President Rodrigo Duterte’s chief economic manager floated the possibility of Congress convening a special session if pending stimulus bills, like the proposed Corporate Recovery and Tax Incentives for Enterprises Act (Create), get shoved in the legislature’s pile of unfinished business for lack of time.
Finance Secretary Carlos G. Dominguez III, Senator Pia Cayetano and Albay Rep. Joey Salceda nonetheless told an online press briefing that there was a good chance Congress would pass the Duterte administration’s second tax reform package despite having only a week before it goes on a break on June 3.
Create was already the metamorphosis of two previous bills that sat in Congress and didn’t pass—the proposed Corporate Income Tax and Incentives Reform Act (Citira) and the proposed Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) Act.
In touting Create, Dominguez said the Department of Finance (DOF) pitched the first-ever revenue-eroding tax package to serve as the country’s “largest fiscal stimulus program for enterprises.”
If passed by Congress next week, Create will cut the corporate income tax rate—currently 30 percent and the highest in Asean—to 25 percent in July.
Dominguez expressed optimism that Create would spur firms to reinvest their tax savings to revive the Philippine economy post-pandemic.
This despite the recession, forgone revenue estimated to hit P42 billion in 2020 alone, low tax collections and P625 billion more expected in revenue losses in the next five years.
According to Dominguez, Create would let MSMEs to “fund their operations and retain their employees.”
With revenue forgone, Dominguez said the government would rely on borrowings aside from studying Salceda’s proposal to improve taxation of digital transactions to raise more funds.
The other salient features of Create included 1-percentage point yearly reduction in companies’ income tax rate between 2023 and 2027 until it reached 20 percent.
The proposed law would also keep the 5-percent tax on gross income earned (GIE) incentive up to nine years among registered firms currently enjoying it.
Among other Create features were extending the sunset period for businesses to up to nine, extending net operating loss carryover (Nolco) for 2020 losses to five years and giving the President power to grant heftier tax and non-tax perks for massive investments upon recommendation by the Fiscal Incentives Review Board (FIRB).
The FIRB, chaired by the DOF, was authorized to grant incentives only to state-run firms. Create would empower the board to approve investors’ tax perks and oversee 13 investment promotion agencies (IPA) that give away tax incentives.
Dominguez said the Philippines was looking at investments in optics, like those in use as phone cameras, energy-saving gadgets, ocean energy and data analytics.
These investment areas are among other “forward-looking” and “next best” industries that would be determined by the Board of Investments.
“We should go out and ask them [potential investors], what do they need to come here?” Dominguez said.
The finance chief said it will up to the IPAs, with the FIRB’s guidance, to negotiate with investors on appropriate non-tax perks, which may include waiving land rent for a certain period, or training, among others.
Salceda said his estimates showed Create will save 120,000 jobs despite the pandemic and even create 64,000 new jobs.
In the next five years, Create was projected to generate a total of 1.5 million jobs, while adding 1.2 percentage point to gross domestic product (GDP) each year, Salceda added.
“Create will bring a ‘V-shaped’ economic recovery early next year,” Salceda claimed.
But while this proposed improvement in the corporate tax regime was already welcomed by business groups, its passage now lies in the hand of the Senate, as the House already passed Citira last year.
Salceda said the House leadership was supporting Create as long as the Senate’s version would be close to that proposed by the DOF, which would mean no need for a bicameral conference committee.
Cayetano said Citira had been under a period of interpellation in the Senate before Congress went on Holy Week break, and the Senate’s passage of Create as a substitute bill with the new DOF-proposed provisions may possibly happen in the next few days.
“I will be ready. Our proposal is already very generous as it is. If we can have an agreement, the period of amendments could go quickly,” Cayetano said.
But the flurry of stimulus packages pending in Congress, which also needed immediate action, may hamper efforts to fast-track Create’s passage.
For Dominguez, it will be “best to pass it now,” but in case time ran out before June 3, the finance chief said he was looking at asking Duterte to call on Congress to convene even during the break.
The special session will have to tackle the urgent COVID-19-response bills, Dominguez explained, although he said he has yet to formally propose the special session both to the President and legislators.
If passed by the Senate on or before June 3, the new corporate income tax system under Create could take effect as early as July, Dominguez said.