The BREADWINNER | Mario F. Fetalino Jr.
President Rodrigo Duterte recently signed into law the landmark Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises.
Many, including the Department of Trade and Industry, are thankful.
“We thank President Rodrigo Roa Duterte and the Congress for enacting the CREATE Act. This is one the most important policy reforms initiated about two decades ago, but has only been successfully legislated under our current administration,” Trade Secretary Ramon Lopez said.
Lopez considered the CREATE law a “game-changer” as it significantly brought down corporate income taxes that benefit the micro, small and medium enterprises (MSMEs) the most and even the large firms.
He said it has also modernized and improved the investment incentive regime to one that is performance-based, focused and innovation-oriented.
“First, for business in general, we cannot overemphasize the impact of the reduction in corporate income tax from 30 percent to 25 percent for big firms and for small and medium enterprises (SMEs) to 20 percent. The drop is very significant as it will open up cash flows to support efforts of businesses to REBUILD during this pandemic,” he added.
Lopez also cited the granting of a clearer set of incentives with four to seven years of income tax holidays and followed by 10 years of special corporate income tax / enhanced deductions for exporters, or five years ED for domestic market enterprises.
“Equally important, the removal of restriction for providing incentives to foreign companies, will attract more foreign direct investments (FDIs) as multinationals are not only going to target the domestic market but also boost the country’s export market,” he said.
This restriction dates back to Executive Order No. 226, which was issued more than 35 years ago –when there was no free trade in Asean nor was there a World Trade Organization (WTO)– and amid the current context where imported goods are coming in duty-free, and factories are just set-up in other countries where they are given incentives and then exported to the Philippines at duty-free rates.
Lopez said the CREATE Act rationalizes, modernizes, and offers more relevant incentives to investors in line with the times.
“Rather than locate in other countries and export to our domestic market, we have to capture those investments as long as they are in the prioritized sectors and allow them to target the domestic market. This can also encourage higher local content for our manufacturers sourcing from abroad, as part of value chain enhancement. What’s more, we are also committed in supporting further liberalization to enhance our country’s competitiveness and create more jobs,” he said.
Lopez said a CREATE regime will step up support for industrial development.
“In particular, the option for enhanced deduction will promote investments in developing supply-chain networks, research and development , and training which are very critical for enhancing the long-term competitiveness of our country.,” he added.
The trade chief said the BOI will intensify coordination with the Department of Finance (DOF) for the issuance of the Implementing rules and regulations (IRR) of the CREATE Act, as well as the Strategic Investment Priorities Plan under the same law.
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