Finance Secretary Carlos Dominguez III wants the newly reconstituted Fiscal Incentives Review Board (FIRB) to meet as soon as possible to discuss the body’s expanded functions under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which takes effect this month.
CREATE (RA 11534) was signed into law by President Duterte on March 26, and published in a national paper the following day which makes it effective on April 11, or 15 days after publication in a newspaper of general circulation or the government’s official gazette.
Its implementing rules and regulations (IRR) is being finalized by the Department of Finance (DOF) and the National Tax Research Center (NTRC). “I want to call a meeting right away,” Dominguez told Asst. Secretary Juvy Danofrata during a recent DOF executive committee (Execom) meeting.
Danofrata, who heads the DOF Strategic, Economics and Results Group (SERG), said the FIRB meeting can be held shortly given the law’s official effectivity.
Dominguez said the new menu of generous corporate tax incentives offered under CREATE will enable government to attract the right kind of investors to do business in the country, particularly those offering quality jobs and technology transfer, and introducing new industries that would allow the economy to flourish.
The DOF Secretary chairs the reconstituted FIRB under the CREATE law with Department of Trade and Industry (DTI) Secretary Ramon Lopez as co-chairman.
CREATE is the largest fiscal stimulus program for the private sector in the country’s history, providing an estimated PHP1 trillion worth of tax relief to enterprises over the next 10 years. It is expected to provide tax savings to businesses totaling around PHP251 billion, which will help keep them afloat this year and in 2022, and retain jobs as they recover from the crippling effects of the pandemic-induced global economic upheaval.
The law provides an immediate 10 percentage-point reduction to the previous 30% corporate income tax (CIT) rate of domestic micro, small and medium enterprises (MSMEs) and a 5-percentage point cut for all other corporations, effective July 2020.
CREATE also redesigned the fiscal incentives system to make the grant of generous incentives performance-based, time-bound, targeted, and transparent for companies.
The CIT cut and the rationalization of the tax incentives system aim to help the country attract high-value foreign direct investments (FDIs) by making the costs of doing business in the Philippines more competitive, especially at this time when the government is putting in place the country’s economic recovery program.
Under the CREATE law, the FIRB’s functions are expanded to cover not only tax incentives given to government-owned or -controlled corporations (GOCCs) but also those granted by investment promotion agencies (IPAs) and other state-run agencies to their respective registered business enterprises.
The reconstituted FIRB is likewise tasked to determine the target performance metrics as conditions for enterprises to avail of tax incentives; and conduct regular monitoring and evaluation of investment and non-investment tax incentives, such as cost-benefit analysis to determine their impact on the economy and whether agreed performance targets are met, among others.
It is also responsible for reviewing the compliance of other government agencies administering tax incentives with respect to the administration and grant of such tax perks, and impose sanctions such as, but not limited to, the withdrawal, suspension, or cancellation of their power to grant tax incentives.
The grant of tax incentives to registered projects with investment capital of P1 billion and below is delegated by the FIRB to the IPAs. The FIRB is given the discretion to increase this threshold amount under the CREATE law.
The new FIRB will have as members the Executive Secretary (ES), the Department of Budget and Management (DBM) Secretary, and the Director-General of the National Economic and Development Authority (NEDA).
Its technical committee will be chaired by a DOF undersecretary, with the following members: the Undersecretaries or Assistant Secretaries from the Office of the ES, DTI, Board of Investments (BOI), and DBM; a deputy director general from NEDA; the commissioner or deputy commissioner of the Bureaus of Internal Revenue (BIR) and Customs (BOC); commissioner of the Philippine Competition Commission (PCC); and the chairpersons or administrators of IPAs whose scope will be limited to matters concerning their respective IPAs.
The FIRB Secretariat will be staffed by the NTRC and headed by a DOF Assistant Secretary.