September 3, 2024 | 8:34 pm
By John Victor D. Ordonez, Reporter
The Philippine Senate on Tuesday approved on second reading the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill, which seeks to lower taxes on domestic and foreign companies to 20% from 25%.
Senate Bill No. 2762 also removes value-added tax (VAT) on goods and services to essential services such as janitorial, security, financial consultancy, marketing and human resources.
Large-scale domestic enterprises with a capital stock of more than P20 billion will also be entitled to a VAT zero rating on local purchases, VAT exemption on imports and duty exemptions on imports of capital equipment, raw materials, spare parts and accessories.
The Senate version of CREATE MORE transfers the responsibility of processing VAT refund claims to the Department of Finance from the Bureau of Internal Revenue (BIR) to cut delays. The House of Representatives approved its version of the bill in March.
The measure also ensures that registered business enterprises will be entitled to a 100% additional deduction on power expenses in a taxable year, up from 50% under the Tax Code, to address high power costs.
“A lower income tax rate will make investing in the country favorable so certain types of investors because it lowers the cost of doing business in the country,” Eleanor L. Roque, a tax principal at P&A Grant Thornton, said in a Viber message.
But for some businesses affected by the Base Erosion and Profit Shifting (BEPS) Pillar 2, lower tax rates may not be that attractive since they are subject to global minimum tax of 15%, she added.
Domestic tax base erosion and profit shifting relates to tax planning strategies that multinational companies use to exploit loopholes in tax rules to artificially shift profits to low or no-tax locations as a way to avoid paying tax.
The Organization for Economic Cooperation and Development (OECD)/G20 BEPS project helps governments deal with tax avoidance, ensuring that profits are taxed where economic activities generating them take place and where value is created, according to the OECD website.
Under the bill, local companies will be subject to a 2% local business tax based on their gross sales. They will also be allowed to maintain a work-from-home setup for up to half of their workforce to cut costs.
“In addition to lowering the tax rates, we should put more emphasis on transparency and predictability,” Ms. Roque said.
The bill allows the President to give fiscal and nonfiscal incentives to enterprises without the need for a recommendation from the Fiscal Incentives Review Board (FIRB).
It also sets the FIRB’s authority to review and monitor the compliance of investment promotion agencies in granting tax incentives.
The review board may also suspend the authority of IPAs that grant incentives to projects and activities with an investment capital over the P20-billion threshold, programs not listed on the national or local Strategic Investment Priority Plan, or for failing to comply with regulations and orders issued by the FIRB.
Rene D. Almendras, president of the Management Association of the Philippines (MAP), said Congress should continue pushing measures that would improve the ease of doing business in the Philippines.
Congressional efforts to cut red tape are welcome because they would improve the business climate and attract more foreign investors, he said in a Viber message.