THE CORPORATE RECOVERY and Tax Incentives for Enterprises Act (CREATE), which is now awaiting President Rodrigo R. Duterte’s signature, is projected to provide around P1 trillion worth of tax relief over the next decade, the Finance chief said.
“CREATE is the largest fiscal stimulus program for enterprises in the country’s history, providing P1 trillion worth of tax relief over the next 10 years,” Finance Secretary Carlos G. Dominguez III said in his presentation at the Southeast Asia Development Symposium of the Asian Development Bank (ADB) on Wednesday.
Congress passed CREATE in February, but Mr. Duterte has yet to sign it. The priority measure will lapse into law on March 27.
The Finance department previously estimated CREATE, which will be implemented retroactively to July 2020, will mean foregone revenues of around P251 billion in the next two years. This is mainly due to the faster reduction in corporate income tax of local small businesses.
CREATE will slash the corporate income tax for local small businesses to 20%, from the current 30%. The tax rate for all other companies, meanwhile, will be reduced gradually to 25% starting July 2020 and to be cut further by one percentage point each year from 2023 to 2027 until it reaches 20%.
“With CREATE, we are leaving the money in the private sector’s hands to revitalize their enterprises. We trust that enterprises will re-invest their tax savings from CREATE back into the economy to spur domestic activity and create more jobs for our people,” Mr. Dominguez said.
The Department of Finance (DoF) is confident Malacañang will consider the inputs of the Finance department before the President signs it, Maria Teresa S. Habitan, an assistant secretary of the agency, said.
“We are hopeful that the President will sign CREATE and not simply let it lapse into law. We have reviewed the enrolled bill and the Office of the President has asked for comments, which we provided,” Ms. Habitan said in a Viber message on Tuesday.
She declined to identify which provisions under CREATE are being reviewed.
CREATE also aims to streamline the government’s fiscal incentives system to make it time-bound and performance-based.
MORE TAX REFORMS
In a policy brief released on Wednesday, the ADB said Southeast Asian countries should improve their tax systems to boost revenues, after the coronavirus pandemic further weakened the region’s tax capacity.
The ADB said Southeast Asian tax regimes had already been struggling to efficiently collect taxes even before the pandemic due to “fiscal decentralization, limited tax progressivity, outsized contributions of the informal economy, international tax avoidance, underreporting and misrepresentation of business income, lack of administrative capacity, and excessive administrative burden of compliance.”
“Despite strong and steady gross domestic product (GDP) growth in many Southeast Asian countries in recent years, tax yields have not increased proportionately. Even prior to the COVID-19 pandemic, many countries had not achieved the desired tax yield of 15% of GDP — a level now widely regarded as the minimum required for sustainable development,” the ADB said.
The multilateral lender said governments could expand their tax base through a broader personal income tax and new taxes on digital services, wealth, property and environmental hazards. They should also increase tax compliance, improve tax administration, and support international tax cooperation.
In his speech, Mr. Dominguez reiterated the country’s prudent fiscal approach to the pandemic to keep the budget deficit and debt stock at manageable levels.
“We were prepared to fight a long battle, exercising prudence over the use of our fiscal resources. The worst we could have done was to run out of water before the fire went out,” he said.
This year, he said the DoF will continue to work with Congress to pass the remaining two packages of the Comprehensive Tax Reform Program and other recovery measures.
These include the revenue-neutral tax measures that aim to improve property valuation and simplify the tax system on passive income, as well as the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.
Mr. Dominguez said other measures such as the amendments to the Foreign Investment Act, the Public Service Act, and the Retail Trade Liberalization Act should also be prioritized to attract more foreign investments and support the economy’s recovery. — Beatrice M. Laforga