CREATE MORE jobs, wealth and prosperity

The bill on Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) being championed by the Department of Finance (DOF) is now at the Congress bicameral committee meeting.

It is a very important bill that aims to further expand investments, create more jobs, wealth and prosperity in the country.

Among its major provisions are the following:

One, it reduces the corporate income tax (CIT) rate from 25 to 20 percent for registered business enterprises (RBEs) under the Enhanced Deductions Regime (EDR).

Two, it reinstates the value-added tax (VAT) zero-rating treatment on sales to indirect exporters by VAT-registered persons, which the TRAIN law of 2017 removed upon satisfaction of certain conditions.

Three, it enhances VAT refund to further streamline the VAT refund process, including limiting the documentary requirements to those prescribed in the revenue issuances, and providing the taxpayer 15 days from the denial of VAT refund an opportunity to file a request for reconsideration.

Four, it grants incentives to taxpayers who will adopt the electronic sales reporting system including additional deduction on the total setup costs and tax exemption on the importation of the system.

Five, it offers better and more competitive tax incentive package like the income tax holiday (ITH) is kept at four to seven years from the start of commercial operations (SCO), but registered enterprises will have the option to avail themselves of either the Special Corporate Income Tax (SCIT) or the EDR from the onset of their registration, and the SCIT incentive is extended from 10 years to a maximum duration of 17 to 27 years.

There is also optional imposition of a registered business enterprise local tax (RBELT), no more than two percent of gross income, to be paid in lieu of all local taxes, fees and charges by RBEs availing themselves of ITH or EDR.

Here are some recent reports in The STAR on the subject: “CREATE MORE approval to accelerate Philippines entry to upper middle-income status” (July 24); “P1.3 trillion projects under CREATE get tax perks” (July 26); “Japanese firms turn to expansion mode after OK of CREATE MORE” (Sept. 20) and “Philippines dangles PPP projects to Singaporean investors” (Sept.  20).

This move by the DOF to cut the CIT is important. Why?

Tax competition in East Asia

The Philippines has the second highest CIT rate of 25 percent along with China, next to Japan with 32.6 percent. Malaysia and South Korea have 24 percent while Indonesia has 22 percent. Cambodia, Thailand, Taiwan and Vietnam have 20 percent, Singapore has 17 percent and Hong Kong has 16.5 percent.

These countries used to have higher CIT rates. Malaysia had a rate of 28 percent until 2006, then 25 percent until 2014.

South Korea had 27.5 percent until 2022. Indonesia had 30 percent until 2008, then 25 percent until 2020. Thailand had 30 percent until 2011, then 23 percent until 2012.

Vietnam had 28 percent until 2008, then 25 percent until 2013 and 22 percent until 2015. Taiwan had 25 percent until 2009, then 17 percent until 2017.

Singapore had 20 percent until 2007, then 18 percent until 2009.

So tax competition in our region is real, not hypothetical or fictional. The Philippines adjusted by lowering the CIT from 35 percent until 2008, then 30 percent until 2021, to the current 25 percent but as the numbers above showed, our rate was still high. So DOF Secretary Ralph Recto’s move for a further CIT cut to 20 percent is brilliant.

The move to further simplify VAT such as reinstating zero-rating treatment on sales to indirect exporters and streamlining of VAT refund process IS also good. Why?

The Philippines has the second highest VAT or sales tax in East Asia with 12 percent, next to China’s 13 percent. Indonesia has 11 percent; Japan, South Korea, Malaysia, Cambodia, Vietnam have 10 percent; Thailand and Singapore have seven percent; Taiwan has five percent and Hong Kong has zero.

So in the next round of tax reforms, the Philippines should cut VAT from 12 percent with many exempted sectors, to around seven to eight percent with no exemption except raw agriculture products.

At the 4th Philippine-Singapore Business and Investment Summit (PSBIS) held last week, Sept. 19 at Shangri-La, Singapore, Secretary Recto assured the Singaporean and Singapore-based foreign investors that the soon CREATE MORE law will further ease and smoothen doing business in the Philippines. Good assurance there, Sec. Ralph.

Other speakers in the PSBIS were Department of Budget and Management Secretary Amenah Pangandaman, NEDA Secretary Arsenio Balisacan, Philippines Ambassador to Singapore Medardo Macaraig. On encouraging the electronic sales reporting system in the CREATE MORE bill, the DBM has a parallel push for digitalization of government procurement and Public Financial Management.

Currently, there have been successful lobbies to be tax-exempt such as the importation of electric vehicles. Now the industry wants to extend the tax exemption.

This is wrong and DOF should junk their lobby. We should keep the rule of law on taxation – the tax applies equally to all sectors.  Lowering the CIT, simplifying the VAT and ultimately lowering it, as well as reducing the import tax are better alternatives than giving exemptions and favoritism to certain sectors while other sectors are slammed with high taxes.