Albay Rep. Joey Sarte Salceda welcomed the approval by the Senate of the Corporate Recovery and Tax Incentives for Enterprises Act which he describes as a most urgent and valuable tool for the V-shaped economic recovery from COVID-19 pandemic.
The Senate approved the CREATE bill on third and final reading on Nov. 26, with a vote of 20-1, after several revisions and fierce debates since September 2019, when the House of Representatives 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, owing to the measure’s urgency.
“I am heartened that it is finally here,” said Salceda, principal author of CREATE in the lower house. President Duterte himself repeatedly endorsed the bill as one of his urgent measures. Before it was called CREATE, it was 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 said, 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 corporate income taxes rate from 30 percent to 25 percent. For firms whose income is below P5 million a year, taxes would be even lower at 20 percent. Presently, the Philippines has the highest corporate taxes in the ASEAN region.
CREATE has a potential investment influx of $12 billion over five years. Salceda, who also principally authored TRAIN I, had for several times urged the Senate to pass its CREATE version since last year owing to its urgency, specially due to the threat posed by the Covid-19 pandemic to the economy.
Before adopting the Senate’s version, Salceda said the 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,” he said.
“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 reform that ensure the benefits of tax incentives will be given directly to the economy, workers and businesses.
Salceda said their committee was looking into the value-added tax provisions and potential transfer pricing loopholes in the bill. With this, 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 said.
Salceda said that micro, small and medium enterprises and countryside locators would enjoy tax provisions. “I was the first member of both the former and 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. That is what made the pre-COVID US economy so strong,” Salceda said.
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 Defeat COVID-19 Committee.
He said CREATE could also contribute an additional 1.2 percent per year to the gross domestic product, and the country could hit an 8-percent growth in the succeeding year given its base effect. It seeks an outright cut in the country’s CIT rate from 30 percent to 25 percent.
The measure offers more flexible incentives, including the further CIT reduction by 1 percent every year from 2023 to 2027 until it reaches the 20 percent mark. The government’s losses due to the CIT reduction 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 percent 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.