Albay 2nd District Representative Joey Sarte Salceda on Saturday, March 27, issued a list of his comments on provisions of Corporate Income Tax and Incentive System (CREATE) Act vetoed yesterday by President Duterte.
CREATE is expected to provide P600 billion worth of tax relief for local corporations, said Salceda, chairman of the House committee on ways and means.
The law cuts corporate income tax (CIT) rate from 30 percent – which was considered the the highest in the Association of Southeast Asian Nations (ASEAN) region – to 20 percent for micro, small and medium enterprises (MSMEs), and 25 percent for other corporate taxpayers. It also rationalizes the country’s fiscal incentives system.
Duterte, however, vetoed nine items in the Republic Act No. 11534, to ensure that the reform program is fair, responsible, and not redundant.
Salceda’s comments on vetoed items follow:
1. Value Added Tax (VAT) threshold of real property – "The VAT exemption may benefit some homebuyers, but there are better ways to use tax resources during this very critical economic period. We already exempt residential dwellings up to P2.5 million. Increasing the threshold to P4.2 million will exempt even mid-end condos and will bring the exemption's price tag to P155.3 billion, which is too much during a high-deficit year."
2. Automatic action of 90-day tax refunds – "This is a provision that could result in rushed, poorly evaluated (or even wrongfully denied) applications for tax credit."
3. Definition of investment capital – "This metric is inconsistent with industry practice and IPA measurements. Project cost, which includes operating costs and land, is a more accurate and realistic measure."
4. Special Corporate Income Tax (SCIT) incentives for “critical” domestic enterprises – "These are arguably redundant incentives as the Philippines is one of the largest markets in ASEAN. The SCIT (five percent on Gross Income Earned) is reserved only for exporters."
5. Applying for new incentives for the same activities – "Renewals could be a roundabout way of gaining incentives in perpetuity, as an enterprise can simply reapply repeatedly."
6. Power of Investment Promotion Agency (IPA) to approve investments below P1 billion – "The point of CREATE is to rationalize the incentives system under one framework. Allowing IPAs to approve some incentives could allow enterprises to do 'forum-shopping.' The veto makes it clear that even when IPAs are allowed to approve incentive applications, they do so as delegated by the FIRB (Fiscal Incentives Review Board)."
7. Specific industries in Tiers 1 and 3 – "The veto allows the BOI to fully identify which sectors will be included in the Strategic Investments Priorities Plan (SIPP)"
8. Power of President to exempt any IPA – "This could be used as a way of circumventing the unified rationalization and codification of incentives under CREATE."
9. Automatic approval of incentives applications within 20 days – "This is a provision that could result in rushed, poorly evaluated (or even wrongfully denied) applications."