In August 2019, the House of Representatives ways and means committee approved a bill recommended by the Department of Finance (DOF) that reduces corporate income tax to 20 percent from 30 percent over the next 10 years, and rationalizes the myriad incentives offered to preferred businesses.
The DOF pushed for the approval of the measure, saying it is likely to generate about 1.4 million jobs especially in the micro, small, and medium enterprises (MSME) sector. The incentives will be time-bound, performance-based, and targeted.
It was a courageous step of Finance Secretary Sonny Dominguez—to reduce their revenues in the hope of attracting more business and make the Philippine tax rates at par with its peers’ tax regimes. With an Asean average of 22 percent, it was a necessary step if we were to get a sizable degree of foreign direct investment (FDI), and if we were to make our industries regionally competitive.
As a tax measure, it had to emanate from and agreed to in the House before being passed to the Senate for consideration. This happened, and it then went through a litany of changes as both houses argued and argued and argued. Business stepped in, pleading for passage. The DOF and the Department of Trade and Industry urged for early passage. It didn’t happen.
Finally, Congress promised us we’d have the CREATE bill effective Jan. 1. That promise wasn’t made last month, that was in 2019. Now here we are, a year later, a year of lost opportunity. The Philippines still lags in the Asean region in attracting much-needed FDI that generate jobs, at a time when companies are shifting business from China to elsewhere. We’re losing an opportunity that won’t be repeated.
In mid-2020, the DOF substantially amended the bill to react to the damage COVID-19 was doing and agreed to provide a five-percentage-point reduction immediately, the balance at one percent per year. Incentives given to industries were rationalized. The acronym shifted from Corporate Income Tax and Incentives Rationalization Act (CITIRA) to Corporate Recovery and Tax Incentives for Enterprises (CREATE).
It was, finally, confidently expected to be in place by the end of last year. Then mid-year 2020. Then January 2021, so we’d start the year in good shape to attract FDI as normalcy returned to the markets. Now here we are 10 days from the end of January. Will the promise be met?
Dick Du-Baladad wrote an excellent piece arguing for the adoption of the Senate version, unchanged. Or, to accept the less attractive House version. Under no circumstances a mishmash of the two. That’s all Congress had to do—pass the Senate version. It could have happened. The House agreed to accept the Senate version so a bicameral committee wouldn’t be necessary, and finalization could be accomplished before the year ended. But then the House changed its mind, and wanted a compromise of the two.
There’s been more than enough discussion over the past years. It’s time to accept the Senate version and forward CREATE to the President before Jan. 31. Endless discussion will never end up in a perfect bill, just in endless discussion. The Senate version of the bill as is is fine—just pass it.
Congress is sitting on seven bills that would lead to more rapid growth of business and the creation of much needed jobs. And, like CITIRA/CREATE, it has been sitting on them for years.
One amendment, the bank secrecy law, has been unacted upon for some—get this—60 years. The Philippines and Switzerland are the only two countries in the world that still have strict bank secrecy laws. Surely 60 (yes it is 60, we checked) years is far more than enough what every other country has done. So it might be nice to see that passed, too, in the next 60 days.
If Congress can railroad a hugely controversial anti-terrorism law within days, surely it can pass bills that will lead to the employment of hundreds of thousands of their fellow Filipinos, millions of whom are currently out of a job.
Is this to be a NATO country: No Action Talk Only? Or one where action is the rule of the day? Is it any wonder the Philippines gets the least FDI among its Asean neighbors?
Let’s have action.
Email: wallace_likeitis@wbf.ph