Championing financial reforms


At long last, the Senate has approved the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act of 2020 on third and final reading. This took more than a year after the House of Representatives passed the CREATE bill’s earlier version known as the CITIRA or the Corporate Income Tax and Incentives Rationalization Act.

CREATE’s passage was stalled by the last-ditch effort of Senator Richard “Dick” Gordon to oppose the inclusion of Subic Bay Metropolitan Authority (SBMA) and other freeport zones under the authority of the existing Fiscal Incentives Review Board (FIRB), which grants tax subsidies to government-owned or –controlled corporations.

During the plenary session two weeks ago, the emotional Dick cried: “I have tears in my eyes! So I beg you, let us watch every step we make.” But the Senate Ways and Means Committee chaired by Senator Pilar Juliana “Pia” Cayetano stood its ground and rejected Gordon’s proposed amendment. The entire Senate proceeded to approve the bill on November 26 by a vote of 20-1, with Dick as the lone dissenter.

Pia said the essence of CREATE is to make all investment promotion agencies (IPAs) accountable by directing their filings and submissions to the FIRB. Among these IPAs are the Board of Investments, the Philippine Economic Zone Authority, and SBMA. They still maintain their functions and powers under their respective charters but shall follow a uniform menu of incentives under the FIRB’s supervision. However, it differentiates between export-oriented and domestic activities when it comes to income tax holidays.

The bill will provide micro, small, and medium enterprises (MSMEs) with the largest stimulus package ever: an immediate 5% cut in the Philippines’ corporate income tax (CIT) rate retroactive to July 1, 2020. From the current 30% rate, CIT will be lowered in stages until it goes down to 20% by 2027. It would greatly help entrepreneurs in recovering from the economic shock dealt by the COVID-19 pandemic.

MSMEs account for 98% of the country’s business enterprises. Under the bill, they are classified as domestic corporations with total assets of not more than P100 million (excluding land) and net taxable income of P5 million or below.

As the CREATE bill’s sponsor, Pia knows whereof she speaks, having graduated cum laude from the UP School of Economics prior to completing her studies with academic distinction at the UP College of Law. When she was Deputy Speaker in the previous Congress, she shepherded the passage of the Tax Reform for Acceleration and Inclusion or TRAIN Act of 2017.

In the Senate, Pia was instrumental in the approval of Republic Act (RA) 11346 increasing excise taxes on tobacco products and electronic cigarettes, aside from RA 11467 imposing additional excise taxes on alcohol products. Both laws augmented the funding needed for the implementation of the Universal Health Care law, which she co-authored. It may be recalled that she was a key proponent of the first “Sin Tax Reform Act” or RA 10351 enacted in 2012.

Not only shall the CREATE law benefit the struggling MSMEs, it also reduces the special income tax rate of non-profit educational institutions and hospitals to 1%. As a timely response to the requirements of online learning, the importation and sale of electronic reading materials shall be exempted from the value-added tax (VAT). In the property sector, the VAT-exempt threshold for real estate sales will be increased from P2.5 million to a maximum of P4.5 million.

Next up are the crucial deliberations at the congressional bicameral conference committee composed of members from the two legislative chambers. Congressmen have reportedly committed to fast-track the process by supporting the Senate version which will then be submitted to President Rodrigo Duterte for signing before the end of this year.

Finance Secretary Carlos Dominguez III lauded the senators for making history through the passage of the CREATE bill, saying it was “approved in time for pandemic-hit enterprises to benefit from this measure.” He noted that the government’s tax reform program is a logical continuation of decades of reforms passed during the Arroyo and Aquino administrations.

Through one of CREATE’s provisions calling for a strategic investment priority plan, the Philippines will hopefully attract capital-intensive and job-creating foreign investors whom the country’s economic managers want to relocate here.

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