DOF confident Create to be approved soon
With President Duterte’s backing, the Department of Finance (DOF) on Tuesday expressed confidence that Congress would soon pass the second tax reform package aimed at providing relief to businesses struggling amid the COVID-19 pandemic through lower income taxes.
“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,” Finance Secretary Carlos G. Dominguez III said in a statement on Tuesday, referring to the pending Corporate Recovery and Tax Incentives for Enterprises (Create) bill.
In his penultimate State of the Nation Address on Monday, President Duterte again pushed for Create—formerly known as Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) and, later on, the Corporate Income Tax and Incentives Reform Act (Citira) when first pitched to Congress at the start of this administration.
Amid the COVID-19 pandemic, the DOF had tweaked the second tax package into Create, which will slash the corporate income tax rate—currently at 30 percent and the biggest in Asean—to 25 percent, retroactively effective in July.
Dominguez earlier expressed optimism that firms would reinvest their tax savings to revive operations postpandemic.
Foregone revenues from the lower tax rates under Create were estimated to reach P42 billion this year—at a time when tax collections were weak amid a COVID-19-induced recession. This is on top of another P625 billion in revenue losses in the next five years.
Create will continue to cut companies’ income tax rate by 1 percentage point a year to 20 percent by 2027, while extending the net operating loss carry over perk to five years from three years at present under the Tax Code for losses to be posted this year by nonlarge corporate taxpayers.
Besides lower corporate income taxes, Create will also provide targeted, time-bound and tailor-fitted tax incentives to investors under a longer sunset period of four to nine years in consideration of registered firms badly hit by the COVID-19 crisis.
Also, Create will grant the President power to give-away heftier fiscal and nontax perks to large investments upon the recommendation of economic agencies.
“The measure aims to fuel economic dynamism, especially among the country’s growth engines—the micro, small and medium enterprises—that employ a majority of Filipino workers,” Dominguez said.
“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 added.
The bill containing the second tax reform package was already passed by the Lower House last year, and the refinements contained in Create were pending in the Senate.
Some senators had expressed reservations to the previous Trabaho and Citira versions as they had been feared to shed jobs once the tax incentives currently being enjoyed by investors were rationalized.