Statement of Action for Economic Reforms welcoming the passage of the CREATE Bill

Action for Economic Reforms (AER) welcomes the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill, which was passed on third and final reading in the Senate today.

The bill has met its primary objectives of making incentives time-bound and performance-based and rationalizing the governance of incentives through the Fiscal Incentives Review Board. We also hope that the sharp reduction of corporate income tax can be responsive to the stimulus and in the longer term, help make Philippine businesses competitive.

Compromises have been made, specifically in having a longer transition for the ending of incentives, but these compromises are tolerable and will do no harm. We understand that the dynamics of the political economy led to these compromises.

We do not agree to dual rates for corporate income taxes, as this complication does not optimize revenues and could lead to the gaming of the system, thus abetting tax avoidance if not evasion. But on balance, the gains are heavy and outweigh the costs.

The passage of the bill removes policy uncertainty which has hindered investment decisions. We hope that the bill’s passage will signal to investors that the new rules, which are fair, predictable, and simpler, are responsive and friendly to new foreign and domestic investors alike. The bill’s passage will hopefully help rekindle animal spirits of investors to do business in the Philippines.

CREATE also serves as a stimulus during this economic downturn caused by the COVID-19 pandemic. Thus, it is sensible to have temporary measures such as the VAT exemption for medicines, vaccines, and medical equipment that are needed to fight COVID-19 and the reduction of the minimum corporate income tax from two percent to one percent, but all effective until the middle of 2023. To reiterate, these concessions are temporary, for temporariness is the nature of a stimulus.

We are also happy that the Senate thwarted attempts to make VAT exemption on some goods permanent. We are happy that the Senate prevented a major dilution of the bill like excluding different economic zones from the reform of the fiscal incentive system.

We commend Senator Pia Cayetano, chairperson of the Committee on Ways and Means, for her efforts and prompt action in sponsoring the bill, as well as other Senators who consistently supported the bill. We also commend the champions in the House of Representatives, led by Congressman Joey Salceda, the chairperson of the House’s Committee Ways and Means for the swift passage of the House version. The House bill and the Senate bill are easily reconcilable, for they both contain the major features of the reform.

We also thank the reformers at the Department of Finance, the Department of Trade and Industry and the National Economic and Development Authority for their patience and determination in advancing this historically significant reform.

Reform of the fiscal incentives regime took more than two decades. Our outdated incentive system could have been reformed earlier had there been political will and less jockeying from vested interests. However, it is still a big win that the opportunity was seized at this time, and that this long overdue reform has finally come to fruition.