MANILA, Nov 26 (Mabuhay) — Voting 20-1, the Senate on Thursday approved on third and final reading the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, an urgent measure being lobbied for by the Duterte administration’s economic managers amid the COVID-19 pandemic.
Senate Bill No. 1357 seeks an outright reduction in corporate income tax rate from the current 30% starting July 1, 2020 by amending the National Internal Revenue Code. It was approved on second and third reading on the same day as it has been certified as urgent by Malacañang.
Under CREATE, progressive tax rates would be applied to domestic corporations depending on their assets and taxable income. Those with assets amounting to P100 million and below, as well as those with taxable income equivalent to P5 million and below, would be subjected to a 20% tax rate.
Domestic enterprises with assets above P100 million or those with taxable income amounting to more than P5 million would have to comply with a 25% tax rate.
Not included in the computation of the total assets were the value of the land where the property, plant, and equipment are situated.
Meanwhile, foreign corporations would have a fixed reduced tax rate at 25%.
The Philippines currently has the highest corporate income tax rate in the ASEAN region at 30% since 2009, while Singapore has the lowest at 17% since 2010, according to the Department of Finance.
The administration’s economic team previously estimated that the passage of this corporate income tax reform bill would mean a P40 billion reduction in government revenues for the second half of 2020 alone—an amount which firms can use to fund their operations and retain their employees amid the COVID-19 pandemic.
In the next five years of CREATE’s implementation, the foregone government revenues are estimated to reach P600 billion.
At the same time, the proposed law also aims to rationalize fiscal incentives by making them time-bound, targeted, and performance-based.
The Fiscal Incentives Review Board (FIRB), chaired by the Secretary of Finance, shall be in charge of granting incentives to registered projects or activities with investment capital of above P1 billion.
The grant of incentives to those with investment capital P1 billion and below, meanwhile, shall be delegated to the Investment Promotion Agencies, provided that the FIRB may increase this threshold periodically or as may be necessary.
The measure also gives the President of the Philippines the power to approve a modified set of incentives to attract highly-desirable investments that would usher in more employment opportunities, specifically those with minimum investment capital of P50 billion.
Senate ways and means committee chairperson Pia Cayetano said exporters and domestic enterprises would be given distinct perks, considering that they “have a different market, and therefore, their needs and their ability to be profitable are different.”
Exporters will have the option to continue availing of the special corporate income tax rate of five percent on gross income earned (GIE) for 10 years, or avail of enhanced deductions.
On the other hand, domestic enterprises may avail of the enhanced deductions for 10 years.
Both exporters and domestic industries will also enjoy a four to seven-year income tax holiday under the CREATE bill, according to Cayetano.
Meanwhile, existing registered businesses who were granted income tax holidays will be given ample time to enjoy it for the period it was granted before transitioning to the provisions under CREATE.
“And for those who have been enjoying the 5% gross income earned tax, regardless of the number of years that they have been enjoying the incentives, all will have 10 years to transition to CREATE,” Cayetano added.
Senator Richard Gordon was the lone senator who voted against the approval of CREATE after his proposed amendment of exempting some freeports from the jurisdiction of FIRB has been rejected in plenary.
The House of Representatives already approved its version of the corporate income tax reform bill last year. (MNS)