By Beatriz Marie D. Cruz, Reporter
A HOUSE of Representatives committee on Tuesday approved a bill that would allow companies inside economic zones and freeports to enjoy duty-free privileges and value-added tax exemptions on imports and local purchases as part of the Marcos government’s push to make the Philippine tax incentive system more globally competitive.
The measure will amend the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which restricts the so-called zero-rating on value-added tax (VAT) on local purchases to the sale of goods and services directly used in a project or activity of a registered exporter.
The CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill also empowers the President to modify, craft and grant incentive packages, without the recommendation of the Fiscal Incentives Review Board.
“The President has instructed us to get this done, and the (House) leadership is trying to approve it by end of this month,” Committee on Ways and Means Chairman and Albay Rep. Jose Ma. Clemente S. Salceda said in a statement.
The CREATE MORE bill seeks to introduce a “simplified and streamlined” tax refund system for registered business enterprises.
Under the bill, domestic and export companies, even those inside ecozones and freeports, would continue to enjoy duty exemptions, VAT exemption on importation, and the VAT zero-rating of local purchases as provided in their respective investment promotion agency (IPA) registrations.
“Registered export enterprises shall enjoy nonincome tax incentives, such as duty exemption on importation of capital equipment, raw materials, spare parts or accessories, VAT exemption on importation and VAT zero-rating on local purchases, as long as the registered export enterprise maintains 70% of the total annual production as export sale and continues to be registered in good standing with the IPA,” according to the bill.
The measure also seeks to reduce the corporate income tax to 20% for those under the enhanced deduction regime from 20-25%.
Under the measure, the information technology and business process outsourcing sector will be allowed to “conduct business under alternative work arrangements.”
“These revisions are meant to help attract more foreign investments into the country by simplifying the investment incentives, making them more comprehensive and consistent, as well as better aligned with the investment incentives of other neighboring ASEAN (Association of Southeast Asian Nations)/Asian countries,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Facebook Messenger chat.
Semiconductor and Electronics Industries in the Philippines Foundation, Inc. President Danilo C. Lachica said the measure should include “provisions to mitigate high operating costs (power, logistics, process cooling water and labor).”
Assistant Minority Leader and Gabriela Party-list Rep. Arlene D. Brosas, who opposed the measure, said it would only benefit large corporations that will enjoy the tax cuts.
“The current CREATE Law already offers significant tax incentives to large corporations, decreasing their tax obligations. Despite this, the proposed CREATE MORE bill seeks additional amplification of these benefits, suggesting an insufficiency in the current incentives,” she said in a statement.
Ms. Brosas said the bill’s provision giving the President the power to grant incentive packages “raises concerns about potential cronyism and preferential treatment among large businesses affiliated with the President.”
CREATE was signed in 2021 to reduce tax and amend the incentive system to support businesses recovering from the pandemic.
GLOBAL MINIMUM TAXMeanwhile, Mr. Salceda said the Department of Finance (DoF) and other stakeholders should propose their own amendments that would then be discussed when the bill reaches the plenary.
He said the bill amending the CREATE law should also account for the possible impact of the global minimum corporate tax.
“We need to prepare for when countries accede to this regime… Among all ASEAN-6 economies, only the Philippines has not made significant progress in implementing the rules. But it will come. And when it does, it could affect our tax incentive system,” he said.
In 2021, more than 130 countries agreed to enforce a global minimum tax under an Organisation for Economic Co-operation and Development deal. A global minimum tax rate of 15% will be imposed on profits of multinational enterprises, regardless of where these were generated.
“Those who are under the income tax holiday or special corporate income tax regime of 5% might be required to pay a top-up tax in their home countries. When that happens, our tax breaks will be quite ineffective in promoting foreign investments,” Mr. Salceda said. “So, we have to imagine new nontax incentives such as infrastructure and market promotion that make doing business here easier and more profitable.”
The lawmaker said the Philippines should consider a tax incentive regime that complies with the global minimum tax but can still attract foreign investors.
“I am personally thinking of a tax regime where we impose a 15% corporate income tax rate, plus enhanced deductions for 25 years,” he said.