Analysts cite CREATE law risks

Analysts cite CREATE law risks

THE GOVERNMENT could lose billions of pesos in revenue once taxes under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law are lowered, economists said.

The state should instead focus on better tax administration since lower taxes would not ensure quality investments entering the country, they added.

“Lowering taxes in fact can even do more harm than good as government revenues dwindle and quality of investments, in the form of higher-earning projects, may worsen as lower value-added investments are attracted by lower taxes,” Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said in a Facebook Messenger chat.

Former Department of Finance undersecretary Cielo D. Magno said that the government should focus more on tax administration than changing its rates.

Last week, the House Ways and Means Committee approved the CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill, which aims to introduce a “simplified and streamlined” refund tax system.

The proposed law aims to reduce the corporate income tax to 20% for those under the enhanced deduction regime from 20%-25%.

The measure would allow domestic and export companies, even those inside ecozones and freeports, to enjoy duty exemptions, value-added tax (VAT) exemption on importation, and the VAT zero-rating of local purchases as provided in their respective investment promotion agency (IPA) registrations.

“The Japanese investors raised the problem of input VAT refund as a problem. The only solution to fix that is the full implementation of e-invoicing by BIR which is not being discussed,” Ms. Magno commented in a Viber message.

Mr. Lanzona said that the government should focus on developing more strengthening industrial and competitive policies other than tax reforms.

“The goal then is to strengthen domestic value chains that can link these MSMEs (micro, small and medium enterprises) to larger, more productive, and stable business groups, thus creating a solution to the size problem of the firms,” he said.

“Without developing big businesses, the country cannot move away from the middle -income trap we are in for the last forty or so years,” he added.

Meanwhile, the measure also seeks to give the President the power to modify, craft and grant incentive packages, without the recommendation of the Fiscal Incentives Review Board (FIRB).

“The President has instructed us to get this done, and the (House) leadership is trying to approve it by end of this month,” Committee on Ways and Means Chairman and Albay Rep. Jose Ma. Clemente S. Salceda said last week.

Mr. Salceda added that changes to the CREATE act should also consider the possible impact of the 15% global minimum corporate tax, which other countries have adopted.

Ms. Magno said that adopting the global minimum corporate tax would mean countries would compete on other factors like human capital and infrastructure.

“Once the 15% global minimum corporate tax is implemented, the tax incentives will become immaterial,” she noted. “Don’t we need to prioritize those to ensure the competitiveness of the Philippines instead of eroding the tax base now which will result in lower revenues/available money for government to improve infrastructure and human capital?”

The measure has yet to be debated in the plenary before the House’s final approval. — Beatriz Marie D. Cruz