Senators vote to keep CREATE bill intact

The proposal to split the corporate income tax reform bill into two did not prosper in the Senate as the majority of them voted to keep it intact on Thursday.

During the period of amendments for Senate Bill No. 1357 or the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE), the upper chamber deemed it best to settle the contention whether or not to separate the reduction of the corporate income tax rate and the rationalization of fiscal incentives.

Dividing the 14 senators physically present and active via teleconference during session, 10 voted to keep it intact.

Four stood firm that the bill should be split—Senate Minority Leader Franklin Drilon, Senators Richard Gordon, Francis Pangilinan and Imee Marcos.

The CREATE bill seeks an outright reduction in corporate income tax rate from the current 30% to 25%. This will further be reduced by 1 percentage point every year from 2023 to 2027 until it goes down to just 20%.

At the same time, the proposed law also aims to rationalize fiscal incentives.

Rationalization of incentives

Making the fiscal incentives time-bound and performance-based is considered the complicated part of the measure as some legislators point out it could actually discourage investments in the country amid the global COVID-19 pandemic.

Senate President Pro Tempore Ralph Recto proposed three different models on how to rationalize fiscal incentives other than what is stated in the CREATE bill.

The first option is to exempt five out of the 13 investment promotion agencies (IPAs) from the proposed law and let them keep the incentives regime that they are currently enjoying. These IPAs are the Philippine Economic Zone Authority, Subic Bay Metropolitan Authority, Clark Development Corporation,  Authority of the Freeport Area of Bataan, and Aurora Pacific EcoZone.

The second option is to rationalize incentives by distinguishing between domestic and export enterprises.

Implementing a "grandfather rule" or letting all existing investments retain their incentives and applying the CREATE bill only to the new businesses that will come in is the third option.

Senate Ways and Means Committee chairperson Pia Cayetano said she is leaning to the second option proposed by Recto.

"His honor has made a very good case on the importance of exports in the country and a lot of these IPAs have export industries... All the IPAs would still be under the Fiscal Incentives Review Board but perhaps with preferential treatment for the export businesses," Cayetano said. "I have an open mind to that."

The Senate decided to suspend consideration of the bill until November 9. They will study the proposed models during the break.

The CREATE bill is a tweaked version of the proposed Corporate Income Tax and Incentives Reform Act (CITIRA), taking into consideration the economic impact of the COVID-19 pandemic.

The lower house approved a counterpart bill last year.—LDF, GMA News