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Revenue losses from CREATE seen at P158 billion until 2021
In a text message, Finance Assistant Secretary Maria Teresa Habitan said if passed, revenue losses from the new version of the CREATE bill are estimated to reach P45.2 billion in 2020 and P112.8 billion in 2021.
STAR/File

Revenue losses from CREATE seen at P158 billion until 2021

Mary Grace Padin (The Philippine Star) - December 1, 2020 - 12:00am

MANILA, Philippines — The Senate version of the Corporate Recovery and Tax Incentives for Enterprise (CREATE) Act is projected to slash the government’s revenue by P158 billion until next year, according to the Department of Finance (DOF).

In a text message, Finance Assistant Secretary Maria Teresa Habitan said if passed, revenue losses from the new version of the CREATE bill are estimated to reach P45.2 billion in 2020 and P112.8 billion in 2021.

The latest estimates are higher than the previous estimates of P42 billion for 2020 and P97.2 billion for 2021.

“This is still tentative until we get the final third reading copy of the bill,” Habitan told The STAR.

The finance official said the new estimates have already taken into consideration the higher corporate income tax reduction for small businesses as amended by the Senate.

Under the Senate version of CREATE passed last Thursday, domestic corporations with total assets of not more than P100 million, excluding land, and a net taxable income of P5 million and below, will enjoy an outright 10-percentage point reduction in their income tax to 20 percent from 30 percent.

All other corporations will get an immediate five-percentage point income tax cut to 25 percent from 30 percent. In its previous form, the CREATE bill proposed a uniform reduction of five-percentage points.

Habitan said that given the higher revenue erosion, the Development Budget Coordination Committee (DBCC) may need to tweak the government’s revenue program during its meeting this week.

“There are tentative estimates in the revenue program already, so maybe just a bit of tweaking,” she said.

Earlier, Finance Secretary Carlos Dominguez said he is hopeful that CREATE would finally be submitted for the President’s signature this month.

Once passed into law, Dominguez said the proposed reduction in corporate income tax would be retroactively applied to July 1 of this year.

He said the passage of the measure would provide businesses with one of the largest economic stimulus measures in the country’s history to help them recover from the economic turmoil caused by the COVID-19 pandemic.

The DOF chief said that micro, small, and medium enterprises (MSMEs), which comprise 99 percent of all businesses in the country, stand to benefit the most from the CREATE bill, “as they will receive the largest ever CIT cut in the country’s recent history.”

He said the proposed reforms in the fiscal incentives system would enable the Philippines to compete for high-value investments.

“The passage of CREATE is timely as many investors located in China are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier when parts of China were locked down to prevent the spread of COVID-19,” Dominguez said.

Aside from the cut in corporate income taxes, the CREATE bill also proposes for the percentage tax of businesses whose gross sales or receipts do not exceed the value-added tax (VAT)-exempt threshold of P3 million to be reduced to one percent from three percent from July 1, 2020 to June 30, 2023.

Proprietary and non stock educational institutions and hospitals will also get preferential tax rates of one percent, down from 10 percent starting July 1 this year until June 30, 2023.

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