MANILA (UPDATE) - The House of Representatives and the Senate ratified Wednesday a bicameral committee report on a bill that will reduce the corporate income tax rate in a bid to attract more foreign investments and help the Philippine economy recover from the coronavirus pandemic.
The Corporate Recovery and Tax Incentives for Enterprises or CREATE bill, a key priority of President Rodrigo Duterte's administration, will lower corporate income tax rate to 25 percent for big firms and 20 percent for small enterprises from 30 percent, the highest in Southeast Asia, by 2029.
The House ratified the committee report on the bill in the first minutes of its plenary session during the day.
The Senate also ratified the report, according to Sen. Pia Cayetano, which would allow the bill to be sent to Duterte for signature.
"I’d like to report to the Filipino people & to our business community that the #CREATE bill has finally moved forward!," she said on Twitter.
Congressman Joey Salceda, chairman of the bicameral committee, said the reconciliation of the Senate and Lower House versions of the bill will remove investor uncertainty over the country's fiscal regime.
"(It) will be like opening the floodgates to investment," Salceda said in a statement on Monday, when joint Philippine congressional panel approved the bill.
The bill will also streamline incentives to investors to plug leakages worth over P300 billion ($6.24 billion) resulting from tax holidays and other perks given to investors perpetually.
Salceda said the tax reform measure would create 1.8 million jobs over the next 10 years, and result in some P931 billion in tax savings for businesses.
“Combined with economic amendments to the constitution to maximize impact, we can produce some 8.4 million jobs,” he added.
The bill will allow non-taxation and duty-free importation of COVID-19 vaccines, which are expected to arrive in the Philippines this month.
Also exempted from value-added taxation are:
- Personal protective equipment
- Drugs for treatment of COVID-19
- Drugs approved for use by the Food and Drugs Administration clinical trials
“This will be the greatest economic reform of the post-EDSA years, second only to economic amendments to the Constitution. Removing the uncertainty will be like opening the floodgates to investment. I expect at least P12 trillion pesos in combined domestic and foreign investment over the next decade due to CREATE alone. $90 billion of that will be FDI,” Salceda said.
He also said that the approval of CREATE ends investor uncertainty on the country’s fiscal regime.
“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 USD 18 billion in foregone FDI from 2018 to 2020. The bleeding stops now,” he said.
Salceda emphasized the country's competitiveness is a key issue that CREATE hopes to resolve.
“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,” he said.
The key features of the CREATE bill are as follows:
I. LOWER TAXES
- Lowered corporate income tax from 30% to 20% for small and medium corporations (with net taxable income of P5 million and below, and with total assets of not more than P100 million excluding land)
- Lowered corporate income tax from 30% to 25% for all other corporations
- Lowered percentage tax from 3% to 1% for small businesses whose gross sales or receipts do not exceed the VAT-exempt threshold of P3 million (effective July 1, 2021 to June 30, 2023)
- Lowered minimum corporate income tax from 2% to 1% (effective July 1, 2021 to June 30, 2023)
II. FISCAL INCENTIVES
- Up to 17 years of incentives (4-7 years of income tax holiday + 10 years of special corporate income tax or enhanced deductions) for exporters and for "critical" domestic market enterprises, which will be defined by NEDA
- Up to 12 years of incentives (4-7 years of income tax holiday + 5 years of special corporate income tax or enhanced deductions) for other domestic market enterprises
Domestic market enterprises may only qualify for SCIT if they have a minimum investment capital of P500 million.
III. COUNTRYSIDE DEVELOPMENT
- Higher incentives for registered enterprises located outside of metropolitan areas to attract more investors and create more jobs in the countryside
- Additional 3 years of income tax holiday for registered enterprises that will fully relocate outside of NCR
- Additional 2 years of income tax holiday for registered enterprises in areas recovering from disasters or conflict
IV. COVID-19 AND HEALTH INCENTIVES
- VAT-free sale and importation of COVID-19 drugs, vaccines, medical devices, and components of personal protective equipment (PPEs) until December 2023
- VAT exemption for medicines for cancer, mental illness, tuberculosis, and kidney diseases
- Reduced preferential tax rates from 10% to 1% for non-profit hospitals and educational institutions (effective July 1, 2021 to June 30, 2023)
V. OTHER TAX RELIEF
- Higher VAT exemption threshold from P1.5 million to P2.5 million for socialized and low-cost housing, and from P2.5 million to P4.2 million for house and lot and other residential dwellings
- VAT exemption on sale, importation or publication of e-books
Despite being one of Asia's fastest-growing economies before the pandemic, the Philippines lags regional peers in attracting foreign direct investment because of foreign ownership restrictions, high power costs and poor infrastructure.
Some lawmakers, including Duterte's allies, have proposed changes in the economic provisions of the Philippine constitution to liberalize investment rules.
--With reports from RG Cruz, ABS-CBN News; and Reuters