By Julie M. Aurelio and Leila B. Salaverria, March 27, 2021; Philippine Daily Inquirer

A day before it was set to lapse into law, President Rodrigo Duterte signed the Corporate Recovery and Tax Incentives for Enterprises Act, or CREATE, which cuts corporate income taxes and provides incentives to help businesses recover from the pandemic and encourage foreign investments.

But Mr. Duterte vetoed several provisions that would have limited the power of the Fiscal Incentives Review Board (FIRB) and would have given the President the power to exempt any investment promotion agency from reform, saying the latter could become a “highly political tool.”

The President also vetoed sections that would have granted redundant incentives, automatic approval of applications for tax incentives after a certain number of days, and allowed registered companies to apply for new incentives they already enjoy.

Mr. Duterte also rejected provisions that would have increased the threshold for value-added taxes on sales of real property, 90-day period for the processing of general tax refunds, and the definition of investment capital.

Also vetoed was the provision ennumerating the industries up for incentives. This was vetoed because there are industries mentioned that do not merit support through incentives or are expected to become obsolete in the short term.

Although Singapore’s 17-percent corporate income tax rate remains the lowest in Southeast Asia, the law brought the Philippine rate—which has now been cut to as low as 20 percent—to below the regional average of 23 percent.

In signing the CREATE law, Mr. Duterte said it came at an opportune time as it would provide fiscal relief and help businesses recover from the effects of the COVID-19 pandemic.

But Mr. Duterte also said the measure was intended to provide long-term reform, and its provisions must be “reasonable and not redundant.”

“The [law] will be the guiding document for much of Philippine businesses and industry over the next decades. With over P600 billion in tax relief for job creation in the next five years, we lay our faith and invest in Filipino businesses for them to reinvigorate the economy, create more quality jobs, and generate more revenues for the government to tide us along these trying times,” he said in his letter to lawmakers.

Oversight functions
In vetoing the provision that states the FIRB could exercise certain functions only in relation to the grant of tax incentives to projects that have a total investment capital of more than P1 billion, the President said its primary role was to exercise policymaking and oversight functions on all registered businesses and investment promotion agencies.

He also said the current practice of granting incentives without a regular impact analysis and without regard to the final cost to government was unacceptable.

He said the oversight functions of the FIRB would ensure the proper grant and monitoring of tax incentives and assure Filipinos that they would get their tax’s worth in every peso invested.

The concern that FIRB oversight would lead to inordinate delays was “highly speculative,” he added.

Mr. Duterte also rejected the provision allowing the President to exempt investment promotion agencies from the coverage of the CREATE law, as this would disregard the steps taken to rationalize the fiscal incentives system.

“It could become a highly political tool that could allow subsequent Presidents to dismantle decades of study, disregard discussions based on empirical evidence, and even subvert the will of Congress itself,” he said.

It could also be used to escape accountability measures and open a wide path for discretion and influence from vested interests, he said.

Higher incentives to relocate
The CREATE law will reduce corporate income tax rates from 30 percent to 20 percent for micro, small and medium enterprises, and to 25 percent for other corporate taxpayers.

It also rationalizes fiscal incentives granted to investors and provides for a new system for the administration of incentives.

The measure will also help the country’s pandemic response as it exempts imports for COVID-19 from duties.

It also offers higher incentives for enterprises outside of metropolitan areas and additional incentives for enterprises that fully relocate outside Metro Manila or to areas that are recovering from disasters or armed conflict.

Albay Rep. Joey Salceda, the principal author of the law in the House of Representatives, was elated at the enactment of the CREATE law.

“Proprietary educational institutions and hospitals which are nonprofit will pay a corporate income tax rate of 1 percent instead of the current 10 percent, from July 1, 2021, to June 30, 2023. This will help schools and hospitals which are crucial to the country’s post-COVID-19 recovery,” said Salceda, chair of the House ways and means committee.

He added that the signed law “retained the procountryside preference” of the House version, in which places like Bicol will receive the longest and biggest tax incentives of up to 17 years for new locators and a bonus three-year tax holiday for those relocating from Metro Manila to these areas.