By CHINO S. LEYCO
The Department of Finance (DOF) is urging the Senate to immediately pass the enhanced and repacked Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), previously known as Corporate Income Tax and Incentives Reform Act or CITIRA, stressing the enactment of the second tax reform bill would position the country as a premier investment destination for companies amid economic woes.
Finance Secretary Carlos G. Dominguez III said that their proposed drastic cut in corporate income tax (CIT) by July this year along with its succeeding rate reductions will be one of the largest economic stimulus measures in the country’s history.
Dominguez has expressed hope that Congress will pass the CREATE bill before it adjourns next month, so that the across-the-board CIT reduction can be implemented by July this year.
Dominguez explained the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) will leave more resources in the hands of business owners to fund operations and retain employees following the pandemic.
He pointed out that CREATE is “clearly not an effort to raise taxes as [this] will be decisively revenue-negative.”
Based on DOF estimates, the one-time, big-time cut in CIT from 30 percent to 25 percent would free up almost ₱42 billion in business capital for 2020 alone and ₱625 billion over the succeeding five years.
“The large and immediate rate cut in the second half of 2020 also sends a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains,” Dominguez said.
On top of the outright five percentage points tax cut this year, the CREATE bill also provides for a one percentage point reduction in the CIT each year starting 2023 until 2027, so that the rate will only be 20 percent by that time.
For this reason, Dominguez called on the Senate to include the economic team’s proposal on immediately CIT reduction along with other investor-friendly measures, when it opens plenary debates on Package 2 of the comprehensive tax reform program (CTRP).
Dominguez said the Congress can help stimulate the economy amid the coronavirus disease (COVID-19) crisis through the urgent passage of the “calibrated” CTRP Package 2.
The finance chief said the measure aims to fuel economic dynamism, especially among the country’s growth engines—the micro, small and medium enterprises (MSMEs)—that employ a majority of Filipino workers.
Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said they are now supporting the immediate 25 percent corporate tax rate starting July, and a longer net operating loss carry over.
“For existing investors, [we will give] four to nine years no change [in their current incentive], that is a much longer sunset for them compared to the CITIRA,” he said.
But Chua said “The idea of grandfathering, I think is not really a good idea because it violates the core principle of time bound and performance-based incentives.”
The government will also provide more tailored-fit tax perks for investors who will invest in the countryside, Chua added.
He, however, pointed out that these tax incentive regimes, under the CREATE bill, will be “managed, decided and governed” by the Fiscal Incentives Review Board.