The country’s 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 to recover from the shocks of the coronavirus disease 2019 (Covid-19) pandemic.
Finance Secretary Carlos Dominguez 3rd, who heads President Rodrigo 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 in the Philippines.
Dominguez said that with President Duterte’s signing into law on 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.
Dominguez said CREATE will be 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 reduced CIT 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 the 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 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. CURRENTPH