THE economy needs the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill to ensure a V-shaped recovery as it is seen to generate at least 1.1 million jobs over a five-year period, according to Albay Rep. Joey Salceda.
In a virtual briefing organized by the Department of Finance (DOF) yesterday, Salceda said for the country to recover from the adverse economic impact of the coronavirus disease 2019 (COVID-19) pandemic, the biggest source of business uncertainty needs to be addressed: the pending Corporate Income Tax and Incentives Rationalization Act (CITIRA) now dubbed as CREATE.
The pending measure has been recalibrated to be more responsive to the needs of businesses reeling from COVID-19.
“Based on my estimates, we lost almost P12 billion for the two and a half years (that the CITIRA has not been approved). If we want to immediately recover, we need to remove one of the biggest sources of business uncertainty, which is leaving the CITIRA unapproved,” Salceda said.
“CREATE will trigger a V-shaped recovery for this country next year. For the long term, it will produce at least 1.1 million jobs over five years, and the GDP (gross domestic product) will have an additional 1.2 percent per year. So CITIRA (CREATE) is good for the country and it is the right thing to do,” he added.
Carlos Dominguez, DOF secretary, in the same briefing said the economic team has introduced four major reforms under CREATE, which is topped by the outright cut in the corporate income tax (CIT) rate from 30 percent to 25 percent, making it “the first-ever revenue-eroding package proposed by the DOF.”
The CIT will be reduced further by one percentage point every year from 2023 to 2027 until it reaches 20 percent under the CREATE bill.
Another key feature of the CREATE bill is the extension of the sunset period for current incentive recipients from two to seven years provided under the original CITIRA to four to nine years, to help businesses adjust in this difficult time.
However, incentive recipients who believe that the new system under CREATE is more favorable can shift to the new regime immediately, Dominguez said.
The CREATE bill also extends the net operating loss carryover (NOLCO) for non-large taxpayers from the current three years to five years, which will be credited for losses incurred in 2020.
Dominguez said this enhanced NOLCO will allow as much as 99 percent of corporate taxpayers to utilize net losses in 2020 as additional deductions to their taxable income from 2021 to 2025.
A fourth feature that the economic team has introduced in the CREATE bill is the flexibility of the Fiscal Incentives Review Board, which will be allowed the recommend to the President the grant of longer incentives and additional non-fiscal incentives for deserving investments.
“The rigidity of existing tax incentives system has kept our hands tied in competition for super-investments in the region. The provision will allow us to tailor-fit our incentives according to the unique needs of specific investments with exceptional benefits to the public interest,” Dominguez said.
“Allow me to emphasize that these changes are made in recognition of the exceptionally tough challenge we face today. Overall, CREATE is a generous proposal that addresses most, if not all, of the concerns raised with us before by businesses and industry groups,” Dominguez added.
But Dominguez made it clear that while there is a need to “proactively make adjustments to help businesses from the taxation side, the proposed amendments outlined in the CREATE bill are for only for a limited period.”
“Once the country’s economic situation improves, our policy response will change accordingly. These amendments, in other words, are on offer for a limited time only,” Dominguez said.
The immediate five-percent cut in the CIT, Dominguez said, will result to a reduction of government revenues in the second half of this year alone estimated at P42 billion that all firms, especially the country’s micro, small, and medium enterprises, can use to fund their operations and retain their employees.
For the succeeding five years, the DOF’s total estimate is P625 billion in foregone revenues that these firms can invest in to revitalize their businesses and create more jobs for the country’s young and highly skilled workforce, he added.
“I don’t think the reaction (on jobs) will be immediately the next month… we’re still suffering from the contagion. But definitely (CREATE) will help (companies)keep the people rather than considering putting them on furlough or retrenching them,” Dominguez said.
