Neda chief, economists weigh in on CREATE enactment

WITH the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE), the National Economic and Development Authority (Neda) said it’s now time for Congress to pass other priority legislation to ensure the country’s recovery from the recession.

In a news issued on Monday, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua, who worked on tax reform packages of the administration when he was still at the Department of Finance, said CREATE will be a boost to the economy.

CREATE, Chua said, will place the country in a better position to compete for investments. However, the gains from CREATE will be limited if we do not relax restrictions on foreign investments.

“To maximize the benefits from the enactment of CREATE, we urge Congress to urgently pass the amendments to the Public Service Act, the Foreign Investment Act, and the Retail Trade Liberalization Act this year. These bills will complement CREATE by easing restrictions on foreign investments,” Chua said.

Chua added that CREATE is an essential part of the country’s economic recovery package that includes the Financial Institutions and Strategic Transfer (FIST) Act and the Government Financial Institutions Unified Initiative to Distressed Enterprises for Economic Recovery (GUIDE) bill.

Through CREATE, Chua said, the government will be able to provide immediate relief to micro, small, and medium enterprises (MSMES) with a 5 to 10 percentage point reduction in corporate income tax (CIT).

It will also bring the country’s corporate tax closer to the Asean average, enhancing the Philippines’s ability to attract foreign direct investments (FDI), especially after the pandemic.

However, Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III told Businessmirror that while he supported the enactment of the CREATE Law, the provision protecting local crude oil refineries was not vetoed by the President.

Sta. Ana said it was “glaring” that this particular provision was not stricken out of the law while most of the compromises found in the bicameral conference committee version were already removed.

“The protection given to one local crude oil refinery is distortionary, uncompetitive, unfair, rigid, and redundant,” Sta. Ana said.

“Retention of that provision means that the law has allowed protecting a firm that is objectively uncompetitive,” he added.

Meanwhile, Former University of the Philippines School of Economics Dean Ramon L. Clarete told the Businessmirror that the enactment of CREATE will not lead to an increase in FDI.

Clarete said the CREATE Law will only discourage investors from coming to the Philippines, especially at a time when the world is still suffering from the pandemic.

The Philippine economy has been battered by the lockdowns put in place to prevent the spread of Covid-19. The country has been on lockdown for over a year.

“I just don’t buy the idea that investments will increase because of CREATE law. Definitely those who forecast so failed to consider the dampening effect of an angry uncertain medium to long-term business prospect because of Covid,” Clarete said.

“It’s more [of] CREATE inadvertently closing doors to new locators. Those who’s here may stay until they see if the IRR [implementing rules and regulations] of CREATE will take away their exemption from local taxes,” he added.

The latest imposition of ECQ, Clarete added, does not bode well for the economy. The ECQ, which began this week, will only stifle economic activities further.

This will only compound the country’s challenges as the government has yet to roll out its vaccination program, which Clarete expects, is intentional and has something to do with the elections next year.

Clarete also noted that another challenge is the African swine fever (ASF) which will drag agriculture growth and may cause contraction this year.

The Philippine economy is expected to post slower growth this year compared to what the World Bank initially expected in December 2020 and the recovery will likely be toward the end of next year.

In its East Asia and the Pacific report, the World Bank said the Philippines could register a growth of 5.5 percent this year, lower than the 5.9 percent it estimated in the Philippine Economic Update (PEU) released in December.

To maximize the benefits from the enactment of CREATE, we urge Congress to urgently pass the amendments to the Public Service Act, the Foreign Investment Act, and the Retail Trade Liberalization Act this year. NEDA Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua