The House of Representatives has decided not to adopt the Senate version of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act as some of its members raised key concerns on the new tax incentives bill.
With this, the plenary elected Monday night some House members to the bicameral conference committee to reconcile the two chambers’ different versions of the CREATE.
House Committee on Ways and Means Chairman Joey Sarte Salceda, principal author of the House version of CREATE, said the bicameral conference committee will try to finish reconciling all the conflicting provisions of the proposal by January 2021.
Earlier, the House leader said the House will adopt the Senate version of the CREATE to fast-track its approval.
The proposed CREATE provides for the reduction of the corporate income tax rate for resident foreign corporations and nonresident foreign corporations from 30 percent to 25 percent effective July 1, 2020; and the reduction of the minimum corporate income tax (MCIT) rate from 2 percent to 1 percent for a period of three years—effective July 1, 2020, until June 30, 2023.
House concerns
In the Senate version of CREATE, Salceda noted that for 10 years, there will be no change in the tax regime for businesses currently subject to the 5 percent on gross income earned (GIE) tax, while current recipients of the income tax holiday (ITH) will be allowed to exhaust all the remaining years of their ITH.
The Senate version of the bill said registered business enterprises (RBEs) enjoying the 5-percent tax based on GIE shall be allowed to continue to enjoy the 5-percent tax for a period of 10 years, regardless of the number of years under 5-percent GIE. After the expiration of the transitory period, the export enterprises registered prior to the effectivity of the CREATE Act shall have the option to re-apply and avail themselves of the tax incentives under CREATE.
He also noted the sharing of tax revenues between local government units (LGUs) and the national government for registered business enterprises whose Special Corporate Income Tax (SCIT) benefit lapses.
“We take note of Baguio Rep. Mark Go’s concern that the LGUs’ share of revenues from corporate income taxes paid by registered business enterprises whose incentives will lapse may decline. We point out, however, that the SCIT is a tax in lieu of all taxes, including local business taxes and real property taxes. Once the SCIT lapses, LGUs will be able to impose local business and real property taxes, which will be revenue streams on top of their internal revenue allotment (IRA) share,” he added.
Salceda also noted the threshold for evaluation by the Fiscal Incentives Review Board (FIRB).
“The data that was submitted to the DOF shows that, from 2017 to the first quarter of 2019, only 3 out of 409 applications to the Philippine Economic Zone Authority (Peza) breached the P1-billion threshold. From 2015 to 2020, around 27 percent of investment applications with the Board of Investments (BOI) exceeded this threshold,” he said.
“For this reason, we believe that the threshold already takes into account the concerns of other stakeholders that the FIRB might be inundated by applications and might be a cause of delay. At the same time, the threshold also considers fiscal prudence, as the tax expenditure increases with the higher investment amount,” he said.
According to Salceda, the Department of Finance sees the FIRB as a core provision of the fiscal incentives reform, saying, “we strongly recommend retaining the threshold set in the Senate version.”
Under the Senate version, the FIRB has the power to delegate the granting of tax incentives to registered projects or activities with investment capital below P1 billion to Investment Promotion Agencies.
Also, Salceda said both the Senate and the House versions respect the differentiation between highly developed areas and less developed areas in determining the period of availment of incentives and both versions thus provide the longest period of availment to investments in less developed areas.
“However, should the House of Representatives wish to amend the term of incentives, it may consider shortening the period of availment for the Special Corporate Income Tax rate for the National Capital Region, to make the incentives regime more favorable to less-developed areas,” he said.
Salceda also said they also want to address the concern on the incentives regime for exporters.
“We take note of the concern that incentives should be biased toward export-oriented industries over domestic industries. On the other hand, there are also legislators who see the need to provide incentives to domestic activities or industries that might prove to be very beneficial to the economy,” he added.
“We wish to clarify that, in general, domestic industries should only be able to avail of enhanced deductions, and the Special Corporate Income Tax Rate be limited to domestic industries that are ‘strategic’ under the Strategic Investment Priority Plan (SIPP). Thus, not all domestic industries in the SIPP will be eligible for SCIT,” the solon said.
Under the Senate bill, a Strategic Investment Priority Plan (SIPP) shall be formulated every three years to include priority projects or activities that are in the Philippine Development Plan and takes into account the substantial amounts of investments, considerable job-generation capacity, considerable exports, use of modern technology, processes and innovation that will lead to SDGs attainment, addressing value chain missing links and gaps, promotion of market competitiveness, contribution to food security, and promotion of regional and global operations in the country, as well as the scope and coverage of location and industry tiers and the terms and conditions on the grant of the enhanced deduction.
HDMF exemption
On the corporate income tax (CIT) exemption for the Home Development Mutual Fund (HDMF), Salceda said the tax exemption of HDMF remains under Section 19 of RA 9679, which under the House version was repealed, hence, the need to amend Section 27 of the NIRC of 1997, as amended or the Tax Code to include HDMF in the enumeration of tax-exempt government-owned or -controlled corporations.
“This incorporates the HDMF exemption in the Tax Code rather than under the said special law. However, under CREATE [of the Senate], only the incentive provisions under the IPA charters are repealed. All other special laws, which include RA 9679, are not included on the repeal list. Thus, the tax-exempt status of the HDMF would be preserved,” he added.
Source: https://businessmirror.com.ph/2020/12/16/house-is-not-adopting-senate-version-of-create/