Duterte signs CREATE in hopes company savings fund recovery
MANILA, Philippines — President Rodrigo Duterte made a last-minute signing of a key administration measure that seeks to cut corporate taxes and level the playing field by dismantling some tax perks deemed excessive.
In totality however, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law under Republic Act 11534 would want companies battered by the pandemic to re-channel savings from lower tax rates toward investments and more hiring— banking on “trickle-down economics” to deliver despite numerous studies and instances in other jurisdictions that proved the same does not typically materialize.
That, however, has not stopped the Duterte administration to proceed enact CREATE, a piece of legislation whose components of restructuring costly tax incentives date back to the Ramos administration. Under the measure, the corporate income tax rate would instantly go down to 25% for large firms with assets above P100 million, and for those with smaller than that, the rate would be lower at 20%.
The new rates would apply retroactively to July 2020. Currently, the corporate tax is applied at 30% across-the-board. CREATE would supposedly result in as much as P44 billion in savings in the first year.
“After more than twenty years of deliberations on the countless versions filed in Congress, corporate income tax reform and fiscal incentives rationalization has finally come to fruition,” the president said.
Duterte signed CREATE just in time to prevent it from lapsing into law with contentious provisions that the finance department is opposed to. In the end, the chief executive veto nine items in the bill which he deemed either run against the essence of the new law, or would limit its full enforcement in the corporate world.
Provisions vetoed
Topping the veto list was a provision that would have lifted the price of housing where value-added tax is waived. That provision wanted to raise the VAT threshold to P4.2 million for houses and lots from the current P2.5 million.
Duterte said doing so would effectively roll back the effects of his first tax reform law that brought down the threshold so that more housing can be taxed and revenues be generated. By estimate, a total of P155.3 billion in revenues would have been lost until 2023 if the provision as approved.
Limitations to the power of the Fiscal Incentives Review Board, which CREATE mandates to assess firms applying for tax perks were likewise nullified. Under the original bill passed by Congress, FIRB’s powers would have only been applicable on incentive-seeking investments worth at least P1 billion. Now, all of them would be under it regardless of amount.
“The current practice of granting incentives without a regular impact analysis conducted and without regard to the final cost to the government is unacceptable,” Duterte said in his veto message. To this end, the automatic approval of incentives not granted within 90 days from application was likewise vetoed.
Duterte also removed his own powers to exempt an economic zone from the coverage of CREATE, as well as some “redundant” perks granted by the law on domestic enterprises.
With CREATE now passed, the government is only just awaiting the passage of the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE bill, to complete its set of pandemic recovery prescriptions. GUIDE intends to help failing firms rebound by allowing the government to buy stakes in them.
Apart from GUIDE and CREATE, the government also touted the 2021 budget as well as the Financial Institutions Strategic Transfer (FIST) Act as stimulus measures, amid its hesitation to spend directly for assistance.
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