Think tank Action for Economic Reforms (AER) has called on President Duterte to line item veto some provisions of the ratified corporate recovery and tax incentives for enterprises (CREATE) bill.

In a statement, AER raised five concerns regarding certain provisions of the CREATE bill that was ratified by the House of Representatives and the Senate.

AER said these “questionable provisions” run counter to sound economic policy of the national government.

The first two provisions questioned by AER are the exemption on taxes and duties for local petroleum refineries, and the insertion of crude oil refining as part of the Strategic Investment Priority Plan (SIPP).

AER said exempting local refineries from duties and taxes is discriminatory and gives unnecessary protection to an uncompetitive industry, noting that this sector does not have the economies of scale to make it competitive.

“Our initial estimates show that at least P3.5 billion of government revenue will potentially be forgone as a result of giving local refineries these incentives,” AER said.

While AER is not against the inclusion of crude oil refining, per se, in the SIPP, it however noted that it should be flexible to change depending on priorities and conditions.

“Inserting crude oil refining in the CREATE Bill as a part of the SIPP unduly makes it a permanent priority,” the group said.

The third and fourth points raised by AER is the exemption of legislative franchises’ tax and duty incentives from the jurisdiction of the Fiscal Incentive Review Board (FIRB) and the President.

If enacted, the FIRB and the President cannot review, withdraw, suspend or cancel tax incentives and subsidies granted by the legislative.

“This provision opens the floodgates for gaming by vested interests who want to receive incentives without being subject to rigorous scrutiny,” AER said.

“Removing the FIRB’s power to withdraw incentives from legislative franchises goes against the core principles of CREATE,” AER said.

“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,” it added.

The last point that was questioned by AER is the value-added tax (VAT) exemption on housing.
AER said VAT exemptions on housing are not a focal point of CREATE and it generally result in foregone revenues.

“For the poor to substantially benefit, these exemptions must be limited to goods and services that are consumed by the poor,” AER said.

Under the ratified CREATE bill, threshold value for VAT exemption on housing was raised to P2.5 million for residential lots and P4.2 million for houses and lots.

“Poor households do not benefit from VAT exemptions on housing; these exemptions only benefit the rich while funneling funds away from development programs for the marginalized,” AER said.

“We call on President Rodrigo Duterte to exercise a line item veto of the five contentious provisions cited above, in order to ensure that CREATE’s reforms are not weakened by lobbies from vested interests,” AER said.