By Charmaine A. Tadalan and Beatrice M. Laforga, Reporters
CONGRESS ratified on Wednesday the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, which will cut corporate income tax (CIT), streamline fiscal incentives and ease coronavirus disease 2019 (COVID-19) vaccine importation.
The final version of CREATE will now be sent to Malacañang for President Rodrigo R. Duterte’s signature.
It will immediately slash CIT to 25% from 30% which is currently one of the highest in Southeast Asia. It further cuts corporate income tax to 20% for micro, small, and medium enterprises with net taxable income below P5 million and total assets below P100 million.
“Hopefully, this will be implemented soon, as CREATE can be a ventilator that will help companies in ICU, or prevent them from entering one,” Senator Ralph G. Recto said in his explanation of vote.
The CIT reduction will retroactively take effect on July 1, 2020.
“This will be a game changer for all businesses — both big and small — who need as much support as they can get during this time of global health and economic crisis,” Senator Pia S. Cayetano said in her sponsorship speech during Wednesday’s session.
CREATE will also lower the minimum CIT to 1% from 2% from July 2020 to June 2023, as well as taxes on nonprofit hospitals and educational institutions to 1% from 10% within the same period.
The measure, which was originally known as the Corporate Income Tax and Incentives Reform Act (CITIRA), also streamlines the government’s fiscal incentives program.
CREATE will also grant up to 17 years of incentives to exporters and domestic enterprises, identified as “critical” by the National Economic and Development Authority. This covers 4-7 years of income tax holiday (ITH) and 10 years of 5% special CIT (SCIT) or enhanced deductions.
Other domestic enterprises will be entitled to 4-7 years of ITH and 5 years of SCIT or Enhanced Deductions for enterprises with investment capital of at least P500 million; and 4-7 years ITH and 5 years of enhanced deductions for those with less than P500 million.
VAT-FREE VACCINES
In response to the pandemic, lawmakers included a provision in CREATE that will exempt the importation of COVID-19 vaccines from value-added tax and import duties. Imports of COVID-19 medicines and personal protective equipment will also be VAT-free, but only until December 2023.
Medicines for cancer, mental illness, tuberculosis, and kidney diseases, meanwhile, will be exempt from VAT, starting Jan. 1, 2021.
“My fervent prayer is that these should not be vetoed by the President. He will lose his credentials as our consoler-in-chief if he will thumb down our proposal to remove the tax on the medicines of people fighting for their lives,” Mr. Recto said.
House Ways and Means Committee chairman and Albay 2nd District Rep. Jose Maria Clemente S. Salceda said CREATE is the “greatest economic reform”’ second to the proposed economic revisions of the 1987 Constitution.
“I expect at least P12 trillion in combined domestic and foreign trade investment over the next decade due to CREATE alone. $90 billion of that will be foreign direct investments,” he said in a statement.
Senator Richard J. Gordon, however, reiterated his opposition to the provision in the measure that will subject major investments to the evaluation of the Fiscal Incentives Review Board (FIRB). He was also the lone senator to vote against the passage of the bill in the Senate last November.
“If I’m not mistaken, it took a while in the Bicameral Conference Committee because the people of Central Luzon and others, where there were freeport zones expressed their desire to change a certain amendment,” he said during the session.
“I did not take part in that but if that’s an indication that not everybody is in unison, hindi sumama lahat sa pakay na malagay sa isang body, ’yung FIRB ang talagang pagtanggap ng malalaking negosyo sa Pilipinas, nakakatakot iyon sa aking palagay.”
This is in reference to the P1-billion investment threshold for projects that will need to secure approval from the FIRB. Investment projects below P1 billion will only be evaluated by investment promotion agencies.
LOOPHOLE
The Action for Economic Reforms (AER) also flagged certain provisions of CREATE, including a “big hole” that would be opened if incentives under franchise licenses granted by lawmakers will be exempted from FIRB’s scrutiny.
In a Viber message to BusinessWorld, Filomeno S. Sta. Ana III, the coordinator for the nongovernment organization, warned that the provision exempting the tax perks given through legislative franchises from the FIRB’s review process could be prone to abuse.
“The bicam obviously wants to protect San Miguel Aerocity and other franchises. That’s going to be a big hole that will be gamed by vested interests to get incentives without being subject to rigorous scrutiny,” Mr. Sta. Ana said on Tuesday.
Mr. Sta Ana said the bicam report contained a provision under the third chapter of the bill stating:
“Notwithstanding the preceding tax and duty provisions, tax and duty incentives granted through legislative franchises shall be exempted from the foregoing expanded powers of the Fiscal Incentives Review Board to review, withdraw, suspend or cancel tax incentives and subsidies.”
One of the legislative franchises currently pending in Congress is Senate Bill 1823 which grants San Miguel Aerocity a 50-year franchise, with a 10 years’ worth of tax exemptions over the Bulacan airport’s construction period.
Also, Mr. Sta. Ana said they wanted the existing threshold for low-cost housing and residential lots eligible for VAT-exemption to be kept at P2.5 million and P1.5 million, respectively, as “the values stayed in the bicam bill are anyhow beyond reach of the workers.”
Mr. Sta. Ana said the bicam report increased the threshold to up to P2.5 million for low-cost housing and up to P4.2 million for residential lots.
“[Further], giving exemption on duties and taxes to local refineries is obviously discriminatory. Oil refineries are not even part of the SIPP (Strategic Investments Priority Plan),” he added.
Asked if the AER will ask the Office of the President for a line veto on these provisions, Mr. Sta. Ana said “Yes. Vested interests are strong.”
Despite this, he said the “bicam bill retains the bottom-line positions for a good reform,” stating it allowed incentives to be time-bound, performance-based, transparent and regulated through the FIRB.
He also noted the bill’s inclusion of non-exporters in export zones that provide inputs to exporters to be eligible for VAT exemption and the expansion of businesses considered as strategic industries that could avail of tax perks. — with inputs from G.M.Cortez