The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill was finally signed by the President on March 26 2021 as Republic Act No. 11534, which cuts corporate income taxes and provides incentives to help businesses recover from the pandemic and encourage foreign investments.
The national government had called the CREATE the greatest economic reform of the post-EDSA year. The enactment of CREATE amid the pandemic is a much-awaited relief for many businesses. It is a signal to the rest of the world that the Philippines is back in the game to attract investments, create jobs and achieve inclusive growth.
In the specific corporate income tax rate is cut from 30% to 20% for smaller enterprises with a taxable income of P5 million and below, and with total assets of not more than P100 million. In the other hand all other domestic corporations will benefit from an immediate reduction of the corporate income tax rate from 30 % to 25%. Foreign corporations currently paying the regular rate will also enjoy a reduced 25 percent corporate income tax rate.
Putting the corporate income tax in an average of 23% is a huge sacrifice for the national government. It is a 665 billion Philippine Peso reduction in the national revenue for the next 5 years. This is the first time that the department of Finance proposed that huge reduction but in the long run the Philippines know that savings from the reduction in corporate income tax rates will provide enterprises with more resources to re-invest in their businesses or expand their operations and thus create more jobs and attract foreign investors.
Even proprietary and non-stock educational institutions and hospitals are also among the major beneficiaries of this law, as CREATE will reduce the preferential tax rates enjoyed by these entities from 10 percent to 1 percent from July 1, 2020 to June 30, 2023.
For enterprises that undertake activities considered priority by the government, CREATE provides generous incentives menu that offers tax discounts on the basis of their strategic benefit to the country, such as their ability to create jobs and promote countryside development. Under CREATE, a Strategic Investment Priority Plan (SIPP) will be formulated every three years to identify priority projects or activities that will receive the new set of generous incentives.
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 country.
CREATE is considered as a big help to boost the Philippine economy but the government knows that other things need to be done in order to go back to the growth that the country had before the pandemic. In fact the Secretary of Finance Mr. Dominguez urged the Congress to also pass this year the remaining packages of the Duterte administration’s CTRP, specifically the reforms in the real property valuation system and the proposed Passive Income and Financial Intermediary Act (PIFITA)—as well as the remaining economic recovery legislation, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.
The Finance secretary has also called on the Congress to act this year on the “doable” reforms to attract more foreign direct investments (FDIs), namely the proposed amendments to the Foreign Investment Act, Public Service Act and Retail Trade Liberalization Act.
The Philippines is expecting with this CREATE at least ₱12 trillion of total trade investments in the next 10 years, of which $90 billion will be foreign direct investments.
Glyndel Rodrigo, Tax & Legal Advisor at Kelmer Philippines INC.
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