Duterte clips FIRB powers, oil refinery gets perks
By Bernie Cahiles-Magkilat and Chino S. Leyco
Despite misgivings, the business sector lauded President Duterte for signing the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), a game-changer law that is expected to support the economic recovery of the Philippines with its modern and equitable tax incentives system and catch up with the rest of its neighbors.
The Philippine Chamber of Commerce and Industry (PCCI), the country’s largest business organization, said they have been pushing for the approval of CREATE since its inception.
“We consider this a landmark economic stimulus program that will significantly accelerate the country’s economic recovery and make the Philippines a more competitive and attractive investment destination,” said PCCI President Amb. Benedicto V. Yujuico.
Yujuico cited the reduction of income tax rates from 30 percent to 20 for micro, small and medium enterprises as well as the exemption of duties and VAT for Covid 19 vaccines as the most relevant features of the law.
He said there are other so many other positive factors of the law, but are too numerous to mention. He, however, said that the “vetoed provisions do not adversely affect the benefits” that CREATE will bring to the Philippine economy.
The Financial Executives Institute of the Philippines (FINEX) also thanked President Duterte for signing CREATE, a day before it lapsed into law.
In a statement, FINEX President Francisco ED. Lim said the law will not only give relief to our businesses from the pandemic but will in the longer term improve the competitiveness of the country as an investment destination.
“While we disagree with his veto of some of the items, we respect the exercise of his presidential prerogative under the Constitution,” said Lim.
FINEX also urged the Bureau of Internal Revenue to issue the required implementing rules and regulations in time for the tax deadline this April.
Philippine Exporters Confederation President Sergio Ortiz Luis, Jr. said “CREATE will attract more and the right kind of investments particularly in underdeveloped regions in the country.”
President Duterte signed the CREATE Act Friday, March 26. In signing the law, the President also approved the special privileges for local petroleum refineries as well as clipped some powers of the Fiscal Incentive Review Board (FIRB) and even the Malacañang in the CREATE Law.
This as the President vetoed nine items in the newly-signed Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, but also excluded certain provisions that the think tank Action for Economic Reforms (AER) had flagged as “questionable.”
Among the items which were excluded from the direct veto are the local petroleum refineries' exemption from taxes and duties and the insertion of crude oil refining as part of the Strategic Investment Priority Plan (SIPP).
The President also maintained the exemption of legislative franchises’ tax and duty incentives from the jurisdiction of the FIRB, as well as waived his power to review, withdraw, suspend, or cancel these privileges.
Likewise, the chief executive clipped the power of the FIRB, an agency created under the law and responsible for overseeing the country's investment promotion agencies, to increase investment threshold that will require review and approval of FIRB.
The President, however, approved the inclusion of the Philippine Competition Commission and Investment Promotion Agencies heads in the FIRB technical committee.
In February this year, AER opposed the exemption of local refineries from duties and taxes, noting that this is discriminatory and gives unnecessary protection to an uncompetitive industry.
“The local oil refinery does not have the economies of scale to make it competitive. Consider for example that India’s biggest oil refinery can produce one million barrels a year, which dwarfs Petron Corp.’s refining capacity of 180,000 barrels a day,” AER said.
Based on AER estimate, the tax exemption would result in at least P3.5 billion in foregone revenues for the government.
The group also rejected the insertion of crude oil refining in the SIPP, saying that it only "protects vested interests and was not a part of either the House or Senate Bill.”
“If petroleum refineries’ request for tax incentives is a question of policy, it must be subjected to public scrutiny and debate,” AER said.
Meanwhile, AER said that exempting legislative franchises’ tax and duty incentives from the jurisdiction of the FIRB has opened the floodgates for gaming by vested interests who want to receive incentives without being subject to rigorous scrutiny.
“The governance of the FIRB keeps firms accountable and competitive, and removing the FIRB’s power to withdraw incentives from legislative franchises goes against the core principles of CREATE,” AER said.
Likewise, the group said that exempting legislative franchises from the powers of the President to withdraw incentives creates an unfair advantage and an opportunity for vested interests to escape the accountability mandated in the law.