and achieve inclusive growth,” Dominguez said.
“In the long run, savings from the reduction in CIT rates will provide enterprises with more resources to re-invest in their businesses or expand their operations and thus create more jobs. The modernization of the fiscal incentives system with the inclusion of more generous or attractive come-ons will let the government attract the right kind of investors that it wants to do business in the country to provide quality jobs and better opportunities for the Filipino people.”
“We thank President Duterte and our legislators from both chambers of the Congress for their unwavering support for the swift recovery of the country’s enterprises hard-hit by the coronavirus-driven global economic recession. The enactment of CREATE amid the lingering pandemic is a much-awaited relief for many businesses, especially our MSMEs, and their millions of Filipino workers reeling from the unprecedented economic turmoil set off by COVID-19 across the globe.”
“We especially thank chairpersons Senator Pia Cayetano and Representative Joey Salceda of the Senate and House ways and means committees, respectively, for their untiring efforts and dedication in shepherding the passage of this historic reform through both chambers of the 18th Congress, as well as the House and Senate leaderships for their decisive action on CREATE at the onset of the legislative session this year,” Dominguez added.
Dominguez also extended his gratitude to the various personalities, former finance officials and other ex-government executives, and sectoral groups and their leaders who have supported CREATE since its introduction in the House of Representatives in the previous Congress.
Champions of the bill include former secretaries and other key officials of the Departments of Finance (DOF) and of Trade and Industry (DTI), National Economic and Development Authority (NEDA) and the Bangko Sentral ng Pilipinas (BSP), along with prominent business leaders and their business groups, economic and academic experts, and civil society organizations.
Supporters of CREATE are hopeful that the enactment of the measure will provide relief for MSMEs that account for 99 percent of local businesses, end the climate of investor uncertainty spawned by the delay in the passage of the then-proposed reforms in the CIT incentives system, and send a strong signal to the international community that the Philippines is open for business despite the pandemic.
MSMEs, which employ a majority of Filipino workers in the country, will be the biggest beneficiaries of CREATE through the grant of the largest ever CIT rate reduction in the country.
The law cuts the regular CIT rate by 10 percentage points, from 30 to 20 percent, for domestic corporations with a taxable income of P5 million and below, and with total assets of not more than P100 million.
All other domestic corporations will benefit from an immediate reduction of the CIT rate from 30 percent to 25 percent. Foreign corporations currently paying the regular rate will also enjoy a reduced 25-percent CIT rate.
Corporate 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 will 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 this law, as CREATE will reduce the preferential tax rates enjoyed by these entities from 10 percent to 1 percent from July 1, 2020 to June 30, 2023.
On the long-overdue fiscal incentives reform, CREATE proposes more flexibility in the grant of fiscal and non-fiscal incentives, which will be critical as the country competes for high-value investments from overseas now and in the post-pandemic era.
For enterprises that undertake activities considered priority by the government, CREATE provides for a generous incentives menu that offers tax discounts on the basis of their strategic benefit to the country, such as their ability to create jobs and promote countryside development.
Investment promotion agencies (IPAs) will maintain their key investment promotion functions and powers under their respective charters, but the Fiscal Incentives Review Board (FIRB) will have oversight power over them.
The governance of tax incentives will also be placed under the FIRB, which will be chaired by the DOF and co-chaired by the DTI. Dominguez said this set-up mirrors international best practice and is a major win for the Filipino people.
The FIRB will ensure accountability and transparency in the grant of tax incentives to private corporations.
Under CREATE, a Strategic Investment Priority Plan (SIPP) will be formulated every three years to identify priority projects or activities that will receive the new set of generous incentives.
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.
These incentives were granted to the favored corporations without any mechanism in place to assess the net benefit derived from this select group of enterprises to the economy, an omission that CREATE will correct.
Dominguez said that with the CREATE’s passage into law, the Duterte administration has already accomplished about 90 percent of the Comprehensive Tax Reform Program (CTRP), which President Duterte has pursued since he assumed office in 2016.
However, he noted that the initial success of the Tax Reform for Acceleration and Inclusion (TRAIN) Act–the first package of CTRP–and the passage of CREATE cannot be attributed solely to the current government efforts to push tax reforms in the Congress.
“In fact, our tax reform program is a logical continuation of the decades of reforms arduously passed by previous administrations,” he said. “We are not navigating blindly in pursuing these reforms. Instead, we are marching forward guided by the paths already plotted out before us.”
Dominguez urged the Congress to also pass this year the remaining packages of the Duterte administration’s CTRP, specifically the reforms in the real property valuation system and the proposed Passive Income and Financial Intermediary Act (PIFITA)—as well as the remaining economic recovery legislation, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.
The Finance secretary has also called on the Congress to act this year on the “doable” reforms to attract more foreign direct investments (FDIs), namely the proposed amendments to the Foreign Investment Act, Public Service Act and Retail Trade Liberalization Act.