Buying of real property will be dramatically affected by this bill.
On March 26, 2021, President Rodrigo Roa Duterte signed the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, also known as Republic Act 11534. The purpose of the law is to lower income tax for corporations, in order to facilitate economic recovery amidst the continuing COVID-19 pandemic and its effect on local businesses.
Despite signing it into law, President Duterte vetoed nine provisions in the law – an act confirmed by presidential spokesperson Harry Roque told reporters. The law, which reduces corporate income tax from 30% - the highest rate in Southeast Asia – to 20% for micro, small, and medium enterprises. Income tax is reduced to 25% for large corporations. These cuts are aimed to provide relief for businesses and hasten fiscal recovery.
There were nine provisions vetoed by President Duterte. The first aimed to provide a VAT (value-added tax) exemption for low-cost and socialized housing. Duterte explained the reason for the thumbs-down: “[T]his will benefit even those not originally targeted for the VAT-exemption—those who can actually afford proper housing. This results in a tax exemption that is highly distortive and exacts a heavy price on the taxpaying community.” He also claimed that such a provision could be abused by parceling land into lots of sizes that would fall within that exemption threshold, resulting in lost revenue for the government.
The second item that Duterte vetoed was the proposed 90-day period for processing general tax refunds. He cited the possibility of erroneous processing of refunds, as well as potential administrative difficulties in its implementation by the Bureau of Internal Revenue (BIR).
President Duterte also vetoed the suggested Php1-billion threshold that investments would need to meet in order to be approved by the Fiscal Incentives Review Board (FIRB). Among the remaining items vetoed was the automatic approval of incentives by the FIRB if no action had been taken within 20 days from submission.
“Automatic approval of applications is contrary to the declared policy to approve or disapprove applications based on merit,” said President Duterte. “The FIRB or the investment promotion agencies, as the case may be, should be allowed to carefully review the application for tax incentives since these are privileges granted by the State.”
The remaining items all covered the proposal to allow existing registered activities to apply for new incentives for the same activity; certain industries under activity tiers; powers for exempting investment promotion agencies from the proposed reforms, and limitations on the FIRB’s various powers.
Under the CREATE Law, domestic market enterprises will have up to 12 years of incentives, including up to seven years of income tax holiday. Its application will be retroactive from July 2020, allowing corporate taxpayers to start preparing and save on their annual tax payments.
The chief author of the bill which led to the CREATE Law is Albay Second District Rep. Joey Salceda, who has high hopes for the law’s passage and its ability to help the economy out of its current slump. “Create has been created,” Salceda said. “This is one of the pins of light signaling the end of this dark economic tunnel.”