CREATE MORE Bill: New tax reform in the making

    

Amongst other effects, an increase of net foreign direct investment in the Philippines by 75.7 % from 2020 is attributed to the recent reforms of the Philippine tax regulations. 

   

Building upon this reform, the House of Representatives is now advocating for further enhancements to the bill through the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act, the CREATE MORE Bill. In March 2024, the House of Representative approved the CREATE MORE Bill on its third reading. However, before the amendment can be ratified, it must navigate through the Senate and the Bicameral Conference Committee. Thus, there is still some work to be done and changes to the current draft of the bill may be expected.

       

The CREATE MORE Bill is designed to refine the policy and administration of tax incentives in the Philippines, to lower Corporate Income Taxes, to allow flexible working arrangements for export businesses, and to address issues related to the clarity and implementation of the preceding (CREATE) bill. 

      

While the CREATE MORE Bill intends to take a holistic approach to reform the current tax framework for all taxpayers, the continuous improvement of the “ease of doing business” circumstances in the Philippines to attract more foreign investment are key considerations of the legislative process. One significant change proposed under the bill is the reduction of Corporate Income Taxes to 20 % for both domestic and foreign corporations under the Enhanced Deductions Regime. 

     

Moreover, enhanced deductions would extend to reinvestments not only in the manufacturing industry but also in the tourism sector. Another notable adjustment is the intended transfer of authority from the Fiscal Incentives Review Board (FIRB) to the Investment Promotion Agency (IPA) regarding the allocation of incentives. This power will reside exclusively within the IPA. Thus, it will basically reverse the previous regulation under the CREATE Bill, returning the authority for incentives back to the (more specialized) IPA, together with an enhanced incentive  framework that shall be equal or more to what had been ever before.  The details, whether a tier-based approach as before, specific under the IPAs or any other method are still under discussion. 

       

While the CREATE MORE Bill aims to clarify the implementation of VAT rules for registered business enterprises, in our opinion one of the main challenges lies not in the legislation itself, but in the interpretation and enforcement of the implementing rules and regulations by the respective government agencies. During the recent Senate Public Hearing of the Committee on Ways and Means, a discussion on the amendment of certain sections of the CREATE MORE Bill was held and an inquiry was conducted in aid of legislation on the prevailing inconsistency between the provisions of the bill granting incentives to businesses and the implementing rules and regulations. 

     

The Department of Finance and the Special Assistant to the President for Investment and Economic Affairs aim to clarify VAT incentives, reinstate separate customs territories for economic zones, reintroduce non-income tax-based incentives for Registered Export Enterprises, simplify VAT refunds, restore investment promotion agencies’ powers, limit local government unit taxes, and set clear sunset periods for incentives prior to CREATE.

    

The CREATE MORE Bill will be another positive step forward in continuous approach to make the Philippine tax system regionally and internationally more competitive. It may be expected that the bill will be fairly soon finalized and signed into law. A further reduction of the corporate income tax rate to at least 20 % and a state-of-the-art investment incentive package currently discussed, would likely result in an other boost of the Philippine economy and add to the other continues past and ongoing reforms. However, as mentioned before the implementing rules and regulations as well as the implementation by the competent agencies, will be key – which has to be highlighted is one of the topics the current administration addresses together with the changes of the law.