The Department of Finance (DOF) said the enactment of Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, amid the lingering pandemic is a much-awaited relief for many businesses, especially micro, small and medium enterprises (MSMEs) and workers reeling from the economic turmoil set off by the coronavirus disease 2019 (COVID-19) health crisis.
“The CREATE Law will right away benefit MSMEs by way of lower corporate income taxes (CIT) rates and other tax relief measures. This culmination of years-long intense discussions on the rationalization of tax incentives for businesses spells finis to the prolonged investor uncertainty over the final shape of this corporate taxation reform and signals to the rest of the world that the Philippines is back in the game to attract investments, create jobs and achieve inclusive growth,” said
“In the long run, savings from the reduction in CIT rates will provide enterprises with more resources to re-invest in their businesses or expand their operations and thus create more jobs. The modernization of the fiscal incentives system with the inclusion of more generous or attractive come-ons will let the government attract the right kind of investors that it wants to do business in the country to provide quality jobs and better opportunities for the Filipino people,” he added.
The law cuts the regular CIT rate by 10 percentage points, from 30 to 20 percent, for domestic corporations with a taxable income of P5 million and below, and with total assets of not more than P100 million.
All other domestic corporations will benefit from an immediate reduction of the CIT rate from 30 percent to 25 percent. Foreign corporations currently paying the regular rate will also enjoy a reduced 25-percent CIT rate.
Corporate taxpayers whose gross sales or receipts do not exceed the value-added tax-exempt threshold of P3 million and are subject to the 3-percent percentage tax will only pay one percent instead from July 1, 2020 to June 30, 2023.
Proprietary and non-stock educational institutions and hospitals are also among the major beneficiaries of this law, the DOF said, as CREATE will reduce the preferential tax rates enjoyed by these entities from 10 percent to one percent from July 1, 2020 to June 30, 2023.
The DOF also pointed out that CREATE proposes more flexibility in the grant of fiscal and non-fiscal incentives, which will be critical as the country competes for high-value investments from overseas now and in the post-pandemic era.
Under CREATE, a Strategic Investment Priority Plan will be formulated every three years to identify priority projects or activities that will receive the new set of generous incentives.
Meanwhile, Dominguez urged the Congress to also pass this year the remaining packages of the Duterte administration’s Comprehensive Tax Reform Program, specifically the reforms in the real property valuation system and the proposed Passive Income and Financial Intermediary Act, as well as the remaining economic recovery legislation, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery bill.
He also called on the Congress to act this year on the “doable” reforms to attract more foreign direct investments, namely the proposed amendments to the Foreign Investment Act, Public Service Act and Retail Trade Liberalization Act.
In a separate economic bulletin over the weekend, the DOF said in the medium- to long-term, the country’s infrastructure program and legislative reforms will enhance the country’s competitiveness to attract and catalyze more enterprises, both domestic and foreign, to set up shop.
“More enterprises will, in turn, translate into more employment and, in the process of attracting the best workers, higher wages. In other words, more employers not only generate higher employment but also potentially higher wages – without having to raise the minimum wage,” the DOF said.
In the same economic bulletin, the DOF said the initial arrival of long-awaited vaccines is a welcome development in the fight against the virus.
“The COVID-19 epidemic is, first and foremost, a health issue that had and continues to have dire economic and, consequently, employment implications. Managing the risks posed by the virus, through pharmaceutical interventions or otherwise, will be key to allowing more economic activities to resume,” the DOF said.
Following the signing of CREATE, Dominguez was also asked in a Viber group with reporters over the weekend on his take whether or not to extend the April 15 deadline of the annual income tax return filing for corporate taxpayers, to take into consideration changes brought by the enactment of the law.
“What we could consider is allowing the amendment of returns without penalty, then any excess payments can be carried over or refunded as provided in the code,” Dominguez said. – Angela Celis