Create, as it is, is ‘inequitable, inefficient,’ says economists’ group

A group of economists and professors from three of the country’s biggest universities expressed opposition to the current version of the proposed Corporate Recovery and Tax Incentives for Enterprises (Create) Act, saying it was both “inequitable and inefficient.”

The economists and professors were from Ateneo de Manila University, De La Salle University and University of the Philippines’ Diliman and Los Banos campuses.

They issued a joint statement just a day before Congress goes on another one of its many breaks.

“We oppose Create in its current form,” said the joint statement.

It listed these reasons:

The proposed law is “inequitable and inefficient.”
It is a “mere tax relief for incorporated businesses equivalent to a subsidy.”
MSMEs are left out
It falls short “in terms of distributive justice”

Signatories to the statement were prominent names in economics and the academe.

They were National Scientist Raul Fabella, former socioeconomic planning secretaries Dante Canlas and Emmanuel Esguerra, Ronald Mendoza, Ramon Clarete, Majah Leah Ravago, Sarah Lynne Daway-Ducanes, Leonardo Lanzona, Marjorie Pajaron, Geoffrey Ducanes, Joseph Lim, Luisito Abueg, Agham Cuevas, Marites Tiongco, Yolanda Tan Garcia, Ma. Angeles Catelo, Asa Jose Sajise, Krista Danielle Yu, Amelia Bello, Jefferson Arapoc, Paul Joseph Ramirez, Emmanuel Genesis Andal, Niño Alejandro Manalo, and Anna Floresca Firmalino.

“Create is an immediate negative shock to tax collection and the national budget,” the statement said. This, it added, would come “at a time when the budget deficit has breached targets considered manageable.”

It said the deficit-to-GDP ratio had gone past the 3.2 percent target and would reach 8.1 percent this year. The DOF, in another story, said the country can afford a debt-to-GDP ratio of 9 percent.

Create seeks to drop corporate tax rate effective in July to 25 percent from 30 percent, highest in Southeast Asia. It would result in P45 billion in forgone revenue in the second half of this year.

“The reduction in the corporate income tax rate is most likely to be ineffective,” said the group of economists and professors.

It said this was because of “the shock to aggregate demand triggered by the pandemic.”

Create, as it is, “is not likely to deliver extra income growth and investment from large corporations,” the statement said.

It said big business was already being helped by credit, interest rate and regulatory relief by the Bangko Sentral ng Pilipinas.

The BSP program, the statement added, was like an “across-the-board corporate income tax rate cut”. Through its rate cuts and other policy issuances, the BSP had already targeted companies “that are legitimately in need of relief” while not hurting the government budget.

The group said Create would add to the burden of the poor who are already reeling from higher taxes on consumption under the Tax Reform for Acceleration and Inclusion (Train) Act.

“As more of the low-income groups slide below poverty levels, the benefits from Create will only trickle down if firms actually reinvest in jobs-intensive recovery,” the group said.

“During crucial period when economic stimulus should be both pro-poor and decisive, this is both inefficient and inequitable,” it said.

“As currently designed, Create will take from the teeming poor to give to the few rich,” it claimed.

The 24 economists and professors also expressed apprehension about Create’s potential impact on existing ecozone locators.

The group said the proposed law replaces “flexible incentive scheme” with “discretion.”

It said investors in Philippine Economic Zone Authority (Peza) locations “do not welcome this change from rules to discretion.”

“We simply cannot afford to add more uncertainty during this fragile recovery period from the COVID-19 pandemic,” the statement read.

“The proposed flexible incentive system adds the extra transaction cost of the new bureaucratic layer and the lobbying cost it entails in the corridors of power,” it said.

“These are deadweight losses, which need not be incurred during this period of economic fragility, if Create were shelved,” it added.

To improve Create, the group proposed unbundling the bill’s corporate income tax reduction and fiscal incentives segments; preserving the initial plan to gradually reduce the corporate tax rate; maintaining revenue-neutrality; and keeping the status quo at Peza.

Edited by TSB