Duterte signs create, but vetoes 7 items; local firms seen to get P600B in tax relief
PRESIDENT Duterte finally signed the muchawaited Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which is expected to provide P600 billion worth of tax relief for local companies, but vetoed several provisions.
The law cuts corporate income tax (CIT) rate—the highest in the Asean region—and rationalizes the country’s fiscal incentives system.
The signing of the law marks the end of three years of uncertainty over the final form of the measure albeit with some vetoed provisions.
RA 11534 cuts the CIT rate from 30 percent to 20 percent for micro, small and medium corporation (MSMES) and 25 percent for other corporations with retroactive application to July 1, 2020.
Veto message
IN his eight-page veto message, Duterte declared 7 “line item” vetoes on the provision of RA 11534, saying such is intended to protect the integrity of the government and the legislation itself in the long term.
“Crucial portions of the CREATE Act were intended to be emergency tax relief for struggling enterprises, but we must not lose sight of this reform’s long-term objectives,” Duterte said.
He scrapped the provision raising the value-added tax (Vat)-exempt threshold on sale of real property.
“The amendment in CREATE Act increases the Vat-threshold to up to P4.2 million. In effect, this will benefit even those not originally targeted for the VAT exemption—those who could actually afford proper housing,” Duterte said.
The President also junked the 90-day period for processing of general tax refunds for being “administratively impracticable,” as well as the definition of “investment capital,” which excluded land and operating expenses from the measure of an investment’s total scale. He said such “may lead to underestimation of our investment promotion performance.”
Another vetoed provision is on “incentives for domestic enterprises,” which Duterte deemed redundant and unfair for taxpayers. Allowing and additional 14 to 17 years and another 10 year extension for the same activity on top of the original period of incentives enjoyment is fiscally irresponsible and utterly unfair to the ordinary taxpayer and to un-incentivized enterprises.
Duterte removed the provision limiting the powers of the Fiscal Incentive Review Board (FIRB), which, he maintained, ensures proper granting and monitoring of tax incentives.
He likewise rejected provisions which are industry-specific under activity tiers since it might hinder the “flexibility” of CREATE Act in these “changing times.”
Duterte clipped an item allowing the President to exempt any investment promotion agency from provisions of the law, saying could be abused as a “highly political tool that could allow subsequent Presidents to dismantle decades of studies, disregard discussions based on empirical evidence, and even subvert the will of Congress itself.”
Last, the President rejected an item for automatic approval of application of incentives, saying, the “declared policy [is] to approve or disapprove applications based on merit.”
House Committee on Ways and Means Chairman Joey Sarte Salceda, principal author of CREATE, welcomed its passage. “CREATE has been created. This is one of the pins of light signaling the end of this dark economic tunnel,” he said in a statement.
Apart from the lowering of CIT rate, Salceda said the law also includes key pandemic relief, such as the lowering of Minimum Corporate Income Tax (MCIT) from 2 percent to 1 percent, effective July 1 to June 30, 2023.
It also lowered percentage tax from 3 percent to 1 percent for small businesses whose gross sales or receipts do not exceed the Vat-exempt threshold of P3 million, effective July 1, 2021 to June 30, 2023.