Finance Secretary Carlos 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 to pandemic-hit firms.The Corporate Recovery and Tax Incentives for Enterprises Act (Create), formerly called the Corporate Income Tax and Incentives Reform Act (Citira), will slash the corporate income tax rate from 30 percent at present—the highest in the Association of Southeast Asian Nations, to 25 percent in July, if it hurdles the two chambers of Congress, Dominguez noted in a statement on Thursday.
The lower House already passed Citira last year, while the tweaks introduced by the Department of Finance in Create would be included in the Senate version, which would be tackled by the bicameral conference committee.
“Create is one of the largest economic stimulus measures in the country’s history, given that the measure would free up almost P42 billion in business capital for 2020 alone—and P625 billion over the succeeding five years,” Dominguez said, referring to the forgone revenues to be incurred by the government, which firms could nonetheless reinvest in their operations to recover postpandemic.
“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 might flee the country when the tax perks they enjoyed were reduced, hence could 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 would provide immediate relief to micro, small and medium-sized enterprises (MSMEs) as well as a longer sunset for Philippine Economic Zone Authority-registered firms.
Last week, Acting Socioeconomic Planning Secretary Karl Kendrick Chua said new investors would enjoy “targeted, time-bound and tailor-fitted tax incentives to proactively attract the right types of investments ” under Create.
For existing investors, there will be “no change in present incentives for the next four to nine years,” longer than Citira’s three- to seven-year sunset provision, Chua said.
As for investors in the countryside, Chua said “targeted and time-bound tax incentives [would] support the Balik Probinsya, Bagong Pag-asa program.”Gatchalian said he would 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 of 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 would appreciate during the depressed economy, and longer period for incentives, which was needed to attract investors.”
Chua last week said Create would 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 could absorb P139.6 billion in forgone tax revenues during the period 2021 to 2025.