THE House of Representatives and the Senate on Wednesday separately ratified the bicameral conference committee version of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, and leaders of both chambers aired hopes its passage could revive—with projected new investments and jobs—an economy ravaged by Covid-19 pandemic lockdowns.
House Committee on Ways and Means Chairman Joey Sarte Salceda described passage of CREATE as one of the greatest economic reforms of the post-Edsa years, second only to economic amendments to the Constitution. At least P12 trillion in combined domestic and foreign investment and 1.8 million jobs are expected in the next 10 years with this, he said.
CREATE will now be transmitted to President Duterte for signature.
“This will also result in around 1.8 million jobs over the next 10 years. Combined with economic amendments to the Constitution to maximize impact, we can produce some 8.4 million jobs,” Salceda added.
“Removing the uncertainty will be like opening the floodgates to investment. I expect at least P12 trillion in combined domestic and foreign investment over the next decade due to CREATE alone; $90 billion of that will be FDI [foreign direct investment],” Salceda said.
Approval of CREATE is also seen to end investor uncertainty on the country’s fiscal regime, a matter that Salceda’s Senate counterpart, Sen. Pia Cayetano, said had given them the sense of urgency to shepherd the bill, for all its complicated provisions and the intense pressure from stakeholders.
Salceda put it this way: “We are also ending hesitation to invest in the Philippines. Because it took us time to come up with a consensus version, however, we lost $18 billion in foregone FDI from 2018 to 2020. The bleeding stops now.”
According to Salceda, “Fixing the incentives regime to make it more performance-based is also crucial. The current investment priorities plan covers some 70 percent of GDP. While I am willing to give incentives, they must be linked with economic outcomes. Better jobs for our people. Higher wages. More training. More research and development. Stronger business. More competitiveness.”
For his part, Speaker Lord Allan Velasco said the ratification of the proposed CREATE puts the Philippines in a better position to attract fresh money and make the economy more appealing as an investment destination.
“This latest reform to our fiscal regime lowers the corporate income taxes and provides incentives to businesses, therefore providing much-needed relief to our investors—whether big or small—severely impacted by the ongoing global health crisis. One important feature of this reform measure is to exempt from VAT and other duties the importation of Covid-19 vaccines, personal protective equipment or PPE, and treatment and clinical trial drugs, among others,” he said.
“The Philippines has the highest corporate income tax rates in Southeast Asia, and with CREATE, we can expect our country to be as competitive as our neighbors,” Velasco added.
Camarines Sur Rep. Luis Raymund Villafuerte coauthor of CREATE, said it will be the biggest economic stimulus for corporations in the country.
Its imminent enactment into law, said Villafuerte, would “underpin economic recovery as it would benefit primarily the country’s MSMEs [micro, small and medium scale enterprises] that account for more than 99 percent of domestic businesses and employ about 70 percent of local workers.”
Sen. Joel Villanueva expressed hope, meanwhile, that CREATE would help bring back jobs, “real jobs,” millions of which were lost in the pandemic.
Sen. Sherwin Gatchalian weighed in on this point. “Saving jobs is crucial at this time. While adult joblessness, based on the latest SWS survey, has somehow eased in November last year, we still need to find ways to help those who lost their jobs and small businesses recover from the economic difficulties caused by the pandemic through a hefty income tax cut,” he said.
CREATE is part of Package 2 of the Comprehensive Tax Reform Package of the Duterte administration.
The measure will lower corporate income tax from 30 percent, the highest in Asean, to 25 percent for large corporations, and 20 percent for small and medium corporations.
Relief
While CREATE will result in some P931 billion in tax savings for businesses, Salceda said this is to front-load relief and cover the economic gap caused by Covid-19.
The final bicameral version also shaved off P282 billion from the original revenue loss under the Senate version, he noted.
“We are front-loading relief now because relief is needed now,” Salceda said.
As shared by Senate Ways and Means committee head Sen. Pia Cayetano, the key features of the CREATE bill endorsed by the bicameral panel include: lowered corporate income tax from 30 percent to 20 percent for small and medium corporations (with net taxable income of P5 million and below, and with total assets of not more than P100 million excluding land); lowered corporate income tax from 30 percent to 25 percent for all other corporations; lowered percentage tax from 3 percent to 1 percent for small businesses whose gross sales or receipts do not exceed the VAT-exempt threshold of P3 million (effective July 1, 2021 to June 30, 2023); lowered minimum corporate income tax from 2 percent to 1 percent (effective July 1, 2021 to June 30, 2023);
The approved measure also includes these key fiscal incentives: up to 17 years of incentives (4-7 years of income tax holiday + 10 years of special corporate income tax or enhanced deductions) for exporters and for “critical” domestic market enterprises, which will be defined by Neda; up to 12 years of incentives (4-7 years of income tax holiday + 5 years of special corporate income tax [SCIT] or enhanced deductions) for other domestic market enterprises.
Domestic market enterprises may only qualify for SCIT if they have a minimum investment capital of P500 million.
To boost countryside development, CREATE provides: higher incentives for registered enterprises located outside of metropolitan areas to attract more investors and create more jobs in the countryside; additional 3 years of income tax holiday for registered enterprises that will fully relocate outside of the National Capital Region; and, additional 2 years of income tax holiday for registered enterprises in areas recovering from disasters or conflict.
On Covid-19 and health incentives, the bill provided: VAT-free sale and importation of Covid-19 drugs, vaccines, medical devices, and components of personal protective equipment (PPEs) until December 2023; VAT exemption for medicines for cancer, mental illness, tuberculosis, and kidney diseases; and, reduced preferential tax rates from 10 percent to 1 percent for non-profit hospitals and educational institutions (effective July 1, 2021 to June 30, 2023.
Moreover, it provided other tax relief provisions, including: higher VAT exemption threshold from P1.5 million to P2.5 million for socialized and low-cost housing, and from P2.5 million to P4.2 million for house and lot and other residential dwellings; and, VAT exemption on sale, importation or publication of e-books.