MANILA (Philippine Daily Inquirrer / ANN): The Senate and House of Representatives on Wednesday (February 3) ratified a major economic reform bill that would give companies a “much needed tax break” by lowering corporate tax after the two chambers agreed relying on a consensus version.
The Senate approved the final, unified version of the proposed law on corporate clawbacks and tax incentives for corporations (CREATE) on Wednesday afternoon, a few hours after it was passed by parliament.
CREATE, formerly called Citira, or the Corporate Income Tax Reform and Incentives Act, instantly cuts corporate tax from 30 to 25 percent.
Senator Pia Cayetano, who headed the Senate contingent during the bicameral discussions on the bill, said she was glad to finally find common ground with the House on the bill after years of being overridden.
“I am delighted, dizzy with excitement, to report to the Senate on the approved version of the CREATE bill,” she said.
Cayetano outlined the most important provisions of the bill in the bicameral report:
• Companies have the option of choosing between corporate income tax of 5 percent and increased deductions after taking income tax leave
• Greater incentives for businesses outside of metropolitan areas
• Additional incentives for companies relocating entirely outside of the National Capital Region
• Additional incentives for those settling in areas recovering from disasters or armed conflict
Some important provisions in the Senate version that were retained in the bicameral report were:
• Immediate reduction in corporate income tax to 20 percent for domestic corporations with total assets of no more than 100 million pesetas (excluding land) and a taxable net income of no more than 5 million pesetas; 25 percent for all other companies
• At least 1 percent corporation tax valid from July 1st, 2020 to June 30th, 2023
• Tax rate of 1 percent for in-house educational institutions and hospitals that are non-profit from July 1, 2020 through June 30, 2023
• Value-added tax exemption threshold for socialized and inexpensive living to 2.5 million P2 and 4.2 million P2 for house and property
• VAT exemption for drugs against cancer, mental illness, tuberculosis and kidney diseases from January 1st, 211
• VAT-free import and sale of Covid-19 drugs and personal protective equipment from January 1, 211 to December 31, 2023.
“Instead of reducing corporate tax by just 1 percent, we are immediately lowering the corporate tax rate by 5 percent. It will now be 25 percent. And for MSMEs (micro, small and medium-sized enterprises) it will be 20 percent, depending on certain conditions, as previously reported, ”said Cayetano.
Senator Sherwin Gatchalian described the CREATE bill as a “much needed tax break” for many pandemic companies still struggling with their finances.
It could “prevent a wave of bankruptcies that could affect the country’s economic growth in the long term,” he said.
Albay Rep. Joey Salceda, head of the House Tax Panel, told CREATE, “We’re cutting corporate taxes to bring them closer to the Asean average.”
Asean is the 10-nation association of Southeast Asian nations that brings together the Philippines, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam.
Salceda said that with CREATE, he expected at least pesetas 12 trillion in domestic and foreign investment over the next decade, of which approximately $ 90 billion would be foreign direct investment.
Around 1.8 million jobs would be created over the same period, and economic changes in the constitution could create up to 8.4 million jobs, Salceda said.
Spokesman Lord Allan Velasco said, with CREATE’s approval and efforts to amend the Constitution, “We are confident that we can accelerate our economic recovery, attract more local and foreign investors and create jobs for the Filipino people.”
While CREATE is commended for the tax reforms it seeks to initiate, an economic think tank said insertions were made in the bill that would prevent the hands of the president and the future Fiscal Incentives Review Board (FIRB) from taking advantage of corporate incentives granted to regulate legislators.
Under the CREATE law, the FIRB, under the joint chairmanship of finance and trade heads, can approve or reject tax incentives for projects over 1 billion pesetas. The president can modify these tax breaks to attract large-ticket investments so they can enjoy these privileges for up to four decades.
However, the tax and tariff incentives provided by legislative franchises are exempt from the President’s power to review, withdraw, suspend, or suspend tax incentives and subsidies, as evidenced by a copy of the consensus law received from the investigator.
Another provision also exempts legislative franchisees from the FIRB review or cancellation of their tax breaks.
“This provision opens the floodgates for interest groups who want to receive incentives without being scrutinized,” said a statement by the independent think tank Action for Economic Reform (AER).
“The governance of the FIRB keeps companies accountable and competitive, and the removal of the FIRB’s power to withdraw incentives from legislative concessions is against the core principles of CREATE,” it said.
According to a statement from Tony La Viña, professor of constitutional law, the main goal of a legislative franchise is to benefit the public, while the rights and interests of the franchisee come second.
A current example of this is the San Miguel Corp. airport project. in Bulacan, which quickly secured a 50-year legislative franchise.
Crude oil imports from local refineries would also be exempt from applicable duties and taxes, the AER said.
The exemption would be “discriminatory” and would benefit certain importers, the AER said, adding that oil refineries were not part of the strategic investment priority plan, which specifies which activities are eligible for incentives.
The group also pointed to the VAT exemption for inexpensive and socialized housing, saying such exemptions are not a “focus of CREATE”.
“Poor households do not benefit from VAT exemptions for housing. These exemptions only benefit the rich, while they drain funds from development programs for the marginalized, ”it says.
The group called on President Rodrigo Duterte to exercise his veto power over line items to remove these “questionable” insertions. – Philippine Daily Inquirer / Asia News Network