Nine items in the new Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) have been vetoed by President Duterte to ensure the reform program remained fair, responsible, and not redundant.
Republic Act No. 11534, signed into law by the President on March 26, seeks to reduce the corporate income tax, streamline fiscal incentives, and exempt coronavirus vaccines from value added tax (VAT), among others.
The President, in a message to Congress leaders, said the new law would serve as a fiscal relief and recovery measure for local businesses hit by the pandemic. He thanked the Congress for the passage of the law but explained he had to veto several provisions for a number of reasons.
According to Presidential spokesman Harry Roque, the President applied "direct veto" on items including the proposed hike in the value added tax-exempt threshold on the sale of real property, redundant incentives for domestic enterprises, and automatic approval of incentive applications.
The President rejected increasing VAT-exempt threshold to up to P4.2 million on real property sale since it would "benefit even those not originally targeted for the VAT-exemption—those who can actually afford proper housing."
"The President vetoed this to avoid abuse as properties can be parceled into lots so that their individual values fall within the VAT-exempt threshold," a statement from the Office of the Presidential Spokesperson read.
Duterte also thumbed down 90-day period for the processing of general tax refunds due to "administrative impracticability." The President suggested instead that the Department of Finance, and the Bureau of Internal Revenue to craft mechanisms to streamline the process of tax refunds in a separate tax administration bill.
Also rejected by the President was the definition of investment capital that excluded the value of land and working capital.
"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," Roque said.
Duterte also scrapped the redundant incentives for domestic enterprises proposed in the CREATE law in a bid to level the playing field and provide only the most generous incentives during the most critical times.
"The special corporate income tax (SCIT) rate for domestic market enterprises, which is in lieu of all local and national taxes, is redundant, unnecessary, and weakens the fiscal incentives system," Roque said. "The generous, targeted, and performance-based enhanced deductions to domestic activities in priority sectors or industries under the CREATE Act are already sufficient incentives for the purpose," he added.
The item on allowing existing registered activities to apply for new incentives of the same activity was also rejected by the President. Roque said giving an additional 14 to 17 years of incentives and another 10 year-extension for the same activity was "fiscally irresponsible and utterly unfair to the ordinary taxpayer and to unincentivized enterprises." "The principle must be: only new activities and projects deserve new incentives."
The President likewise junked the proposed limitations on the power of the Fiscal Incentives Review Board (FIRB). The board's main role, he said, was to exercise policy- making and oversight functions on all registered business enterprises and investment promotion agencies. "It unacceptable in current practice to grant incentives without a regular impact analysis conducted and without regard to the final cost to the government," Roque said.
Another item vetoed by the President was specific industries up for incentives mentioned under activity tiers since they "either do not merit support through incentives or are expected to become obsolete in the short-term."
Duterte also removed the provision granting the President the power to exempt any investment promotion agency from the reform since it was "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.
Also rejected by the President was the automatic approval of applications for incentives if not acted upon within 20 days from submission.
"Automatic approval of applications is contrary to the declared policy to approve or disapprove applications based on merit. The FIRB or the investment promotion agencies, as the case may be, should be allowed to carefully review the application for tax incentives since these are privileges granted by the State," he said.