MANILA – The Philippines stands ready to cut income tax imposed on companies following a bill that companies have put on to recover from the pandemic.
The House of Representatives on Wednesday ratified the final version of the proposed Corporate Reclaim and Tax Incentives for Business (CREATE) Act, which will cut the income tax rate to 25% for large corporations and 30% to 20% for smaller countries in Southeast Asia.
The bill will be forwarded to President Rodrigo Duterte for signature after ratification by the Senate.
“CREATE is a historic economic reform, one of the largest in decades. As an economic stimulus package, CREATE will boost market confidence and immediately relieve companies suffering from business reversal due to the COVID-19 pandemic,” 51 groups of companies said in a joint statement last month, when they asked Congress to pass the bill.
The Philippines announced last week that its economy had contracted a record 9.5% in 2020, making it one of the hardest hit in the region.
An earlier version of the CREATE bill, approved by the Finance Department, was tabled in 2018, but its passage encountered difficulties due to resistance from foreign companies such as exporters and call centers enjoying long tax vacations.
CREATE retains some tax incentives, but adds deadlines to those benefits. In addition, companies setting up outside of Metro Manila will be granted longer tax breaks to encourage development outside the capital region and the economic center.
“The adoption of CREATE provides much needed clarity and ends the ongoing uncertainty about the bill that has hampered foreign direct investment and the Philippines’ ability to move supply chains away from China,” said Peter Mumford, analyst at Eurasia Group.
“However, tax incentives do not fully compensate for the Philippines’ other perceived weaknesses – compared to regional counterparts such as Vietnam – in manufacturing, including skilled labor shortages and a less extensive free trade network,” Mumford said in an earlier note, adding that the Philippines will eventually will benefit from their membership in the Regional Comprehensive Economic Partnership (RCEP).