"Here are some of its features."
"Here are some of its features."
Seven trillion, two hundred billion pesos (P7.2 trillion).
That is the projected savings, in net present value or the value in present prices of the future stream of income (or savings) businesses are likely to generate because of the CREATE Act. The calculation is done by Albay 2nd District Rep. Joey Sarte Salceda, principal author of CREATE.
CREATE is short for Corporate Recovery And Tax Incentives for Enterprises Act. It amends 13 major sections of the National Internal Revenue Code of 1997 and creates a new title called XIII (Tax Incentives).
To arrive at the P7.2 billion figure, Congressman Salceda assumed a cash flow and discounted it by an assumed cost of money or normal profit yield of 8 percent, a conservative assumption, he points out.
The P7.2 trillion, is 46 percent of the P15 trillion total market capitalization of the Philippine stock exchange and is equivalent to 40 percent of the country’s Gross Domestic Product (GDP), or the total output of goods and services in a given year.
“CREATE Act is perhaps the largest stimulus program and biggest tax reform measure ever crafted by Congress,” exults Salceda. It is the greatest economic reform program ever undertaken by the government, outside of the 1987 Constitution.
Salceda uses an even bigger figure to project CREATE’s economic impact. “Removing the uncertainty will be like opening the floodgates to investment. I expect at least P12 trillion in combined domestic and foreign investment over the next decade due to CREATE alone. About $90 billion of that will be FDI (foreign direct investments,” he reckons.
“This will also result in around 1.8 million jobs over the next 10 years. Combined with economic amendments to the constitution to maximize impact, we can produce some 8.4 million jobs,” Salceda adds.
Salceda says CREATE ends investor uncertainty on the country’s fiscal regime and tax policies.
“We are also ending hesitation to invest in the Philippines. Because it took us time to come up with a consensus version, however, we lost $18 billion in foregone FDI from 2018 to 2020. The bleeding stops now,” Salceda notes.
“Fixing the incentives regime to make it more performance-based is also crucial. The current investment priorities plan covers some 70 percent of GDP. While I am willing to give incentives, they must be linked with economic outcomes. Better jobs for our people. Higher wages. More training. More research and development. Stronger business. More competitiveness,” Salceda told the House Ways and Means Committee last week.
Salceda says CREATE will result in some P931 billion in tax savings for businesses. This will frontload relief and cover the economic gap brought about by COVID-19.
“With CREATE, we are also lowering corporate income tax to bring it closer to the ASEAN region’s average. ASEAN has been the fastest growing economic region in the world. Our neighbors are our friends, but they are also our competitors. We must strive to keep up with them,” the Albay lawmaker urges.
“We also introduced several tax relief provisions in this bill for all sizes of businesses, especially small and medium ones. With quick vaccine rollout, the chance is stronger that businesses will devote tax savings to creating new jobs. That is why we have also introduced COVID-19 measures in this bill, including VAT and duty-free importation of vaccines,” Salceda declares.
CREATE Act is expected to spur feverish manufacturing, industrial and economic activity to enable the country to recover from the worst health and economic crisis in 100 years, regain its once robust growth, and march in proud cadence with the vigorous expansion of its Asian neighbors such as China, Vietnam, Malaysia, Thailand and the rest of the ASEAN.
CREATE is a major economic platform of the administration of President Rodrigo Duterte, the fourth plank of four key reform measures designed to enable the country to cope with the COVID-19 pandemic.
The three earlier laws are the Bayanihan 1 and Bayanihan 2 and TRAIN—Tax Reform for Acceleration and Inclusion Act (RA 10963). These three laws proved inadequate to stimulate a dormant economy, largely because of leakages in the cash transfers to beneficiaries, corruption in the bureaucracy, and slow disbursements for urgent projects.
CREATE “makes capital income taxes and financial intermediary taxes simpler, fairer, and more efficient,” says Salceda. It makes Philippine taxation at par with those of its ASEAN neighbors.
The reform measures, says Finance Secretary Carlos Dominguez, the leader of Duterte’s economic team, are expected to push the Philippines into a “strong rebound”, with an economic growth rate of 6 to 7 percent in 2021, from 2020’s dismal 9.5 percent decline – the worst in the country’s history.
The recession was triggered by the government’s exaggerated response to the pandemic. Duterte imposed the world’s longest and strictest lockdown. This marooned consumers in their homes and crippled business and industry. Since consumption is 83 percent of the economy, the economic slump has turned into a prolonged recession.
Some features of the bill:
– Importation of Covid-19 vaccines are exempt from import duties. Note that the Senate version already included exemption of the vaccines from VAT.
— Immediate reduction of the corporate income tax to 20 percent for domestic corporations with total assets not exceeding P100 million (excluding land) and total net taxable income not exceeding P5 million 25 percent for all other corporations;
– 1 percent minimum corporate income tax (MCIT) effective July 1, 2020 until June 30, 2023;
– Enterprises have the option to choose between the Special Corporate Income Tax of 5 percent or Enhanced Deductions after enjoying the Income Tax Holiday (ITH)
– Higher incentives for enterprises located outside of metropolitan areas
– Additional incentives for enterprises that fully relocate outside of NCR or locate in disaster or conflict areas;
– Immediate reduction of the corporate income tax to 20 percent for domestic corporations with total assets not exceeding P100 million (excluding land) and total net taxable income not exceeding P5 million 25 percent for all other corporations;
– 1 percent minimum corporate income tax (MCIT) effective July 1, 2020 until June 30, 2023;
– 1 percent tax rate for proprietary educational institutions and hospitals which are non-profit effective July 1, 2020 until June 30, 2023;
– VAT exemption threshold for socialized and low-cost housing to P2.5 million (from P1.5 million at present) and P4.2 million for house and lot (from P2.5 million at present);
– VAT exemption for medicines for cancer, mental illness, tuberculosis, and kidney diseases beginning Jan. 1, 2021;
– VAT free importation and sale of COVID-19 medicines, PPEs beginning Jan. 1, 2021 to Dec. 31, 2023.