THE Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill is expected to be positive for the economy in the long run, but may bare revenue weaknesses in the short-term upon its passage, an international credit watcher said.
In its most recent credit opinion on the Philippines, Moody’s Investors Service, overall, lauded the country’s move to push forward the CREATE bill agenda on both houses in legislation, but warned of its short-term effects.
“The government expects the CREATE bill to position the Philippines to benefit from the ongoing supply chain shifts as countries reconfigure trade relationships following the coronavirus pandemic. However, as the lower corporate tax rate will be applicable once the bill is signed into law, the CREATE bill may exacerbate the near-term weakness in revenue,” Moody’s said.
Nonetheless, it acknowledges that “the introduction of limits to tax incentives—many of which were previously granted in perpetuity—will expand the tax base over the long-run.”
Earlier this month, the Senate and the House of Representatives separately ratified the bicameral conference committee version of the bill. It now awaits the President’s signature.
“The passage of the bill will facilitate both domestic and foreign investment, which helps to revive economic growth; uncertainty regarding tax incentives has been cited as a key constraint to higher FDI [foreign direct investment] inflows in recent years,” Moody’s said.
The CREATE bill seeks to cut corporate income tax from 30 percent down to 25 percent for large corporations and 20 percent for small and medium businesses.
Analysts and officials have earlier said that the large corporate tax in the country, which is one of the highest in Southeast Asia, is one of the biggest reasons behind slow FDI inflow to the country compared to its peer nations.
The bill also says small businesses whose gross sales do not exceed P3 million will only pay 1 percent of value-added tax (VAT), down from 3 percent.
The CREATE bill also grants longer income tax holidays for businesses outside Metro Manila in the hopes of encouraging economic development and creating jobs beyond the capital region.