Finance Secretary Carlos Dominguez III has thanked the Senate for making history with its approval on Thursday of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Once signed into law, CREATE will finally put in place long-needed reforms in the country’s corporate tax and fiscal incentives system.
Dominguez said the Senate’s timely passage of the CREATE bill will provide businesses with one of the largest economic stimulus measures in the country’s history to help them recover from the economic turmoil caused by the COVID-19 pandemic.
“We thank the Senate under the leadership of Senate President Vicente Sotto III, Senate Majority Leader Juan Miguel Zubiri, and Senate Committee on Ways and Means Chair Pia Cayetano, for tirelessly working to ensure that the CREATE bill is approved in time for pandemic-hit enterprises to benefit from this measure,” Dominguez said.
Cayetano, as chairperson of the Senate Ways and Means Committee, and her fellow senators deliberated on the bill for 14 months and worked closely with the Department of Finance (DOF) to ensure that a fiscally responsible measure would be enacted by Congress, Dominguez said.
“We also thank the House of Representatives for passing last year its version of the corporate tax reform from which the Senate had adopted many features.” Dominguez said.
The House of Representatives approved the earlier version of CREATE, then known as the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, in September last year.
Dominguez also expressed his thanks to former secretaries and officials of the DOF, National Economic and Development Authority (NEDA), and Bangko Sentral ng Pilipinas (BSP) and the many business groups, economic experts, members of the academe, and civil society organizations that supported the bill from the time it was introduced in the House in the previous Congress.
“The success of TRAIN, CREATE, and other tax reform measures cannot be attributed exclusively to current efforts. In fact, our tax reform program is a logical continuation of the decades of reforms arduously passed by previous administrations, notably under Presidents Arroyo and Aquino,” he said. Dominguez added that with CREATE, the Duterte administration has delivered five packages of its Comprehensive Tax Reform Program.
The CREATE bill, which will benefit pandemic-hit businesses, especially micro, small and medium enterprises (MSMEs), was certified as urgent by President Duterte, who had called on Congress to pass the measure in four of his State-of-the-Nation Addresses (SONAs).
With the Senate’s approval of the CREATE bill, Dominguez is hopeful that it will be submitted for the President’s signature this December. “This will allow taxpayers to properly adjust their books and returns for the filing season as the reduction of the CIT rate will be retroactively applied to July 1 of this year,” Dominguez said.
MSMEs, which make up 99 percent of all enterprises in the country, will be the biggest beneficiary of CREATE as they will receive the largest ever CIT cut in the country’s recent history. In the Senate version, domestic corporations with total assets, excluding land, of not more than 100 million pesos and net taxable income of P5 million pesos and below will enjoy an immediate 10 percentage point reduction in the CIT rate, from 30 to 20 percent.
All other corporations will benefit from an immediate reduction of the CIT from 30 percent to 25 percent.
Moreover, under the Senate version of CREATE, taxpayers whose gross sales or receipts do not exceed the value-added tax (VAT)-exempt threshold of 3 million pesos and are subject to the 3 percent percentage tax shall only pay 1 percent instead from July 1, 2020 to June 30, 2023.
Proprietary and non stock educational institutions and hospitals are also among the major beneficiaries of the Senate version as it reduces the preferential tax rates enjoyed by these entities from 10 percent to 1 percent from July 1, 2020 to June 30, 2023.
On the long-overdue fiscal incentives reform, investment promotion agencies (IPAs) maintain their key functions and powers under their respective charters, but they will now be supervised by the Fiscal Incentives Review Board (FIRB). Approvals of incentives for investments with capital exceeding P1 billion pesos will be made on the FIRB level.
Dominguez said that placing the governance of tax incentives under this body chaired by the Department of Finance and co-chaired by the Department of Trade mirrors international best practice and is a major win for the Filipino people. The FIRB ensures accountability and transparency in the grant of tax incentives.
CREATE also enhances the flexibility of our incentives system so that we can proactively attract investments that will bring exceptional benefits to the Filipino people.
“These reforms in the fiscal incentives system are crucial for us to be able to compete for high-value investments, which are what we want to attract. The passage of CREATE is timely as many investors located in China are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier when parts of China were locked down to prevent the spread of COVID-19,” Dominguez said.
Under CREATE, a Strategic Investment Priority Plan (SIPP) shall be formulated every three years to identify priority projects or activities that will receive incentives.
A DOF study utilizing data made available through the Tax Incentives Management and Transparency Act (TIMTA) revealed that the government gave away P477.17 billion in tax discounts and exemptions to favored enterprises in 2018 alone. These incentives were granted without a mechanism in place to assess their net benefit to the economy, which CREATE corrects.
Dominguez said certain sectors claim that CREATE has created uncertainty in the business community, “but many investors have told us that they were waiting for the congressional passage of this corporate tax reform.”
He said tax reform and the prudent fiscal policies implemented by the President have provided the government the fiscal space it needs to bankroll COVID-19 containment measures and provide relief to poor Filipino families and other sectors hardest hit by the pandemic.
-oOo-
Source: https://www.dof.gov.ph/dominguez-thanks-senate-for-passing-create-bill/