April 24th, 2021
I thank my admired friend Former Socioeconomic Planning Secretary Winnie Monsod for her kind words on CITIRA, the original version of the Corporate Recovery and Tax Incentives for Enterprises, or CREATE Act. I would like to respond to some of her assertions in her well-read column, however.
First, the latter version, CREATE, is a product of the country’s drastically changed realities due to COVID-19. As soon as it became evident that COVID-19 would hurt the economy, I proposed that a faster 5% immediate cut to the corporate income tax (CIT) be effected in CITIRA. The insight that more available capital for firms will generate more jobs comes from the Dynamic Stochastic General Equilibrium (DSGE) model of the Department of Finance (DOF), which my Committee has adopted as its guide for aggregate effects of proposed economic policies.
I also took note of the Department of Labor and Employment (DOLE) study by Dr. Caesar Cororaton of the Virginia Polytechnic Institute and State University or Virginia Tech and Dr. Marites Tiongco of the De La Salle University (DLSU) School of Economics which showed that CITIRA would create up to 2.3 million jobs in ten years. More capital available immediately was bound to create some of thoese jobs faster.
I also beg to differ with the claim that CREATE does not help MSMEs.
The most obvious response is that we also cut the percentage tax on entities exempt from registering for VAT (which are mostly the self-employed and small businesses) from 3% to 1% until end of June 2023. This appears not to have been considered in Dr. Monsod’s claim.
Second, non-corporate businesses that are sole proprietorships are subject to the personal income tax (PIT) which we already reduced (in fact much more significantly for smaller taxpayers) under the first package, Tax Reform for Acceleration and Inclusion (TRAIN), which I also championed.
Third, of course if sole proprietorships and MSMEs find that they would, in fact, stand to gain more in tax savings under CREATE, they can now very easily register as one-person corporations, unlike in the past. I am also championing the Ease of Paying Taxes Act so that they can better navigate the tax administration system at lower cost and burden. Of course, if there is any other relief measure that we can provide to MSMEs, I will always happily listen to Dr. Monsod.
The most important benefit of CREATE, however, is that it harmonizes our tax incentives system. For several decades, we left this system prone to abuse. During every Congress I belonged to, I would file a reform of the fiscal incentives system, but we would always fall short in the past. So large was the problem that, in 2013, under the past administration, the Tax Incentives Management and Transparency Act (TIMTA) was enacted precisely so that we could craft CITIRA/CREATE. This effort is the work of many administrations.
I thank my friend Dr. Monsod for her thoughts. I welcome any argument for or against CREATE as a contribution to the necessary discourse on improving our tax system. Let us all keep our lines open for constructive conversations.