Connect with us

Hi, what are you looking for?

Economy

CREATE: Crossing the finish line

On Nov. 26, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill was passed on third and final reading in the Senate, marking the end of more than two decades of struggle for fiscal incentive reform.

CREATE, first and foremost, is a structural reform measure for the governance of incentives that are time-bound, performance-based, and transparent. As it is a structural reform, the biggest benefits will be cumulative in the long term.

It also addresses the reality of tax competitiveness among emerging markets, especially in the ASEAN region. CREATE lowers the corporate income tax rate, bringing the Philippines closer to the ASEAN average of 23%. The combination of fiscal incentive rationalization and a lower corporate income tax will boost both tax efficiency and investment promotion.

It also serves as a short-term stimulus by giving immediate relief to businesses, which will then spill over to their employees.

Formerly known as the Corporate Income Tax Incentives Rationalization Act (CITIRA) and the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill, CREATE has always been met with controversy and opposition from the Philippine Economic Zone Authority (PEZA) locators, foreign chambers of commerce, and some senators. Its provisions that modernize and rationalize our fiscal incentive system have drawn the most flak from these groups.

Up until the very end, the saga of CREATE was a nail-biter. At around 11 p.m. on Nov. 25, the night the Senate planned to finalize key amendments and vote on the bill, Senator Richard Gordon asked to delay its passage until the next morning so he could craft and propose some last minute amendments.

Senator Gordon delivered a long, impassioned speech, even tearing up at one point. He feared that the new fiscal incentive regime would bring about job losses for the Subic Bay Metropolitan Authority (SBMA), which he formerly chaired. He questioned the need for the Fiscal Incentives Review Board (FIRB) and its power to approve or disapprove incentives, saying this would impede the autonomy of local government units. The next morning, he proposed that the SBMA, Aurora Pacific Economic Zone and Freeport (APECO), Tourism Infrastructure and Enterprise Zone Authority (TIEZA), and other ecozones be exempted from the bill, and consequently, FIRB jurisdiction.

But the bill’s sponsor, Senator Pia Cayetano, Senate President pro tempore Ralph Recto, and the Department of Finance had already settled on a compromise on the bill’s provisions on incentives. This compromise came in the form of differentiating the treatment of domestic industries and exporters when it came to availing of incentives. Senator Cayetano emphasized that Gordon’s proposal of exempting certain ecozones from FIRB jurisdiction would defeat the purpose of rationalizing fiscal incentives.

And so Gordon’s proposals, which would have majorly diluted the reform (and would have likely led to a veto from the President), were rejected by both Senator Cayetano and the Senate body. CREATE was finally passed later on that day.

Senator Gordon was not the only senator who proposed controversial amendments. Senator Ralph Recto introduced dual rates for corporate income taxes, which we believe makes the tax system prone to gaming and tax evasion. However, looking at the big picture, we see that the gains outweigh the costs.

All in all, CREATE has achieved its main goal of making incentives targeted, time-bound, and performance-based, and rationalizing the governance of incentives through the Fiscal Incentives Review Board. The sharp reduction of corporate income tax is also significant, as it acts as a stimulus measure amid the pandemic-induced recession and makes Philippine businesses more competitive in the long run.

CREATE provides temporary stimulus measures to respond to the global economic downturn. These include VAT exemption for medicine, vaccines, and medical equipment for COVID-19, and the reduction of the minimum corporate income tax from 2% to 1%.

The passage of CREATE removes policy uncertainty, which has prevented investors from locating in the Philippines for the past years. The new incentive system will provide clarity for both foreign and domestic investors. We also hope to capitalize on CREATE to attract investments from manufacturers looking to exit China and move production sites to Southeast Asia.

Throughout the months of debate on CREATE, what stood out was the diligence of the sponsor of the bill and the Chairperson of the Senate Committee on Ways and Means, Senator Pia Cayetano. Despite the unpopularity and difficulty of tax reform as an advocacy, Senator Pia worked with urgency and dedication to defend the bill. On the Senate floor, she said the amendments she accepted provided “a balance between the need to rationalize our incentives and to provide an environment to keep businesses thriving.”

The struggle to pass CREATE was long and arduous, marked with numerous delays and jockeying from certain interests. It is commendable that after decades of pushing to restructure our outdated fiscal incentive system, reform is finally here, in the form of a strong bill that will hopefully revitalize our economy.

 

Pia Rodrigo, a political science graduate of Ateneo de Manila University, is the communications officer of Action for Economic Reforms

www.aer.ph

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Economy

By Jenina P. Ibañez, Senior Reporter PHILIPPINE MANUFACTURING activity rose to an eight-month high in November, as new orders increased for the first time...

Economy

THE NATIONAL Government’s outstanding debt swelled to P11.97 trillion as of the end of October as it offered more domestic securities, preliminary data from...

Economy

MOTORISTS experience heavy traffic along Commonwealth in Quezon City on Wednesday. — PHILIPPINE STAR/ MICHAEL VARCAS BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E....

Economy

THE SENATE on Wednesday approved on third and final reading the proposed P5.024-trillion national budget for 2022. Senators unanimously passed the 2022 General Appropriations...

Economy

EVERYTHING’s coming full circle from the boy from Cebu who wanted to write but ended up cooking. Myke “Tatung” Sarthou, celebrity chef, started out...

Economy

1 of 6 THE VIRTUS awards by the Hotel Sales and Marketing Association (HSMA) Philippines continues to honor professionals and institutions in hospitality: a...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.