MANILA (Philippine Daily Inquirrer/ANN): The Senate and the House of Representatives on Wednesday (Feb 3) ratified a key economic reform bill that would give companies a “much-needed tax break” by lowering the corporate income tax after the two chambers agreed on a consensus version.
The Senate approved the final, uniform version of the proposed Corporate Recovery and Tax Incentives for Enterprises Act, or CREATE, on Wednesday afternoon, a few hours after it was passed by the House.
CREATE, formerly called Citira, or the Corporate Income Tax and Incentives Reform Act, will lower the corporate income tax immediately from 30 per cent to 25 per cent.
Sen. Pia Cayetano, who led the Senate contingent during bicameral discussions on the bill, said she was happy about finally finding common ground with the House on the bill after it was sidelined for years.
“I am elated, I am giddy with excitement to report to the Senate on the approved version of the CREATE bill, ” she said.
Cayetano outlined the major provisions of the bill in the bicameral report:
• Enterprises given the option to choose between the Special Corporate Income Tax of 5 percent or Enhanced Deductions after enjoying Income Tax Holiday
• Higher incentives for enterprises located outside of metropolitan areas
• Additional incentives for enterprises that fully relocate outside the National Capital Region
• Additional incentives for those that will locate to areas that are recovering from disasters or armed conflict
Some key provisions in the Senate version that were retained in the bicameral report were:
• Immediate reduction of the corporate income tax to 20 per cent for domestic corporations with total assets not exceeding P100 million (excluding land) and total net taxable income not exceeding P5 million; 25 per cent for all other corporations
• 1 per cent minimum corporate income tax effective July 1,2020, until June 30,2023
• 1 per cent tax rate for proprietary educational institutions and hospitals which are nonprofit effective July 1,2020, until June 30,2023
• Value-added tax (VAT) exemption threshold for socialized and low-cost housing to P2.5 million and P4.2 million for house and lot
• VAT exemption for medicines for cancer, mental illness, tuberculosis, and kidney diseases beginning Jan. 1,2021
• VAT-free importation and sale of Covid-19 medicines and personal protective equipment from Jan 1,2021, to Dec 31,2023.
“Instead of just a 1-per cent drop in corporate income tax, we are giving an immediate 5-per cent drop, reduction of our corporate income tax rate. It will now stand at 25 per cent. And for MSMEs (micro, small and medium enterprises), it will be 20 per cent depending on certain conditions as reported earlier, ” Cayetano said.
Sen. Sherwin Gatchalian described the CREATE bill as a “much-needed tax break” for many pandemic-hit companies that were still struggling with their finances.
It could prevent “a wave of insolvencies that could affect the country’s economic growth in the long run, ” he said.
House tax panel chief Albay Rep. Joey Salceda said that with CREATE, “we are lowering corporate income tax to bring it closer to the Asean region’s average.”
Asean is the 10-nation Association of Southeast Asian Nations that groups the Philippines, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, and Vietnam.
Salceda said that with CREATE, he expected at least P12 trillion in domestic and foreign investment over the next decade, about $90 billion of that would be foreign direct investments.
It would also create about 1.8 million jobs over the same period, and with economic amendments in the Constitution, as many as 8.4 million jobs could be generated, Salceda said.
Speaker Lord Allan Velasco said that with the approval of CREATE and efforts to amend the Constitution, “we are confident that we can hasten our economic recovery, attract more local and foreign investors and create jobs for the Filipino people.”
While CREATE is being lauded for the tax reforms that it promises to institute, an economic think tank said insertions were made in the bill that would tie the hands of the President and the future Fiscal Incentives Review Board (FIRB) from regulating corporate incentives granted by lawmakers.
Under the CREATE bill, the FIRB, which is co-chaired by finance and trade chiefs, can approve or disapprove tax incentives to projects above P1 billion. The President can modify these tax breaks to attract big-ticket investments, letting them enjoy these privileges for up to four decades.
But the tax and duty incentives granted through legislative franchises “shall be excepted” from the powers of the President to “review, withdraw, suspend, or cancel tax incentives and subsidies, ” according to a copy of the consensus bill obtained by the Inquirer.
Another provision will also exempt legislative franchises from having their tax breaks reviewed or canceled by the FIRB.
“This provision opens the floodgates for gaming by vested interests who want to receive incentives without being subject to rigorous scrutiny, ” the independent think tank Action for Economic Reform (AER) said in a statement.
“The governance of the FIRB keeps firms accountable and competitive, and removing the FIRB’s power to withdraw incentives from legislative franchises goes against the core principles of CREATE, ” it said.
According to an opinion piece by Tony La Viña, a professor of constitutional law, the primary objective of a legislative franchise is to benefit the public, while the rights and interests of the franchisee are second.
A recent example of this is San Miguel Corp’s airport project in Bulacan, which quickly secured a 50-year legislative franchise.
Crude oil imports of local refineries would also be exempted from applicable duties and taxes, AER said.
The exemption would be “discriminatory” and gives advantages to certain importers, AER said, adding that oil refineries were not a part of the Strategic Investment Priority Plan, which defines what activities would qualify for incentives.
The group also flagged the VAT exemption for low-cost and socialized housing, saying such exemptions were not “a focal point of CREATE.”
“Poor households do not benefit from VAT exemptions on housing; these exemptions only benefit the rich while funneling funds away from development programs for the marginalised, ” it said.
The group called on President Rodrigo Duterte to exercise his line-item veto power to strike out these “questionable” insertions. - Philippine Daily Inquirer/Asia News Network