Action for Economic Reforms (AER) welcomes the signing into law of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, as well as the President’s vetoes of provisions that ran counter to the policy’s main objectives.
CREATE addresses the objectives of rationalizing fiscal incentives by making incentives performance-based, time-bound and transparent and subjecting incentives to rigorous economic criteria.
Most of the compromises found in the bicameral conference committee bill were stricken out through the President’s veto, thus strengthening the final outcome. In particular, we welcome the veto of the increased value-added-tax (VAT) exempt threshold on the sale of real property. The veto of this provision prevents revenue loss and ensures that the VAT exemption will benefit the poor.
We also welcome the veto of the provision limiting the power of the Fiscal Incentives Review Board (FIRB) to grant incentives, as the oversight power of the FIRB is an essential feature of CREATE’s reform. The introduction of the FIRB provides transparency, accountability and consistency and prevents rent-seeking and corruption from investment promotion agencies.
However, it is glaring that one provision—that of protecting the local crude oil refinery, escaped the presidential veto when the very reasons for striking out other weak provisions apply to this specific firm. That is, the protection given to one local crude oil refinery is distortionary, uncompetitive, unfair, rigid, and redundant.
It is clear that the government is protecting a firm that is objectively uncompetitive.
This shows that while the administration can have the political will to be uncompromising by striking out many questionable or weak provisions, it succumbed to the powerful lobby of one particular oligarch.
Despite this, we believe the gains outweigh the costs. We thank House Ways and Means Chair Representative Joey Salceda and Senate Ways and Means Chair Senator Pia Cayetano for working with urgency to sponsor the bill and protect its essential reforms. We also commend the legislators and reformers who have supported the various versions of the bill through the years.
Regardless of the insertion of questionable provisions that go against CREATE’s main principles, we welcome the signing into law of this long-overdue reform. We hope that the rationalization of fiscal incentives will provide clarity for our investors and attract foreign investment, and that the lowering of corporate income tax will be responsive to a stimulus during this pandemic-induced economic downturn.