Create means making something out of nothing. CREATE (Corporate Recovery and Tax Incentives for Enterprises) is a new Department of Finance/National Economic and Development Authority initiative announced in the 14th of May Sulong Pilipinas e-Conference with stimulus in mind. It will replace CITIRA (Corporate Income Tax and Incentives Reform Act). Will CREATE make something out of nothing? Or will it make nothing out of something? Would that it be the former. CREATE’s most salient provision reduces in an instant the corporate income tax (CIT from) 30% to 25% instead of gradually as in CITIRA. This move will punch a huge hole on government tax collection (P625 billion in five years and P42 billion this year by government estimates). The authorities hail this as the “largest stimulus program for enterprises” to speed up recovery from the COVID-19 free-fall. The finance department argues that a massive multiplier effect will follow to recover the loss.

Whatever else CREATE is, however, it is not a stimulus boost out of the COVID-19 morass. A reduction in CIT to 25% from 30% qualifies as a stimulus to business activity only if private businesses will be making a profit in the years subsequent and paying 25% instead of 30%. With a looming U-shaped recovery, private businesses will almost surely operate in the red instead of in the black in the next few years. If so, the corporate tax liability will surely go from 30% of nothing to 25% of nothing, meaning a stimulus boost of nothing! Furthermore, when businesses are facing a depressed utilization rate of capital, the canonical response is “Wait” — no new capital investment going forward. Representative Stella Quimbo et al’s 2015 research result ( shows that lowering the tax liability elicits new capital spending only when the firm is already in the capital spending mode before the CIT reduction — most likely when the economy is expanding. The expanded NOLCO (net operating loss carry-over) provision is beneficial for companies who will be around five years hence. Many firms will not survive that long. The massive multiplier argument parlayed by the Department of Finance (DoF) for CREATE seems dreamy in a free-falling economy.

There is a good reason why in 1936, at the height of the Great Depression, JM Keynes advocated a demand-side stimulus rather than a supply-side one. In an economy in free fall, put money in the hands of the hungry poor and they will buy; by contrast, lower taxes for firms or lower the interest rate and nothing much happens. Why? That is like, as a popular quip goes, “pushing on a string.” Firms can use the tax bonanza to, if at all, declare dividends to shareholders; they can shore up their balance sheet; they can engage in share buyback; new investment will be the last priority. Government is reeling from COVID-19-related cash burn and President Duterte has ordered the Department of Budget and Management (DBM) to slash other spending allocations to quench the monstrous appetite of the Social Amelioration Fund (SAF). Already SAF has exhausted its P205 billion allocation and needs another P50 billion to include 5 million more indigents. Other tranches beckon. The central bank has begun the hitherto taboo action of purchasing government treasuries in support. Fiscal deficit is racing to 8% of GDP as the economy and the tax base shrinks. Congress is scrambling for additional tax revenue from sin and digital products. Why forego much needed in-the-bag tax revenue now?

“A bird in hand is better than two in the bush,” goes the old saying, and not without reason. In the pre-COVID-19 times, CITIRA’s CIT reduction would have let go of P300 billion a year in sure revenue. Letting go was already imprudent when government faced only the financing bubble of Build, Build, Build — public and arterial infrastructure being the best use of a country’s resources in good times; it is imprudence twice over with the COVID-19 financing boondoggle now staring the nation in the face.


In Socioeconomic Planning Secretary Karl Chua’s presentation (at the May 14 Sulong Pilipinas e-Conference), one item in CREATE reads: “For existing investors: no change in present incentives for the next four to nine years.” We understand “existing investors” to include existing PEZA locators; and the grace period of the mandatory switch to CIT from GIT (gross income tax) will be extended by two years. This is a step in the right direction though decidedly paltry. Finance Secretary Carlos Dominguez’ “Welcome Remarks” identifies as among the recovery options: “Attract foreign investors to relocate from other countries; pass the CITIRA bill that will include flexible incentives.” It is well-known that PEZA locators and the foreign chambers were opposed to the TRAIN 2 and successor CITIRA bill, specifically to the forced shift by all PEZA locators from GIT at 5% to CIT gradually falling to 20% in 10 years. CREATE rehashes the original TRAIN 2 plan of CIT reduction from 30% to 25% in one go. Since by the DoF’s own calculation, the CIT equivalence of the 5% GIT is about 17 % CIT, potential new foreign investors in PEZA in the next two years stand to pay a higher tax liability (25% GIT) than incumbents paying 5% GIT (17% CIT). Telling foreign investors how much you want them at the same time that you slap them with a higher tax liability does not make for “more fun in the Philippines.” COVID-19 has weakened our bargaining position; our vaunted fiscal health is leaking out fast. As a rocket to blast us out of the COVID-19 black hole, CREATE strikes one as underwhelming. There is no echo of the courage shown in Franklin Delano Roosevelt’s New Deal. Romy Bernardo, who commented in that same e-Conference, offered interesting and bolder prescriptions.

We are at the crossroads of the rebalancing of the global foreign investment away from the People’s Republic of China. Vietnam and Indonesia are openly courting with additional goodies and even flaunting their better anti-COVID-19 record. Indonesia especially has been winning the race for US multinationals, one at which we defaulted given Malacanang’s overtly anti-US rhetoric. Chinese multinationals on the other hand are flocking to Vietnam despite our assiduous courtship of China.

At the crossroads of the global currency rebalancing in 1987-90, we badly missed the tsunami of Japanese foreign investment. This pulled down our economic standing in the ASEAN and elsewhere for decades. If by our actions, we treat foreign investors as if we don’t really care, we could see a reprise of that deplorable rout in 2020-22.


Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology, and an Honorary Professor of the Asian Institute of Management. He gets his dopamine fix from daily bicycling and tending to flowers with wife Teena.