On Nov. 11, the President signed and approved the passage of Republic Act (RA) No. 12066, also known as CREATE MORE, into law. MORE stands for Maximize Opportunities for Reinvigorating the Economy while CREATE stands for Corporate Recovery and Tax Incentives for Enterprises. By its very name, the amendments introduced to the Tax Code are meant to entice more investments into the Philippines, by providing improved tax incentives to investors and better measures to ease doing business in the country.

The following are some of the salient features of CREATE MORE:

Reduced 20% Income Tax Rate for Registered Business Enterprise (RBE) under the Enhanced Deduction Regime (EDR). Under the CREATE Act, RBEs availing themselves of the enhanced deduction incentive were allowed to claim additional tax-deductible expenses in relation to their registered projects or activities. Also, their taxable income was subject to the regular 25% corporate income tax rate. To entice investors further, CREATE MORE makes EDR more attractive, by lowering the income tax rate from 25% to 20%.

Additional and increased deductions are granted under the EDR. CREATE MORE improved the EDR by increasing the allowable tax deduction for power expenses from 50% to 100%. Considering the high cost of electricity in the Philippines, this will incentivize businesses which are heavily reliant on power consumption. However, this may unwittingly promote unconscious use of energy regardless of its source.

CREATE MORE also expands the allowable deduction for reinvestment allowance to the tourism industry which was previously limited to the manufacturing industry. Despite its world-renowned beaches and hospitable residents, the Philippines has yet to fully optimize tourism for purposes of economic growth and job creation. This fiscal incentive was made in conjunction with the ongoing infrastructure developments, and towards an investment-led economy instead of a consumer-led economy. However, the period to avail this deduction is limited — it can only be availed of until December 2034.

The EDR under CREATE MORE also provides an additional 50% deduction on expenses relating to exhibitions, trade missions or trade fairs.

CREATE MORE amended the allowable period to claim net operating loss carry-over (NOLCO) under the EDR. It clarified that NOLCO can be claimed as an allowable deduction within five years following the last year of availing of the Income Tax Holiday (ITH) instead of five years immediately following the year of loss. This is reasonable since there would be no income tax benefit if the RBE is availing itself of the ITH when it incurred the loss.

Clarification that the 5% Special Corporate Income Tax (SCIT) is in lieu of all national and local taxes including local fees and charges. CREATE MORE clarifies in the amendments introduced to Section 311 that the benefit of the 5% SCIT by expressly stating that the same is in lieu of local taxes, fees, and charges.

CREATE MORE added Section 294 (F) of the Tax Code which allows a local government unit to impose a local tax against an RBE at a rate not exceeding 2% of gross income, which shall be in lieu of all local taxes, fees, and charges during the ITH or EDR. While a local government unit has yet to pass an ordinance on this, we can anticipate that could cause confusion and varying positions. Nonetheless, it is clear from Section 294(F) that local tax cannot be imposed on RBEs under SCIT.

RBEs may immediately avail themselves of SCIT or EDR upon the start of commercial operations. Instead of availing of ITH first prior to SCIT or EDR, CREATE MORE explicitly provides that RBEs have the option to immediately avail of SCIT or EDR. The elected incentive package, however, is irrevocable. Usually, profits cannot be expected during the first few years of operations. The ITH incentive has no material benefit during the initial stage of the business in such cases. Directly availing of SCIT or EDR may be more appealing to new RBEs.

Flexible work arrangements for employees of RBEs. Post pandemic, businesses recognized the advantages of work from home arrangements. Business models evolved to adopt flexible work arrangements. However, the CREATE Act provided that an Investment Promotions Agency (IPA) administering an economic zone or freeport zone shall exclusively conduct its registered activity within the geographical boundaries of the subject zone or freeport. In effect, this hindered some investors who preferred work from home arrangements. CREATE MORE now introduces an exception in support of a telecommuting program which permits the coverage of not more than 50% of the total workforce, and which shall be subject to the rules and regulations formulated by the IPA. To avoid abuse, CREATE MORE prohibited double registration for purposes of availing of other incentives under special laws.

Establishment of a One-Stop Action Center and Initial Point of Contact for Foreign Investment Leads. CREATE MORE seeks to further improved the ease of doing business in the Philippines by allowing IPAs to have one-stop shops to assist investors in securing the necessary licenses and permits, and in establishing their businesses.

Clarifications on VAT Incentives of Registered Export Enterprise (REE). CREATE MORE also clarified certain provisions in relation to VAT exemption on importations and VAT zero-rating on local purchases of REEs. To recall, during the initial implementation of the CREATE Act, there were issues on the implementation of the VAT incentives considering that these were limited to the sale of goods and services to RBEs which should be directly and exclusively used in the latter’s registered activity. Under CREATE MORE, it is now clarified that the VAT incentives cover importations and local purchases of REEs which are directly attributable to their registered activity including janitorial, security, financial, consultancy, marketing and promotion services, and services rendered for administrative operations such as human resources, legal, and accounting.

In 2021, CREATE was enacted to boost the growth of the national economy towards global competitiveness. However, certain provisions of CREATE and its implementing rules and regulations caused some confusion which resulted in a clamor for MORE. Certainly, with CREATE MORE in place, and if it is optimized and fairly implemented in a manner consistent with its purpose, there are high hopes that MORE investments will be CREATED for the Philippines, for it to attain global competitiveness.

The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not offered as, and does not constitute, legal advice or legal opinion.

Fatima Faye E. Cordova-De Lima is a senior associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.

fecordova@accralaw.com

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