CREATE’s lower corporate tax rate to be applied retroactively
THE PROPOSED 25% corporate income tax (CIT) will be applied retroactively to July 1, 2020 if the Corporate Recovery and Tax Incentives for Enterprises (CREATE) legislation is signed, Finance Secretary Carlos G. Dominguez III said.
“This will allow taxpayers to properly adjust their books and returns for the filing season as the reduction of the CIT rate will be retroactively applied to July 1 of this year,” Mr. Dominguez said in a statement over the weekend.
The lower tax rate will thus cover half of 2020.
The Senate approved Senate Bill No. 1357 or the CREATE bill on third and final reading last week, cutting the corporate income tax to 25% from 30% currently, with further reductions of one percentage point each year starting 2023 until it falls to 20% by 2027.
The Senate version allows for small firms with assets of up to P100 million and up to P5 million in net taxable income to enjoy an expedited reduction to 20% this year.
The measure also seeks to reform the tax system and give more power to the Fiscal Incentives Review Board to give tailored incentives.
“These reforms in the fiscal incentives system are crucial for us to be able to compete for high-value investments, which are what we want to attract. The passage of CREATE is timely as many investors located in China are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier,” Mr. Dominguez said.
A Bicameral Conference Committee will no longer be needed since the House of Representatives has agreed to adopt the Senate’s version, according to Albay Representative Jose M. Clemente S. Salceda.
The measure is revenue-negative and will result in P40 billion worth of foregone revenue this year, and P650 billion over the next five years.
The CREATE bill forms part of the government’s recovery package along with the P140-billion Bayanihan to Recover as One Act (Bayanihan II), or Republic Act 11494.
Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua has said the timely passage of the measure will help the economy bounce back faster from the recession, especially small- and medium-sized enterprises that were among the hardest hit by the crisis.
“With CREATE, the country will also be able to attract more foreign direct investment with an improved incentives menu, which will maximize desirable economic outcomes such as job creation, domestic value added, and technology transfer,” he said in a statement Friday. — Beatrice M. Laforga