Albay Rep. Joey Sarte Salceda has hailed the approval by the Senate of the tax reform package Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which he describes as a most urgent and valuable tool for country’s V-shaped economic recovery from the obtaining Covid-19 pandemic.
The Senate approved the CREATE bill on 3rd and final reading on November 26, with a vote of 20-1, after several revisions and fierce debates since September 2019, when the House approved its version of the measure that seeks to cut corporate income taxes and rationalize tax perks.
Salceda, who chairs the House Ways and Means Committee, said his committee had adopted the CREATE Senate version, as promised, immediately after its passage in the upper chamber to avert a bicam debate, owing to the measure’s urgency. “I am heartened that it is finally here,” he added. He was the principal author of the bill in the Lower House. President Duterte himself has repeatedly endorsed it as one of his urgent measures. Before it was called CREATE, it was first dubbed as TRAIN Package 2, TRABAHO bill and CITIRA.
Salceda said he was a neophyte Congressman in 1998 when he filed the Subsidy Council Act, the ancestor of the CREATE tax reform measure. “Though it has evolved over time, the principles of a performance-based, targeted, time-bound, and transparent tax incentive system has always been my advocacy,” he noted, describing the bill’s passage as a “historic leap forward” for the country’s fiscal incentives. Its proposed reforms remained pending for nearly three decades.
The CREATE measure aims to immediately trim the corporate income tax rate from 30% to 25%. For firms whose income is below P5 million a year, taxes would be even lower at 20%. Presently, the Philippines has the highest corporate tax rate in the ASEAN region. It has a potential investment influx of US$12 billion over five years. Salceda, who also principally authored TRAIN I Act had repeatedly urged the Senate to pass its CREATE version since last year owing to its urgency and the threat posed by the Covid-19 pandemic to the economy.
Before adopting the Senate’s version, Salceda said their House bicameral contingent reviewed its fiscal sustainability, but changed its mind eventually. “There are certain provisions I have reservations on, especially the riders the Senate adopted. As much as possible, I would have wanted a lean and efficient reform package,” he explained.
“I made a commitment that if the final output is fiscally acceptable, I will take it. That’s what we’re studying – the fiscal sustainability of the Senate version,” he added, stressing that the House is pushing for reforms that ensure the benefits of tax incentives will be given directly to the economy, the workers and businesses.
Salceda said their committee was looking into the value-added tax (VAT) provisions and potential transfer pricing loopholes in the bill. He said he would like the tax exemptions on medicines to be given through a voucher system, and not to the pharmaceutical firms, under the VAT provisions.
“Of course whatever the Senate gives, I must recoup as House tax chair. Tax policy proposals come from my committee, so if the fiscal implication is too bad, I must either find new revenue sources somewhere else, or try to mitigate their impact in CREATE,” he reasoned.
Salceda stressed that micro, small and medium enterprises (MSME) and countryside locators will enjoy tax provisions as well. “I was the first member of both an earlier and the current House to push for large CIT [corporate income tax] cuts to mitigate Covid-19’s economic impacts. So I support the sizable cuts to CIT for MSMEs which helped make the pre-Covid economy so strong,” he explained.
He also welcomed the adoption of provisions to “help the country tailor-fit incentives to large and highly beneficial investors.” The measure is expected to produce at least 1.1 million jobs and trigger a V-shaped recovery, or a sharp rise back to a previous peak after a sharp decline, for the country’s economy next year.
“The number of jobs CREATE will generate would be equivalent to half of the lower end of his estimated 2.2 million to 4.4 million people who became unemployed this year due to the pandemic,” said Salceda, who also co-chairs the House Defeat COVID-19 Committee.
He said CREATE could also contribute an additional 1.2% per year to the country’s gross domestic product (GDP), and the country could hit an 8% growth in the succeeding year given its base effect. It seeks an outright cut in the country’s CIT rate to 25% from 30%, the highest in the ASEAN region. The slash is said to be “the first-ever revenue-eroding package” proposed in the country.
The measure offers more flexible incentives, including the further CIT reduction by 1% every year from 2023 to 2027 until it reaches the 20% target. The government’s losses due to the CIT reduction between between 2020 and 2027 may reach at least P667 billion, according to the Department of Finance.
Salceda said that with the outright cut in the CIT rate to 25% starting July this year, the government may expect revenue losses of P42 billion for 2020, but such loss will be reflected as savings for small businesses in the country.