Senate, House ratify proposed CREATE Law

The Senate and the House of Representatives on Wednesday ratified the measure providing for the government's second package of tax reforms, or the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law.

The ratification came after the bicameral conference committee reconciled the disagreeing provisions of the two chambers' versions.

The measure is expected to be transmitted to Malacanang for the president's signature.

The measure seeks to lower the corporate income tax from 30% to 20% for small and medium corporations, and from 30% to 25% for all other corporations.

Small and medium enterprises as defined in the measure are those with net taxable income below P5 million and total assets below P100 million.

Senate Committee on Ways and Means chairperson Pia Cayetano, the principal sponsor of the measure in the Senate, stressed that the revenue loss as a result of the CREATE bill passage will eventually be worth it.

“We are hopeful that the revenues that the government stands to lose will provide the stimulus that our economy needs to rebound from the contraction it sustained last year,” she said.

“We ratify this unprecedented measure that will serve as our roadmap to a more sustainable future, as well as our fulfillment of the overdue reforms in the country's tax and fiscal incentives system,” she added.

House Committee on Ways and Means chair Joey Salceda, who pushed the measure at the chamber, said he expects at least P12 trillion in combined domestic and foreign investment over the next 10 years due to the CREATE Law.

The measure will also result in the generation of around 1.8 million jobs over the next decade, he added.

"This will be the greatest economic reform of the post-EDSA years, second only to economic amendments to the Constitution. Removing the uncertainty will be like opening the floodgates to investment," Salceda said.

At the same time, the measure also aims to lower percentage tax from 3% to 1% for small businesses whose gross sales or receipts do not exceed the VAT-exempt threshold of P3 million beginning July 1, 2021 until June 30, 2023.

It also reduces the minimum corporate income tax from 2% to 1% effective July 1, 2021 to June 30, 2023.

Fiscal incentives

The proposed CREATE Law also provides for up to 17 years worth of incentives for exporters and for "critical" domestic enterprises, with four to seven years of income tax holiday and 10 years of special corporate income tax.

The measure mandates the National Economic Development Authority to define the "critical" enterprises.

Similar privileges are likewise extended to other domestic enterprises, with four to seven years of income tax holiday and five years of special corporate income tax for those with investment capital not less than P500 million.

Performance-based enhanced deductions will also be given under the CREATE Law to encourage job creation, value added, research and development, training and the use of local materials.

To encourage countryside development, registered enterprises that will fully relocate outside the National Capital Region will be entitled to an additional three years of income tax holiday under the proposed CREATE Law.

Meanwhile, those that will locate in areas recovering from disasters or conflict will be entitled to an additional two years of income tax holiday.

No veto appeal

Given these provisions, Senate President Pro-Tempore Ralph Recto warned the Chief Executive against tinkering with the measure.

“Yes, everybody gets a haircut [under this measure], but everybody gets a hair grower too. Hopefully, this will be implemented soon, as CREATE can be a ventilator that will help companies in ICU, or prevent them from entering one,” Recto said.

“My fervent prayer is that these should not be vetoed by the President. He will lose his credentials as our consoler-in-chief if he will thumb down our proposal to remove the tax on the medicines of people fighting for their lives,” Recto added.

Senator Sherwin Gatchalian, for his part, said that the CREATE law's implementation should proceed unhampered for it to provide the much-needed relief.

“One of the challenges faced by MSMEs is the difficulty in raising money to maintain or resume its operations. CREATE is a much-needed tax break for many pandemic-hit companies that are struggling with their finances and as a result, could prevent a wave of insolvencies that could affect the country's economic growth in the long run," Gatchalian said.

“The tax relief offered by CREATE will put more money in the pockets of businesses who are consumers themselves, which as a result will boost spending on a sustained basis and stimulate the economy. Increasing consumption and spending could translate to continuing businesses and retaining workers or even expanding businesses which means more work opportunities and more money in the hands of ordinary Filipinos,” Gatchalian added.

Health incentives

Aside from these, the measure also provides several COVID-19 and health incentives, including VAT-free sale and importation of COVID-19 drugs, vaccines, medical devices, and components of personal protective equipment until December 2023.

It also provides VAT exemption for medicines for cancer, mental illness, tuberculosis, and kidney diseases.

At the same time, the measure reduces preferential tax rates from 10% to 1% for non-profit hospitals and educational institutions beginning July 1, 2021 until June 30, 2023.

Speaker Lord Allan Velasco welcomes the ratification of the proposed CREATE Law, saying that it would put the Philippines in a better position to attract investments as it recovers from the impact of the COVID-19 pandemic.

"The Philippines has the highest corporate income tax rates in Southeast Asia, and with CREATE, we can expect our country to be as competitive as our neighbors," he said.

"With the approval of CREATE together with our efforts to amend the restrictive economic provisions of the 1987 Constitution, we are confident that we can hasten our economic recovery, attract more local and foreign investors and create jobs for the Filipino people," he added.—LDF, GMA News