The National Economic and Development Authority (NEDA) and a local think tank on Friday welcomed the Senate’s passage of the proposed Corporate Recovery and Tax Incentives for Enterprises (Create) Act.
In a statement, Acting Socioeconomic Planning Secretary Karl Kendrick Chua thanked senators for “shepherding [the] passage of this landmark reform” on third and final reading on Thursday.
“Create will help small and medium enterprises become more competitive and productive to support the recovery of our economy,” said Chua, also the NEDA’s acting director-general.
According to the NEDA, the Senate version of Create provides an outright 10-percentage-point cut in the country’s corporate income tax (CIT) rate, lowering it from 30 percent to 20 percent for local businesses with net taxable income equivalent to P5 million and below, and with total assets (excluding land) not exceeding P100 million.
Other corporations will benefit from their CIT rate being lowered to 25 percent from 30 percent.
The measure also modernizes fiscal incentives by making them performance-based, targeted, time-bound and transparent.
“With Create, the country will also be able to attract more foreign direct investment with an improved incentives menu, which will maximize desirable economic outcomes such as job creation, domestic value-added, and technology transfer,” Chua said.
Meanwhile, think tank Action for Economic Reforms (AER) said Create met its primary objectives of making incentives time-bound and performance-based and rationalizing the governance of incentives through the Fiscal Incentives Review Board.
“We also hope that the sharp reduction of [the] corporate income tax can be responsive to the stimulus and, in the longer term, help make Philippine businesses competitive,” it added.
Despite this, AER did not agree to dual CIT rates, arguing this does not optimize revenues and could lead to the gaming of the system, thus abetting tax avoidance, if not evasion.
“But on balance, the gains are heavy and outweigh the costs,” it said.
The think tank also said the bill’s passage removed policy uncertainty that had hindered investment decisions. The approval, it added, would signal to investors that the new rules — which are fair, predictable and simpler — are responsive and friendly to new foreign and domestic investors alike.
The bill’s passage would hopefully help rekindle the animal spirits of investors to do business in the country, according to AER.