THE Department of Trade and Industry (DTI) expressed the immediate need to come up with a new priority investment list as the country transitions to the recently signed corporate tax reform measure.
Monday (April 12), Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law is set to take effect. This facilitates the move to adopt the Strategic Investment Priorities Plan (SIPP), a list of investment sectors that may apply for fiscal incentives under CREATE.
“[We] need to have the list as soon as possible, and this is up for discussion, together with the IRR [implementing rules and regulations], in the first meeting of the FIRB [Fiscal Incentives Review Board],” Trade Secretary Ramon Lopez told the reporters over the weekend.
Also at the weekend, the chairman of the House Committee on Ways and Means urged the Board of Investments (BOI) to release the initial list of Covid-19 pandemic responsive industries eligible for incentives under CREATE Act.
According to Albay Rep. Joey Sarte Salceda, the BOI can release a preliminary list now that is responsive to the pandemic.
“Then cite economic recovery as a supervening event later. I just had a conversation with the Budget Secretary yesterday, and he believes we should expedite incentives for virology-related and Covid-19 biotechnology-related sectors. That’s perfectly doable,” Salceda said.
On Sunday, DTI’s Lopez explained that, “With the CREATE Law becoming effective…the intention is to provide at least the most basic incentive (Tier 1) under CREATE—provided they qualify—to sectors under IPP as the 2020 IPP [Investment Priorities Plan] will serve as the Transition SIPP until end-December 2021 or when the new SIPP is approved.”
SIPP breaks down the investment plan into three industry tiers. Tier 1 focuses on projects that offer job opportunities and those from emerging industries.
Lopez identified earlier the following as critical industries under SIPP: electrical and electronics; chemical and pharmaceuticals; machinery and transport; agriculture and agribusiness; information technology-business process management; research and development; and artificial intelligence, automation, robotics, and digital technologies.
Prior to CREATE’s enactment, IPP was already in place after it was signed by President Duterte in December 2020.
IPP identifies economic activities entitled to incentives, including investments that generate job opportunities outside of congested urban areas, commercialization of uncommercialized patents on products and services and export business, among others.
Lopez explained that IPP has undergone extensive consultations among private stakeholders, in addition to the Department of Finance (DOF) and National Economic and Development Authority (Neda). The investment plan was crafted in a bid to fast-track the recovery of the Philippine economy amid the ongoing pandemic, he added.
“During the extensive consultations for CREATE undertaken by the DOF and DTI-BOI [Board of Investments], we have assured stakeholders—particularly the investors and the legislators—of continuity as the [IPP] will serve as the initial platform in transitioning from EO [Executive Order] 226,” the Trade chief said.
EO 226 is the “Omnibus Investments Code of 1987,” a law adopted to attract investments with “cohesive and consolidated incentives” scheme.
Last week, Finance Secretary Carlos G. Dominguez III called for an early meeting of the new FIRB as CREATE takes effect this month. (Related story: https://businessmirror.com.ph/2021/04/08/dominguez-seeks-early-meeting-of-firb/)
The DOF wants to tackle as soon as possible the expanded functions of FIRB under the new tax reform measure. The body is chaired by DOF and DTI.
Under CREATE, the FIRB covers the tax incentives given to government-owned or -controlled corporations, companies granted by the investment promotion agencies and other state-run agencies to their respective registered business enterprises.
House Ways and Means Chairman Salceda, meanwhile, recently said his panel was working with BOI in finalizing SIPP. (Related story: https://businessmirror.com.ph/2021/04/06/house-eyes-new-industries-in-dti-post-create-list/)
The lawmaker said he wants innovations in food and agriculture manufacturing, financial technology, sanitation, healthcare and education to be included in the investment priorities list.
Under CREATE, the corporate income tax rate is reduced to 20 percent from 30 percent for domestic corporations with net taxable income of P5 million and below and have total assets of P100 million and below effective July 1, 2020. All other local firms and resident foreign companies are imposed a 25-percent income tax.
The BOI and Philippine Economic Zone Authority saw their investment approvals fall by 11.7 percent to P1.11 trillion last year from P1.26 billion in 2019. Half or P557.30 billion of these were accounted for by the construction sector.
‘Generous tax regime’
According to Salceda, he will soon hold briefings with the BOI to check the progress of the SIPP drafting.
The SIPP is valid for three years, subject to review and amendment every three years thereafter, unless a supervening event warrants its review.
“Actually, I worked on the base list with the BOI, and we want to continue discussing the list with the public, through hearings and briefings by my committee. I want the BOI to have that list released already as a preliminary list,” Salceda said.
“We will be having hearings with them in the coming weeks to see how best to work on this quickly. Hopefully, we can issue the list within the month,” Salceda added.
Depending on their industry tier, eligible enterprises can receive 4 to 7 years of income tax holiday (ITH) and 5 years of enhanced deductions thereafter for domestic enterprises, and 4 to 7 years of ITH plus 10 years of either enhanced deductions or special corporate income tax rate of 5 percent of gross income after the ITH.
“It’s one of the most generous tax incentive regimes in the world, but we need to be able to promote it. If they don’t know it, they won’t like it. And to be able to promote CREATE, we need that list of who’s eligible,” Salceda said.
Under CREATE, the BOI, in coordination with the FIRB, Investment Promotion Agencies, other government agencies administering tax incentives, and the private sector, shall formulate the SIPP for the President’s approval, containing recommendations for types of non-fiscal support needed to create high-skilled jobs to grow a local pool of enterprises—particularly micro, small and medium enterprises (MSMEs)—that can supply to domestic and global value chains. This is to increase the sophistication of products and services that are produced and/or sourced domestically, to expand domestic supply and reduce dependence on imports, and to attract significant foreign capital or investment.
“All we really need is to see the sectors in black-and-white in the SIPP,” said Salceda.
Tax exempt
Meanwhile, ACT-CIS Party-list Rep. Jocelyn P. Tulfo said the Department of Health and Food and Drug Administration should swiftly issue the list of products covered by the tax exemptions granted to Covid-19 items, so that unregistered, unauthorized, and smuggled products are barred from getting exemptions.
Section 12 of CREATE lists tax exemptions covering three sets of Covid-19 product groups. First set is for capital equipment, spare parts, and raw materials necessary to produce personal protective equipment (PPE) and items.
The second set covers Covid-19 drugs, vaccines, and medical devices. The third category is for all items and drugs needed to conduct Covid-19 clinical trials. The tax-exempt status is valid and in effect for sales and imports from January 1, 2021 to December 31, 2023.
On top of these, tax-exempt status is also granted for drugs to treat diabetes, high cholesterol, and hypertension beginning January 1, 2020, and drugs to address cancer, mental illness, tuberculosis and kidney disease.
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