DOF backs tax perks expansion under CREATE to keep pace with neighbors
THE Department of Finance (DOF) has proposed to expand the tax incentive packages in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to make it more competitive compared with other neighboring countries.
In a presentation at the public hearing of the Senate Committee on Ways and Means on Thursday, Fiscal Policy and Monitoring Group (FPMG) Undersecretary Renato E. Reside, Jr. said investment incentives significantly longer in tenor will reinforce the competitiveness of the country’s tax incentive system.
To amend CREATE, the DOF’S proposal through the Create More Maximizing Opportunities for Reinvigorating the Economy), or CREATE MORE bill, includes providing longer income-based incentive periods and allowing the perpetual availment of non-income based incentives.
Under the DOF’S version, income tax holidays are proposed to be extended from 4 to 10 years with an option to avail the special corporate income tax (SCIT) or enhanced deduction (ED) at the onset.
The 5-percent SCIT is proposed to include exemption on local fees and charges, except real property tax on land owned by developers and extended up to 20 to 30 years.
The DOF also supported the reduction of the corporate income tax (CIT) rate of 20 percent and
nd additional types of EDS for up to 20 to 30 years.
On VAT zero-rating on local purchases, the DOF recommended the perpetual availment of VAT incentives provided that registered export enterprises (REES) maintain at least 70 percent of their total annual production as export sales and continue to meet requirements of their registration.
Domestic market enterprises (DMES) may avail themselves of VAT incentives perpetually as long as their investment capital exceeds P15 billion or fulfills the required annual export sales of at least $100 million and continue to adhere to the registration terms.
“There’s an implicit recognition that exporters remain the top priority for incentives, which they should. There’s also a tax preference for big investments,” Reside said.
For presidential approval, the DOF proposed to give RBES the option to avail themselves of the SCIT or ED at the onset, as reckoned from the start of commercial operations (SCO) instead of the ITH.
Moreover, to bolster the country’s investment climate, the DOF suggested to streamline the VAT refund system to improve the efficiency of the VAT refund process.
It also proposed to create the Registered Business Enterprises’ Taxpayer Service within the Bureau of Internal Revenue (BIR) to facilitate registered investors’ tax filing and payment concerns as well as granting a special investor’s visa to foreign nationals who possess highly specialized skills and hold executive positions.
Issues on VAT
RESIDE said that one of the concerns raised by RBES is the VAT refund process which requires tedious documentary requirements to claim.
The DOF proposed to amend Section 112 (D) of the National Internal Revenue Code (Tax Code), which will now only require minimal documentary requirements to expedite processing time.
On the duty exemption on importation, the DOF’S version include shifting the phrase “direct and exclusive use” to “directly attributable to” for VAT exemption on importation, and VAT zero-rating on local purchases.
Furthermore, Reside said several RBES, including petitions filed before the courts, question the distinction made between REES and DMES as for the availment of incentives since it lacks basis in law.
With that, the DOF proposed to allow the DMES to enjoy VAT exemption on importation and VAT zero-rating on local purchases provided their investment capital exceeds P15 billion and annual committed export sales of at least $100 million.
“This will incentivize critical DME’S significant investments in the country and their contribution in terms of export sales,” Reside added.
According to the DOF, the country’s net foreign direct investments (FDI) reached $12 billion, higher by 75.7 percent from 2020 after the CREATE Act’s enactment.
Create-approved projects with a committed investment capital of P1.1 trillion underscore a potential FDI amounting to P413.59 billion, the DOF added.
Senator Sherwin Gatchalian, the chair of the Senate Committee on Ways and Means, presided the hearing on Thursday. Gatchalian filed Senate Bill (SB) 2654, or an “Act Enhancing Philippine Tax Incentivess” or CREATE MORE.
“The measure aims to clarify the rules and policies on the administration of the fiscal regime incentives in the hope that such a move would pave the way to a more stable investment climate and attract new investors,” he said.