By Beatriz Marie D. Cruz, Reporter
AS THE PHILIPPINES steps into 2024, a swift enactment of amendments to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act is highly anticipated by business groups to attract a surge in foreign investments.
Speaking to BusinessWorld, Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon expressed optimism about the potential impact of changes under the CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill, which is currently being taken up in the House of Representatives.
He said companies considering relocation are likely to appreciate the flexibility the Philippines would offer in encouraging foreign direct investments (FDI). “Let’s say an operation from China,” he said, could be enticed to relocate once it sees the advantages of new incentives and policies in the country.
These companies are typically export-oriented, said Mr. Barcelon, so they tend to choose to be located in any area they are entitled to the full benefit of such incentives under CREATE MORE. “That would definitely help make our country more attractive,” he added.
Based on a Fiscal Incentives Review Board (FIRB) report released last October, the bill focuses on key reforms that include streamlining the tax refund process for registered business enterprises and implementing a risk-based classification system for claims and audits.
But one of its salient features is to boost the country’s foreign market presence by expanding the enhanced deduction regime. This involves increasing the deduction for power expenses from 150% to 200% and introducing a 200% deduction for expenses related to approved trade fairs, exhibitions, and missions.
Ebb Hinchliffe, American Chamber of Commerce of the Philippines (AmCham) executive director, said the enactment of the CREATE MORE bill would help them promote the country as an operable investment site in an upcoming US trade mission in March 2024.
“[The year] 2024 is shaping up to be a banner year for AmCham. Not only the benefits of CREATE MORE but also the recent ruling allowing 100% ownership of renewables,” he said in a Viber chat.
AmCham has been batting for the streamlining of FIRB processes, the clarification of work-from-home arrangements for companies under the Philippine Economic Zone Authority (PEZA), and timely tax refunds, Mr. Hinchliffe said.
CREATE was signed in to law in 2021 to aid enterprises who have yet to recover from the coronavirus pandemic. And one of its aims is to enhance the efficiency, timeliness, and predictability of VAT refunds.
While the law was able to grant several fiscal incentives to registered companies and projects, key industry sectors were called to solve bottlenecks in the law.
One of the major concerns from CREATE was the VAT zero-rating on local purchases, as it would require claimants to prove that their local purchases are “directly and exclusively” used in their registered activities.
The information technology and business process management (IT-BPM) sector also sought clarification on work-from-home arrangements, after the FIRB denied requests to allow the set-up.
The CREATE MORE bill was approved by the House Ways and Means Committee on Nov. 21, following instructions from President Ferdinand R. Marcos, Jr. to speed up its passage, said panel chairman and Albay Rep. Jose Ma. Clemente “Joey” S. Salceda.
Under CREATE MORE, local and export companies, even those inside ecozones and freeports, would continue to enjoy duty exemptions, VAT exemption on importation, and the VAT zero-rating of local purchases as provided in their respective investment promotion agency (IPA) registrations.
“Registered export enterprises shall enjoy non-income tax incentives, such as duty exemption on importation of capital equipment, raw materials, spare parts or accessories, VAT exemption on importation and VAT zero-rating on local purchases, as long as the registered export enterprise maintains 70% of the total annual production as export sale and continues to be registered in good standing with the IPA,” according to a copy of the bill.
The measure also proposes to lower corporate income tax (CIT) to 20% for those under the enhanced deduction regime from 20-25%.
Under the measure, the IT-BPM sector will be allowed to “conduct business under alternative work arrangements.”
Bienvenido S. Oplas, Jr., president of think tank Minimal Government Thinkers, said a lower CIT would ensure a favorable business climate in the Philippines.
“Better yet bring it down to a 17% flat rate… to keep up with tax competition in CIT at least in the ASEAN-6 (Association of Southeast Asian Nations),” Mr. Oplas said in a Viber message.
Among six ASEAN countries, the Philippines has the highest CIT rate at 25%, compared to Malaysia (24%), Indonesia (22%), Vietnam (20%), Thailand (20%), and Singapore (17%).
“More companies paying a lower tax rate may produce more revenues than few companies paying a higher tax rate,” he added.
Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said Congress should not only legislate on tax rates to entice investors.
“Reducing corporate tax rates is no magic bullet to broaden foreign investments to the country, as other impediments remain, such as red tape and corruption,” Mr. Ridon, also a former lawmaker, said via Viber.
CREATE MORE empowers the President to motu proprio grant incentive packages, essentially removing the FIRB’s capacity to assess and recommend fiscal incentives. Mr. Salceda said this amendment was specifically requested by Mr. Marcos.
In a Nov. 8 committee meeting, Finance Assistant Secretary Juvy C. Danofrata, who also heads the FIRB Secretariat, said the board seeks to ensure “fiscal responsibility” when granting exemptions or tax incentives.
“Before CREATE, there’s really no conscious effort on the part of anybody except, I think, the DoF (Department of Finance) to look into what is the cost and what is the benefit [of tax incentives and exemptions] to the economy,” she told congressmen.
Anthony B. Rivera, director for commercial affairs at the Philippine Trade and Investments Center in Taipei, said changes made under the CREATE law must ensure ease of doing business to attract more Taiwanese investors.
“They (Taiwanese enterprises) would like to have an enabling environment that will lower their costs and have faster processing of VAT refunds,” Mr. Rivera said in a Viber message.
Finance Secretary Benjamin E. Diokno earlier said that amendments to the CREATE law will improve the country’s investment climate.
“The proposed amendments to the CREATE Act will enhance the incentive system, clarify the rules and policies on the grant and administration of incentives to qualified enterprises, and address issues affecting the country’s investment climate,” Mr. Diokno said on Oct. 25.