The Department of Finance (DOF) appealed to lawmakers to heed President Rodrigo R. Duterte’s call to pass the overdue measure seeking to lower the corporate tax and reform in the government’s tax incentives.
Finance Secretary Carlos G. Dominguez III said the passage of the Corporate Recovery And Tax Incentives for Enterprises (CREATE) Act is an integral component of their comprehensive plan to steer the coronavirus-shattered economy back to the path of high and inclusive growth.
“We are hoping that our lawmakers will finally give their nod to this long due tax reform that has become an integral component of our government’s bounce back plan for the domestic economy battered by the unprecedented global health crisis,” Dominguez said.
According to Dominguez, an outright five percent cut in the corporate income tax rate (CIT) along with tailor-fitted incentives for investors should be immediately passed by Congress as requested by President Duterte.
He explained the CREATE bill has been “recalibrated” to better attract investors looking for new supply chain hubs, create
more jobs and provide the biggest ever stimulus package for businesses in the face of the global economic downturn.
The CREATE bill, which represents Package 2 of the Duterte administration’s comprehensive tax reform program, was approved by the House of Representatives last September, but remains pending in the Senate.
According to Senate President Vicente Sotto III, the CREATE bill, along with the second Bayanihan to Recover as One Act and proposed long-term economic stimulus plans will be among the priorities of the Senate when it resumes session starting this week.
The CREATE bill aims to immediately reduce the 30 percent CIT rate—the region’s highest—to 25 percent and further cut it by one percentage point each year until 2027, so that the rate will only be 20 percent by that time.
Dominguez 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.
Based on DOF estimates, the outright CIT cut would free up almost P42 billion in business capital in the first year of implementation, and P625 billion over the succeeding five years.
“This reform will also send 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.
CREATE will provide targeted, time-bound incentives tailor-fitted to the needs of investors that the country wants to attract, and an enhanced net operating loss carry over (NOLCO), extended from three to five years, for losses incurred in 2020 by all businesses that are not large taxpayers.
The bill also extends the sunset period for current incentive recipients from two to seven years, provided under the original CITIRA, to four to nine years to help them adjust in this time of crisis. It also allows the Fiscal Incentives Review Board (FIRB) to recommend to the President the grant of longer incentives and additional non-fiscal incentives for deserving investments.