The Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which has been undergoing interpellation in the Senate for the past four weeks, is now under a crucial period of amendments. Action for Economic Reforms (AER) expresses its disappointment over the action of senators who, over the last few weeks, have made attempts to weaken the reforms.
One amendment which threatens to weaken the reform is the grandfather rule, which Senator Ralph Recto proposed on October 15. Under this grandfather rule, all existing investments will retain their current incentives, and all new investments will follow the incentive system mandated in CREATE.
We lambast Senators Recto, Marcos, Poe and Drilon, who have all expressed their support for this grandfather rule. We believe that the grandfather rule is a killer amendment that destroys the very purpose of the bill. Retaining the tax perks of existing registered enterprises without bounds and without transitioning to be subjected to CREATE goes against the very purpose of rationalizing fiscal incentives, which is to address the arbitrary dispensation of fiscal incentives.
Our abuse-prone incentive system has been in dire need of reform for many years now. P440 billion worth of government funds are currently being spent on granting fiscal incentives that are not performance-based nor time- bound. In order to lessen those wasted funds, we need to harmonize the administration of fiscal incentives. According to Senator Pia Cayetano, the sponsor of CREATE and Chairperson of the Committee on Ways and Means, the danger of the grandfather rule is that it will lead us to continue providing these incentives in perpetuity, that amounts to 15.6 trillion pesos in present value.
Another dangerous proposal is the proposal to split into CREATE into two bills: one for fiscal incentive rationalization, and another for corporate income tax reduction. On October 15, the Senate voted on this proposal. Ten senators voted not to split the bill; meanwhile, four senators, namely Senate Minority Leader Frank Drilon, and Senators Imee Marcos, Richard Gordon and Francis Pangilinan, voted to split the bill.
The proposal emanated from concerns raised by senators on the constitutionality of CREATE. Senator Drilon, in particular, claimed that merging fiscal incentive rationalization and corporate income tax reduction in one bill violates the “one subject-one bill” rule. The intent behind splitting the bill was to package the incentives rationalization bill as a non-revenue measure, thus preventing the President from vetoing onerous items that Congress might pass such as grandfathering. The President cannot veto line items of a non-revenue, non- appropriations measure.
AER expresses its disappointment towards the senators who voted to split the bill, especially Senators Drilon and Pangilinan, who now seem to be bedfellows with Senators Gordon and Marcos. The consequence of splitting the bill would be weakening the political support for the incentive rationalization bill. We cannot split the CREATE bill, as both fiscal incentive rationalization and corporate income tax reduction must go hand in hand if we want this bill to serve both a stimulus during the economic downturn caused by the pandemic, as well an instrument to rationalize and modernize investment promotion and the fiscal incentive regime in the long term.
We caution the Senators against supporting such amendments which undermine the very purpose of this critical piece of legislation. We urge them to seriously reconsider voting in favor of amendments like the grandfather rule, which irresponsibly impedes the much-needed reform of our fiscal incentive system.