MANILA (UPDATE) - The Senate on Thursday approved on final reading the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, after the Department of Finance (DOF) agreed to ease several provisions that might discourage investors from coming to the Philippines.
Unlike the original proposal, the approved version allows businesses earning up to P5 million annually to enjoy a 20-percent corporate income tax rate, 10 percent lower than the current 30-percent rate.
The DOF has also agreed to senators' prodding to provide a special corporate income tax rate of 5 percent for select industries and businesses in special economic zones, Senate Committee on Ways and Means chairperson Sen. Pia Cayetano said.
"This is the sweet spot or sweet rate that many of our colleagues wanted to retain... This is a major give on the part of DOF," Cayetano said.
The approved version provides a 10-year transition period before the rationalization of incentives, which may be renewed for another 17 years.
"In the 17th Congress, I was personally against CITIRA at that time
because the sunset period was so short at 3 years... Now, we are maximizing the length of time," Senate Majority Leader Juan Miguel Zubiri said, referring to the Corporate Income Tax and Incentives Rationalization Act (CITIRA), the first version of the CREATE bill.
"Walang dehado rito (No one is at a losing end here)... This is far superior than the other proposals," he said, noting that other Southeast Asian countries only allow a maximum of 10 years for corporate incentives.
"Kapag ayaw pa sa atin ng investor, hindi na sa atin ang problema noon," Cayetano said.
(If an investor still does not want to come to us, the problem is no longer with us.)
The approved version of CREATE also imposes separate tax rules for exporters and domestic players, instead of a sweeping regulation for all businesses.
"Exporters and domestic industries are now treated differently under CREATE," Cayetano earlier said.
"The basis for this is because they have a different market and their abilities to be profitable are different," she said.
NO EXCEPTION FOR FREEPORTS
Sen. Richard Gordon's push to exempt freeports from being evaluated by the Fiscal Incentives Review Board (FIRB) was rejected by the chamber.
"'Yung FIRB masyado ang panghihimasok naman nun na walang kadiska-diskarte ang lokal officials," said the senator, a former Olongapo mayor who helped establish the Subic Bay Freeport Zone.
The FIRB is a panel composed of several Cabinet secretaries who will have the discretion on whether or not an investor deserves to get special corporate income tax rates and other incentives. The FIRB will only have a say in businesses earning at least P3 billion annually.
"What reason should they have control over this people?" he said.
Cayetano did not accept Gordon's proposed amendment to allow freeports to remain independent in terms of the the grant of incentives for businesses within their respective jurisdictions.
"I cannot accept because the whole essence of CREATE is to make sure all these IPAs (investment promotion agencies) are accountable," she said.
Zubiri warned that the executive branch is inclined to veto the entire CREATE bill should it exempt freeports from several provisions.
"I spoke to the Secretary this morning. I was trying to find a win-win solution... He was very firm that this is a deal breaker," he said.
"My worry is what will happen to all the micro, small and medium enterprises (MSMEs) who are looking for a tax break," he said.
If the CREATE bill is not signed into law, businesses earning up to 5 million annually will continue to pay the current 30 percent corporate income tax rate similar to what is collected from conglomerates and other big businesses.
"Out of 1 million registered villages, 995,000 are MSMEs... malaking bagay po 'yan," Zubiri said.
Majority of the senators present in the session voted to reject Gordon's amendment.
On the other hand, the DOF accepted Senate Minority Leader Franklin Drilon's proposal to reduce minimum income taxes to 1 percent for a period of 3 years, before it is reverted to its original 2 percent rate.
"They (DOF) initially did not want to bend backwards but because of the pandemic... the drop of our income, okay na sila (they are okay with this)," Zubiri said.
The DOF has been pushing for the passage of this tax and incentives rationalization measure to pull down corporate income taxes in the Philippines to 25 percent to make the country a more attractive investment destination compared to other Southeast Asian nations.
The Finance agency wanted to rationalize incentives given to companies to offset expected losses from lower tax rates.
"We see a light at the end of the tunnel and we expect this to be done by the end of the year," Finance Sec. Carlos Domiguez said in an online forum.
The House of Representative has yet to say if they would pass a counterpart measure or just adopt the Senate's version so that the bill could be submitted for President Rodrigo Duterte's signature.