Finance Secretary Carlos Dominguez III has said he “sees light at the end of the tunnel” concerning the congressional approval before the yearend of the long-overdue Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which forms part of the government’s stimulus package for the country’s recovery from the economic turmoil created by the lingering coronavirus pandemic.
Dominguez told a recent webinar with American investors that the Department of Finance (DOF) has been “very intensely” engaging with the Senate on the long-pending CREATE bill. The House of Representatives had already approved its version of the bill in September last year.
Senators are currently discussing the proposed amendments to the CREATE bill with an eye to approving it on third and final reading before the Congress takes its traditional Christmas break in December.
“We have been engaged with the Senate very intensely over the last two or three weeks. We see light at the end of the tunnel, and we expect this to be done by the end of this year,” Dominguez said during a recent webinar hosted by the Philippine Embassy in Washington D.C.
Dominguez has described CREATE as the largest stimulus package for businesses reeling from the economic impact of the COVID-19 pandemic as this measure aims to reduce the corporate income tax (CIT) outright from 30 percent to 25 percent once it becomes effective.
The corporate income tax rate will be reduced further by 1 percentage point every year from 2023 to 2027 based on the proposal of the Department of Finance (DOF).
According to earlier estimates by the Development Budget Coordination Committee (DBCC), if the CIT becomes effective in the second half of 2020,this will result in a reduction of government revenues of around P44.6 billion that all firms, especially the country’s micro, small, and medium enterprises (MSMEs), can use to fund their operations and retain employees. For 2021 and 2022, the estimated foregone revenues are P97.2 billion and P107.6 billion, respectively, that these firms can invest in the revitalization of their businesses and to create even more jobs for Filipino workers.
CREATE will also enhance the flexibility of the incentives system for businesses to enable the government to proactively attract investments that will bring exceptional benefits to the economy.
Dominguez noted that the CREATE bill awaiting approval by the Congress is the farthest it has come when it was first proposed 25 years ago.
Under the Duterte administration, the bill has undergone several name changes.
As the second package of the administration’s comprehensive tax reform program (CTRP), it was first known as the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill in the previous Congress, and was later rebranded as the Corporate Income Tax and Incentives Reform Act (CITIRA).
CITIRA had originally called for a gradual reduction in the CIT, but the DOF saw the urgent need to recalibrate the bill to make it more responsive to the needs of businesses negatively affected by the COVID-19 pandemic.
Thus, CITIRA, which was approved by the House last year, was modified to provide for an immediate cut of five percentage points to 25 percent and renamed as CREATE.
CREATE, which was certified as urgent by President Duterte in March, is among the key recovery measures designed to further energize the economy and accelerate its recovery from the pandemic, Dominguez said.
An outright 5 percentage point reduction in the CIT rate will benefit all business enterprises in the country that have not enjoyed any type of income tax incentive.
Dominguez expects the CIT reduction to boost the efforts of enterprises, especially micro, small and medium enterprises (MSMEs), to protect jobs and recover from the challenges arising from COVID-19.
Aside from CREATE, Dominguez said the Congress also needs to pass at the soonest the P4.506 trillion national budget for 2021; and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) measure, which will enable government banks to form a special holding company designed to infuse equity, with strict conditions, into strategically important companies facing solvency issues.
Both the Senate and the House have already approved another recovery measure–the Financial Institutions Strategic Transfer (FIST) bill, which will let banks offload souring loans and assets, clean up their balance sheets and extend more credit to pandemic-hit sectors.
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