March 18th, 2024
Rep. Joey Sarte Salceda
18 March 2024
The international landscape on taxation is rapidly changing, with the imposition of global minimum tax, the shift of manufacturing away from China, and the global consensus towards cost-based tax incentives. CREATE MORE is our response to these developments. And it pragmatically affirms what works with the CREATE law, while correcting other policies early.
The CREATE Law succeeded in creating some 366,650 additional jobs in the economy as a whole and some 112,464 committed jobs from the P1.1 trillion in approved investments that the tax incentives regime created. CREATE is on track to meet its ten-year job creation target of 1.4 million jobs due to lower corporate income taxes and a harmonized tax incentives regime. CREATE also resulted in higher FDI levels compared to pre-pandemic years.
But conflicting interpretations of the VAT regime under CREATE’s IRR also resulted in the lose of some 125,560 manufacturing jobs. Manufacturing is sensitive to increases in cost, being a low-margin operation, so any undue increase in taxes in that sector also means job losses. We need to course-correct on VAT.
While the FIRB has resulted in a more complete analysis of where our tax incentives go, it also has the ability to delay the inflow of FDI by requiring multiple stages of submissions. So, we need to protect what works with FIRB – policymaking and oversight – while course-correcting on the approvals process.
Our income tax holiday (ITH) and 5 percent special corporate income tax (SCIT) regime also no longer clears the standards set by the OECD for the global minimum tax. That means, even if multinational companies avail of our attractive incentives, they will still be made to pay a top-up tax at home. The enhanced deductions (ED) regime meets the OECD standards, but the tax rate is not attractive enough for companies to shift to that regime. By reducing the CIT rate for ED from 25 percent to 20 percent, we make it attractive for companies to shift from SCIT to ED. I reckon that over time, it will be a net positive for our fiscal space.
Finally, high power cost is an existential threat to Philippine industries, especially in the manufacturing sector. Because we cannot afford to subsidize power costs as our neighbors do, an enhanced deduction for power cost will be more targeted towards those who need competitive power rates to create jobs.
We will continue to engage with the world’s best experts to see how we our tax incentives regime can be made more responsive to the changing global landscape.