Duterte signs bill lowering corporate income tax, vetoes some items

President Rodrigo Duterte has signed into law a measure that finally lowers the highest corporate income tax in Southeast Asia.

Malacañang confirmed that Duterte signed the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which is now Republic Act No. 11534.

With this law, corporate income tax in the country, currently at 30%, is lowered to 25% for large corporations and 20% for small businesses.

Here is the signed law:

CREATE also overhauls tax incentives, making perks targeted, performance-based, and time-bound. (READ: [ANALYSIS] Will Duterte's new tax measure kill foreign investments?)

Joey Salceda, chair of the House of Representatives' ways and means committee, had called the CREATE measure the "greatest economic reform of the post-EDSA years." Finance Secretary Carlos Dominguez III had aggressively lobbied for the law.

In Duterte's March 26 letter to the Senate and House of Representatives, the President said the CREATE law will be a boon to Filipinos whose income have been affected by the COVID-19 pandemic.

"It comes at an opportune time, since it will serve as a fiscal relief and recovery measure for Filipino businesses still suffering from the effects of the COVID-19 pandemic," said Duterte.

Line vetoes

However, the President vetoed certain provisions in the law. Presidents have such power when it comes to appropriation, revenue, or tariff bills.

Here are the lines he vetoed and his reasoning for the veto (the complete veto message is at the bottom of this article):

  • A line that amends the National Internal Revenue Code such that house and lot and residential dwellings valued at P4.2 million are also exempt from Value Added Tax - Under the amended Tax Code, only residential dwellings valued at a maximum of P2.5 million is tax exempt in order to give relief to buyers of socialized housing. If this line is allowed to stand, this benefit would also go to people who can afford proper housing. It could also be abused if properties are parceled into lots so that individual values fall within that bigger VAT-exempt threshold.
  • A 90-day limit for processing of general tax refunds - Duterte says this period is "impracticable" and could lead to delayed or erroneous processing of refund claims.
  • The value of land and working capital was excluded from the definition of investment capital - This could supposedly lead to an underestimation of the country's investment promotion performance.
  • Ten (10) lines that lead to redundant incentives for domestic enterprises - Special corporate income tax rate is "redundant, unnecessary, and weakens the fiscal incentives system," among other reasons.
  • Allowing existing registered activities to apply for new incentives for the same activity - It is "fiscally irresponsible" and unfair to ordinary taxpayers and unincentivized enterprises.
  • Limitations on power of the Fiscal Incentives Review Board (FIRB) such that its oversight will apply only to projects or activities with total investment capital of over P1 billion - Duterte says FIRB oversight must be broader.
  • Naming specific industries under activity tiers - Duterte says the law must be flexible, and assigning specific industries to tiers might lead to obsolete industries being given incentives while leaving out new or more hi-tech industries.
  • President's power to exempt any investment promotion agency from reform - This could become a political tool that would give future presidents the power to push back the very economic reform the CREATE law was supposed to trailblaze.
  • Automatic approval of applications for incentives - This goes against the policy to approve or disapprove applications based on merit. Entities that suffer from inordinately delayed applications can find remedy in the Ease of Doing Business law which punishes red tape.

– Rappler.com

Pia Ranada

Pia Ranada covers the Office of the President and Bangsamoro regional issues for Rappler. While helping out with desk duties, she also watches the environment sector and the local government of Quezon City. For tips or story suggestions, you can reach her at pia.ranada@rappler.com.

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