Action for Economic Reforms (AER) welcomes the bicameral conference committee’s approval of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill last February 1, even as it raises concerns regarding questionable provisions.
Although the deliberations could have been more transparent, we welcome our lawmakers’ protection of essential reforms, which include upholding the authority of the Fiscal Incentive Review Board (FIRB) to govern and grant incentives, and retaining incentives that are time-bound, targeted, performance-based and transparent.
We commend House Ways and Means Chairperson Rep. Joey Salceda, Senate Ways and Means Chairperson Senator Pia Cayetano, and the members of the bicameral conference committee for ensuring that the crucial structural reforms, especially in terms of fiscal incentive rationalization, have been attained, and for resisting attempts to dilute the reforms. We welcome that the PhP 1 billion threshold for the FIRB’s approval of incentives has been maintained.
However, the final version of CREATE still contains provisions that run contrary to its main objectives, are unnecessary insertions, and swing the advantage to certain parties. We have 3 main concerns about the final version of the bill:
- Exemption on taxes and duties for petroleum refineries. Exempting local refineries from duties and taxes is discriminatory and swings the advantage towards certain importers. Furthermore, oil refineries are not a part of the Strategic Investment Priority Plan (SIPP), which defines the activities qualified to receive incentives. We oppose the insertion of this provision which protects vested interests and was not a part of either the House or Senate Bill. If petroleum refineries’ request for tax incentives is a question of policy, it must be subjected to public scrutiny and debate.
- Exempting legislative franchises’ tax and duty incentives from the jurisdiction of the FIRB to review, withdraw, suspend or cancel tax incentives and subsidies. This provision opens the floodgates for gaming by vested interests who want to receive incentives without being subject to rigorous scrutiny. The governance of the FIRB keeps firms accountable and competitive, and removing the FIRB’s power to withdraw incentives from legislative franchises goes against the core principles of CREATE.
- VAT exemption on housing. VAT exemptions on housing are not a focal point of CREATE; furthermore, VAT exemptions generally result in foregone revenues. Thus, for the poor to substantially benefit, these exemptions must be limited to goods and services that are consumed by the poor. Yet the threshold value for VAT exemption on housing in the CREATE Bill was raised to PhP 2.5 million for residential lots and PhP 4.2 million for houses and lots, amounts that the poor cannot afford. Poor households do not benefit from VAT exemptions on housing; these exemptions only benefit the rich while funneling funds away from development programs for the marginalized. There are other ways to encourage the development of the housing sector: targeted, direct subsidies for socialized housing beneficiaries through a voucher system, among others.
We call on President Rodrigo Duterte to exercise a line item veto of the three contentious provisions cited above, in order to ensure that CREATE’s reforms are not weakened by lobbies from vested interests.