President Rodrigo Duterte has vetoed nine items in the new Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to ensure it would serve its purpose as a fiscal relief and recovery measure for Filipino businesses affected by the pandemic.
In a statement issued Friday night, Presidential Spokesperson Harry Roque said Duterte has applied direct veto to the proposed increase in the value-added tax or VAT-exempt threshold on the sale of real property to up to PHP4.2 million.
While the vetoed item will benefit even those not originally targeted for the VAT exemption, the President believed it is prone to abuse, as properties could be parceled into lots so that the individual values fall within the VAT-exempt threshold, Roque explained.
He said Duterte has also vetoed the proposed 90-day period for the processing of general tax funds due to “administrative impracticability” as it would be difficult for the Bureau of Internal Revenue (BIR) to implement the proposal.
Roque added that the proposal “may cause delay or erroneous processing of refund claims.”
“Aside from this, the Tax Code itself requires the Commission on Audit to examine refunds. With such a report, the BIR may resort to granting refunds haphazardly, or denying an application outright – which must be avoided at all costs,” he said.
The definition of investment capital, which excludes the value of land and working capital, has also been vetoed by the President, Roque said.
“The government must adopt measures now used by investment promotion agencies and to not exclude land and operating expenses from the measure of an investment’s total scale as this may lead to an underestimation of our investment promotion performance,” he said.
Roque said Duterte has also vetoed the “redundant” incentives for domestic enterprises because he believed the proposed item is “unnecessary” and “weakens the fiscal incentives system.”
He said the “generous, targeted, and performance-based” enhanced deductions to domestic activities in priority sectors under CREATE law are already sufficient incentives.
Duterte has also rejected the proposal to allow existing registered activities to apply for new incentives, saying this is “fiscally irresponsible and utterly unfair to the ordinary taxpayer and to unincentivized enterprises,” Roque said.
“The principle must be: only new activities and projects deserve new incentives,” he said.
Other vetoed items, Roque said, are the limitation on the power of the Fiscal Incentives Review Board, as well as the enumerated industries that either do not merit support through incentives or are expected to become obsolete in the short-term.
He said Duterte has also decided to apply direct veto to the proposed provision enabling the President to exempt any investment promotion agency from the reform as it is “contrary to the government’s steps in rationalizing our fiscal incentives system.”
“It can also be used as a highly political tool dismantling and disregarding studies and discussions based on empirical evidence. Exempting any investment promotion agency from the CREATE Act, which provides for transparency, accountability, and proper administration of tax incentives, may be used as an escape from the accountability measures,” Roque said.
The last item vetoed by Duterte is the proposal to automatically approve applications for incentives as it is “contrary to the declared policy to approve or disapprove applications based on merit,” he said.
The CREATE Act or Republic Act 11534 inked by Duterte on Friday cuts corporate income tax rate to 25 percent from the current 30 percent.