Finance Secretary Carlos Dominguez III on Thursday sought the support of the business community to help convince Congress to pass the corporate income tax reform bill.
“I invite all of you to participate in convincing our Congress of the need to urgently pass this bold reform. There is no better time to reform our corporate income tax system, and modernize our fiscal incentives system than now. This could be the most important economic reform in decades,” Dominguez said during a virtual joint meeting of local and foreign business groups hosted by Financial Executives Institute of the Philippines (FINEX) and Management Association of the Philippines (MAP).
“As statements of our partners in industry and civil society show, the economy can no longer bear any delay in this reform. Now is the best time to do it,” he said.
“I strongly believe that your collective voice will finally get us over the hill in this policy effort. The unequivocal support of the business sector is crucial in urging our lawmakers to rally behind this long-overdue reform. There could not be a stronger signal that this country is back in the game than the passage of CREATE," the Finance chief added.
The Cabinet official made the call days ahead of the Congress' sine die adjournment from June 6 to July 26, 2020.
The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill —the modified version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill —provides for an outright 5% cut in the corporate income tax (CIT) rate from the current 30% and an improved set of flexible tax and non-tax incentives for investors.
With the CIT cut, Dominguez said the government entrusts in the private sector the funds and resources needed to fire up the economy and quickly bring back the country to the path of high-and inclusive-growth.
“Rather than increase the national budget and pass funds through less efficient government, the Duterte administration has decided that the more prudent and effective approach in ensuring the country’s recovery from the coronavirus disease 2019 (COVID-19) crisis is by reenergizing the business community through this tax reform, now dubbed the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE),” the Finance chief said.
The immediate 5% CIT reduction will 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 in the wake of the global health emergency triggered by COVID-19.
The 5% CIT reduction is estimated to reduce government revenues by P42 billion in the second half of the year alone if CREATE is implemented by July, and by another P625 billion over the next five years.
However, the foregone government revenues could fuel economic activity as this can be used by businesses, especially micro, small and medium enterprises (MSMEs), to fund their operations and retain their employees.
The urgent passage of the CREATE bill, Dominguez said, is one of the five measures that he has recommended to President Duterte to help the country beat the pandemic and bring it back to the path of inclusive and shared prosperity.
Aside from the outright tax cut, among the major features of the CREATE bill are the following:
- Additional 1-percentage point reduction every year from 2023 to 2027 until the CIT rate reaches 20 percent
- Extension of 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 difficult time
- Lengthening the period of the net operating loss carryover (NOLCO) for non-large taxpayers from the current three years to five years, which will be credited for losses incurred in 2020
- Flexibility of the Fiscal Incentives Review Board (FIRB), which will be allowed to recommend to the President the grant of longer incentives and additional non-fiscal incentives for deserving investments
The corporate tax reform bill, previously known as CITIRA, was approved at the House of Representatives in September 2019 as House Bill No. 4157. The Senate version, Senate Bill No. 1357, which is certified as urgent by President Rodrigo Duterte, is undergoing interpellations.
In a joint statement, 32 of the biggest groups in the country expressed support for the passage of the CREATE bill.
“We expressly reiterate our strong support for the immediate passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE). CREATE is a bold, historic economic reform, one of the largest and most game changing in decades," the joint statement read.
"As a stimulus package, CREATE will be a life-restoring boost to market confidence, providing the most direct, cost-efficient and instant relief to businesses suffering from business reverses due to COVID-19,” it added. —LDF, GMA News