Senate settles deadlock on CREATE bill with separate tax rules for exporters, domestic players

Katrina Domingo, ABS-CBN News

Posted at Nov 25 2020 12:14 AM

MANILA - The Senate on Tuesday settled a deadlock on when incentives for several industries would end under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill by approving an amendment that would treat exporters and domestic players "differently."

Senators agreed with Senate President Pro Tempore Ralph Recto to include a provision that would allow businesses catering to the local market to "avail of the special corporate income tax rate of 5 percent."

"Exporters and domestic industries are now treated differently under CREATE. The basis for this is because they have a different market and their abilities to be profitable are different," Senate Committee on Ways and Means chair Pia Cayetano, who sponsored the bill, said in plenary.

"Both exporters and domestic industries will now enjoy 4-7 years of income tax holiday," she said, noting that "this is longer than the original proposal under the measure.

With the Recto amendment, exporters will now "have the option to either avail of special corporate income tax rate of 5 percent," she said.

The special corporate income tax rate for exporters is a "major give" on the part of the Department of Finance, Cayetano said.

"This is the sweet spot or sweet rate that many of our colleagues wanted to retain," she said.

The special corporate income tax rate for exporters may only be availed for 10 years, she said.

Industries catering to the domestic market, on the other hand, may avail of "enhanced deductions" that will also last for a decade, the senator said, without giving a break down of the possible deductions.

This allows both exporters and domestic players to enjoy incentives for a total of 17 years each, she said.

"That's the sunset provision in a way... but to clarify, they can reapply and they will be able to give the incentives that I mentioned," she said.

Recto earlier wanted to put a "grandfather rule" in the tax rationalization measure to exempt long-time special economic zone investors from new tax rates and possibly fewer incentives under CREATE.

"I thank the Department of Finance and the chair of this Committee that during the break we did have discussions on the measure," Recto said.

"There have also been agreements on the income tax side. There have also been agreements to maybe 90-95 percent of all our proposals," he said.

Despite settling the deadlock on the grandfather rule and the sunset provision, the chamber has yet to tackle several proposed amendments, including the repeal of a 3 percent gross tax that would be imposed on micro and small businesses.

The Senate is expected to pass the CREATE bill on second and third reading on November 25 before the chamber goes back to debating on the P4.5-trillion 2021 national budget on November 26.