Finance Secretary Carlos G. Dominguez III has urged the Senate to pass the improved and more COVID-19-responsive version of the Duterte administration’s corporate income tax reform package as a form of stimulus for pandemic-hit firms.
The Corporate Recovery and Tax Incentives for Enterprises Act (Create), formerly the Corporate Income Tax and Incentives Reform Act (Citira), will slash corporate income tax rate from 30 percent at present—the highest in Asean, to 25 percent in July, if it hurdles the two chambers of Congress, Dominguez noted in a statement on Thursday (May 21).
The House already passed Citira last year, while the tweaks introduced by the DOF in Create will be included in the Senate version, which shall be tackled by the bicameral conference committee.
“Create is one of the largest economic stimulus measures in the country’s history,” Dominguez said.
He said the measure would free up nearly P42 billion in business capital in 2020 alone and P625 billion in the next five years, referring to forgone revenue to be incurred by the government but which companies were expected to reinvest to recover from pandemic recession.
“This recalibrated [tax] package two is clearly not an effort to raise taxes as this will be decisively revenue-negative, leaving more resources in the hands of business owners to fund operations and retain employees,” Dominguez said.
“On top of the outright 5-percent tax cut in 2020, the Create bill also provides for a 1-percentage point reduction in the corporate income tax each year until 2027, so that the rate will only be 20 percent by that time,” Dominguez added.
In contrast, Citira had provided for a gradual cut in the tax rate slapped on companies over a 10-year period.
“The large and immediate rate cut in the second half of 2020 also sends a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains,” Dominguez said.
Dominguez had urged Congress to pass Create before it goes on sine die break on June 3.
Some senators earlier expressed reservations about Citira, fearing that investors may flee the country when the tax perks they enjoy were reduced and result in job losses.
Besides corporate income tax reduction, Citira was also aimed at rationalizing fiscal incentives that result in forgone government revenues.
Sen. Sherwin Gatchalian told the Inquirer that Create was “more palatable” as it will provide immediate relief to micro, small and medium enterprises (MSMEs) as well as a longer sunset period for Philippine Economic Zone Authority (Peza)-registered firms.
Last week, acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said new investors will enjoy “targeted, time-bound, and tailor-fitted tax incentives to proactively attract the right types of investment” under Create.
For existing investors, there will be “no change in present incentives for the next four to nine years,” Chua had said, longer than Citira’s three- to seven-year sunset provision.
As for investors in the countryside, Chua had said “targeted and time-bound tax incentives [will] support the Balik Probinsya, Bagong Pag-asa program.”
Gatchalian said he will support Create because “times have changed due to COVID-19—MSMEs are being battered left and right.”
“Unemployment can potentially shoot up to 10 percent—creating an additional three million people jobless. Create bill is timely,” Gatchalian added.
For his part, Sen. Sonny Angara told the Inquirer that Create had ”a lot of positives—lowering of corporate income tax, has net operating loss carryover (Nolco) which almost all will appreciate during the depressed economy, and longer period for incentives which is needed to attract investors.”
Chua last week said Create will not only extend Nolco to five years but also credit losses incurred in 2020 to future tax payments.
Dominguez last month said that once Congress agreed to the longer Nolco period, the government can absorb P139.6 billion in forgone tax revenues during the period 2021 to 2025.
Edited by TSB
Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.
For feedback, complaints, or inquiries, contact us.