Economic managers are pushing for the early congressional approval in 2021 of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill and other legislative measures, designed to reinvigorate the economy and provide businesses with the stimulus they need to overcome the unprecedented global financial shock from the coronavirus pandemic.
Finance Secretary Carlos Dominguez III, who heads President Duterte’s economic team, called on Congress to pass CREATE when it resumes session this month, to finally erase the unpredictability in the country’s corporate tax and fiscal incentives system that have prompted foreign firms to adopt a wait-and-see attitude before investing or expanding their businesses here.
Dominguez said that with President Duterte’s signing into law last December 28, 2020 of the P4.506 trillion General Appropriations Act (GAA) for 2021, the government now has the largest financial component of its comprehensive economic recovery plan.
“However, the national budget needs to be complemented by other economic recovery measures, which include CREATE, the proposed Financial Institutions Strategic Transfer (FIST) Act, and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill,” Dominguez said.
CREATE: the largest stimulus package for businesses
Dominguez said CREATE is the largest stimulus package for businesses in the country’s history as it would provide them with hefty corporate income tax (CIT) cuts of 5 to 10 percent in the version approved by the Senate in November last year.
This means the CIT rate will go down from the current 30 percent–the highest in the region–to 20 percent for micro, small, and medium enterprises (MSMEs) with net taxable income of P5 million pesos and below, and with total assets of not more than P100 million excluding land.
For the rest, including foreign firms, the CIT reduction is 25 percent.
A bicameral conference committee is expected to harmonize the conflicting provisions of the two chambers when the 18th Congress resumes session on January 18 following its traditional yearend recess.
Dominguez said the Department of Finance (DOF) has been pushing for a CREATE bill that will not only lower the CIT but also enhance the flexibility of the country’s fiscal incentives system “so that we can proactively attract investments that will bring exceptional benefits to the Filipino people.”
“We hope that the Congress can pass CREATE before the end of January 2021 as this measure is crucial for businesses to continue operating, retain their employees, and create more jobs,” Dominguez said. “This also provides taxpayers ample time to comply with adjustments to their returns due to the lowering of income taxes effective July 2020 before the tax filing season ends in April 2021.”
He said the latest DOF estimates show that CREATE will mean foregone revenues of around P251 billion in the next two years (P133.2 billion in 2021 and P117.6 billion in 2022), if the bill is implemented retroactively to July 2020.
Dominguez explained that these tax breaks are necessary to provide financial relief to businesses, mostly MSMEs that account for 99.5 percent of local businesses and employ about two-thirds of workers in the country’s labor force.
“CREATE is really about trusting the private sector. Instead of passing funds through what tend to be less efficient government programs, this will leave the money in the private sector’s hands to revitalize their businesses,” Dominguez said.
In coordination with the Bureau of Internal Revenue, Department of Trade and Industry, Department of Health, and Board of Investments, the DOF is ready to release the necessary implementing rules and regulations once the bill is enacted into law.
Tax reform: 90 percent accomplished
Dominguez said that once CREATE is passed into law in 2021, the Duterte administration will have accomplished about 90 percent of the comprehensive tax reform program (CTRP) that was put in place after the President assumed office in 2016.
However, he noted that the success of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, CREATE, and the other tax reform measures cannot be attributed exclusively to current efforts.
“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.”
