WITH CUE FROM SONA, DOF PITCHES TAX BILLS
FINANCE Secretary Carlos G. Dominguez III expressed hope on Tuesday that lawmakers would finally heed President Duterte’s call to pass the “long-due tax reform” that seeks to reduce the corporate income tax (CIT) rate and rationalization of incentives.
In a statement on Tuesday, Dominguez said the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act is a vital part of the government’s comprehensive plan to revive the economy that was shattered by the pandemic.
“We are hoping that our lawmakers will finally give their nod to this long-due tax reform that has become an integral component of our government’s bounce-back plan for the domestic economy battered by the unprecedented global health crisis,” Dominguez said in reaction to the President’s pitch for CREATE in his penultimate State of the Nation Address (Sona).
As Dominguez expressed his hope, the Senate passed on third and final reading on Tuesday the Bayanihan to Recover As One Act, or Bayanihan II, which the DOF chief had earlier prodded lawmakers to
pass as a crucial first step to boosting battered sectors. The Senate’s cap of a P140billion funding for Bayanihan 2 aligns with Dominguez’s and the economic managers’ estimate of what could be reasonably funded by the resources of a government that also saw its revenues plunge along with business bottom lines during the pandemic-induced lockdowns. Economic managers had advised House advocates that their envisioned funding for their recovery version was unrealistically high. The CREATE bill, which represents Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP), was approved by the House of Representatives last September, but remains pending in the Senate. However, Senate President Vicente Sotto III has already vowed that they will be prioritizing the passage of CREATE bill, along with Bayanihan 2, and proposed long-term economic stimulus plans. The CREATE bill, the redesigned package of the Corporate Income Tax and Incentives Rationalization Act (Citira) that was earlier certified as urgent by the President, aims to immediately reduce the 30-percent CIT rate—the region’s highest—to 25 percent and further cut it by 1 percentage point each year until 2027, so that the rate will only be 20 percent by that time. Based on the Department of Finance’s estimates, the outright CIT cut would free up almost P42 billion in business capital in the first year of implementation, and P625 billion over the succeeding five years.
‘Investment destination’
“THIS reform will also send a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains,” Dominguez said. Apart from the CIT cut, CREATE is also seen to provide targeted, time-bound incentives tailor-fitted to the needs of investors that the country wants to attract, and an enhanced net operating loss carry over (Nolco), extended from three to five years, for losses incurred in 2020 by all businesses that are not large taxpayers. The bill also extends the sunset period for current incentive recipients from two to seven years, provided under the original Citira, to four to nine years to help them adjust in this time of crisis. It also allows the Fiscal Incentives Review Board (FIRB) to recommend to the President the grant of longer incentives and additional non-fiscal incentives for deserving investments. Various business and advocacy groups earlier urged lawmakers to pass CREATE to help make the economy an investment magnet in the region. However, 26 economists earlier said that the revenue loss to the government resulting from the cut in the CIT reduction is not worth the price, saying that this “tax relief” would leave out micro, small and medium enterprises and will not likely deliver extra income growth and investment from large corporations given the shock to aggregate demand triggered by the pandemic. The bill also sends a message of uncertainty to existing locators in the Philippine Economic Zone Authority, aggravating their financial situation due to the Covid-19 pandemic, the economists argued. IBON Foundation Executive Director Sonny Africa also earlier lamented the government is “giving up P667 billion in potential Covid-19 response funds to boost corporate profits” through CREATE bill.
Build, Build, Build
MEANWHILE, Dominguez also welcomed the President’s commitment to push through with the high-impact projects under the “Build, Build, Build” program, which the Chief Executive pointed out are not “mere springboards for the country’s swift recovery,” but are effective tools to ensure that economic benefits are “distributed to all corners of the country, and push sustainability in urban centers, particularly [Metro] Manila.” On top of cheering the country’s credit ratings upgrade in his latest Sona, the President also cited the Philippines’s robust banking system, expressing confidence that the country is in a “better position” to weather the crisis spawned by the Covid-19 pandemic. The DOF chief cited Duterte’s prudent fiscal and economic management for the country’s high credit worthiness, as reflected in the “BBB+” sovereign credit rating that S&P Global has maintained for the Philippines even amid the pandemic, which was a “vote of confidence in a sea of credit-rating downgrades and negative outlook revisions worldwide.”