Finance Secretary Carlos Dominguez III has underscored President Duterte’s fresh call for the Congress to pass the overdue measure providing an outright 5 percent cut in the corporate income tax rate (CIT) along with tailor-fitted incentives for investors, as an integral component of the government’s comprehensive plan to steer the coronavirus-shattered economy back to the path of high and inclusive growth.
Dominguez expressed the hope that the President’s renewed appeal in his 5th State-of-Nation Address (SONA) would finally convince lawmakers to approve the proposed Corporate Recovery And Tax Incentives for Enterprises (CREATE) Act, more so now when the bill has been recalibrated to better attract investors looking for new supply chain hubs, create more jobs and provide the biggest ever stimulus package for businesses in the face of the global economic downturn.
“We are hoping that our lawmakers will finally give their nod to this long due tax reform that has become an integral component of our government’s bounce back plan for the domestic economy battered by the unprecedented global health crisis,” Dominguez said in reaction to the President’s pitch for CREATE in his penultimate SONA.
The CREATE bill, which represents Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP), was approved by the House of Representatives last September, but remains pending in the Senate.
According to Senate President Vicente Sotto III, the CREATE bill, along with the Bayanihan to Recover as One Act (Bayanihan 2) and proposed long-term economic stimulus plans will be among the priorities of the Senate when the Congress resumes session starting this week.
Dominguez also welcomed the President’s commitment to push through with the high-impact projects under the “Build, Build, Build” program, which the Chief Executive pointed out are not “mere springboards for the country’s swift recovery,” but are effective tools to ensure that economic benefits are “distributed to all corners of the country, and push sustainability in urban centers, particularly [Metro] Manila.”
The Finance secretary has advocated the implementation of “Build, Build, Build” even midway through the quarantine measures, given that infrastructure investments have the highest multiplier effect on the economy, especially at this time when the government needs to boost business and consumer confidence.
Dominguez also credited President Duterte’s prudent fiscal and economic management for the country’s high credit worthiness, as reflected in the ‘BBB+” sovereign credit rating that S&P Global has maintained for the Philippines even amid the pandemic, which was a “vote of confidence in a sea of credit-rating downgrades and negative outlook revisions worldwide.”
On top of lauding the country’s credit ratings upgrade in his latest SONA, the President also cited the Philippines’ robust banking system, as he expressed confidence that the country is in a “better position” to weather the crisis spawned by the COVID-19 pandemic.
The President’s statement in his SONA about the government feat of shielding some 1.3 million to 3.5 million Filipinos from getting infected by the deadly virus was the result of his swift decision to put the goal of saving lives and communities above all other considerations, Dominguez added.
The CREATE bill, the redesigned package of the Corporate Income Tax and Incentives Rationalization Act (CITIRA), aims to immediately reduce the 30 percent CIT rate—the region’s highest—to 25 percent and further cut it by 1 percentage point each year until 2027, so that the rate will only be 20 percent by that time.
Dominguez said the measure aims to fuel economic dynamism, especially among the country’s growth engines—the micro, small and medium enterprises (MSMEs)—that employ a majority of Filipino workers.
Based on DOF estimates, the outright CIT cut would free up almost ₱42 billion in business capital in the first year of implementation, and ₱625 billion over the succeeding five years.
“This reform will also send 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.
CREATE will provide targeted, time-bound incentives tailor-fitted to the needs of investors that the country wants to attract, and an enhanced net operating loss carry over (NOLCO), extended from three to five years, for losses incurred in 2020 by all businesses that are not large taxpayers.
The bill also extends the sunset period for current incentive recipients from two to seven years, provided under the original CITIRA, to four to nine years to help them adjust in this time of crisis.
It also allows the Fiscal Incentives Review Board (FIRB) to recommend to the President the grant of longer incentives and additional non-fiscal incentives for deserving investments.
Various business and advocacy groups, such as the Federation of Philippine Industries (FPI), the Philippine Chamber of Commerce and Industry (PCCI), Financial Executives Institute of the Philippines (FINEX), Management Association of the Philippines (MAP), Tax Management Association of the Philippines (TMAP), and Action for Economic Reforms (AER) have urged lawmakers to pass CREATE to help make the economy an investment magnet in the region.