March 11th, 2024
Rep. Joey Sarte Salceda
11 March 2024
CREATE MORE builds on the progress achieved by the CREATE Act and responds to emerging developments in the global economy.
First, 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. That means that 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.
Second, CREATE has given the Philippines some level of protection against headwinds in the global investment environment. Higher Fed rates, the COVID-19 pandemic, and a slower-growing China has caused global FDI levels to decline even versus pre-pandemic levels, but the Philippines’ FDI performance still exceeds in 2019 levels.
Third, the oversight and policymaking powers of the Fiscal Incentives Review Board has allowed us to evaluate tax incentives performance through the annual FIRB report. This helps us craft investment promotion strategies to make the country more competitive against our very ambitious neighbors.
Nonetheless, the global environment has also changed rapidly since the enactment of CREATE, particularly in three key areas: the rapid decline of China as the global manufacturing hub, the introduction of the global minimum corporate tax, and the increase in global commodity prices particularly fuel due to ongoing world conflicts.
In this regard, we cannot afford to bungle our tax treatment of investors.
That is why any ambiguity in the CREATE Law that has led to misinterpretations either in the IRR or in the application of the law must be resolved. The VAT regime must be simple, clear, and transaction-based. The incentives regime under the CREATE transition period must be without any ambiguity. And the VAT refund system must work.
Our tax incentive approval mechanism must also be agile – while maintaining the government’s oversight of the process. That is why the power to grant incentives is being reverted to the Investment Promotion Agencies (IPAs) but the FIRB’s policymaking and oversight functions are being maintained.
While CREATE improved job creation in the services sector due to lower CIT, there is evidence that the VAT-sensitive manufacturing sector suffered due to the CREATE IRR, which deviated from legislative intent. The sector lost 41,840 jobs more than it usually does every year since the issuance of these IRRs.
Our incentives must also respond to the global minimum corporate tax. The world is moving towards a tax rate of 15%, and companies that pay less than that abroad are being required by home countries to pay the balance at home. So, our ITH and SCIT regime of 0 and 5 percent will only result in origin countries imposing a top-up tax. It will defeat the purpose of our incentives.
So, we need a tax regime that is both compliant with the minimum global tax and remains competitive. That is why we are reducing the tax rate for those under enhanced deductions from 25 percent to 20 percent, so that eligible enterprises will shift from SCIT to enhanced deductions.
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.