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AER supports CREATE bill, other DOF reform initiatives

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Congress of the Philippines

By Alithea De Jesus 

The Action for Economic Reforms (AER) has expressed its continued support for the policy reform initiatives being pushed by the Department of Finance (DOF), particularly the measure pending in the Congress that slashes the corporate income tax (CIT) rate and provides fiscal incentives tailor-fit to the needs of the kind of investors the government wants to set up shop in the country.

In backing the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, AER coordinator Filomeno Sta. Ana III said the bill will enable the country to adapt to the “new complexity” brought about by the unprecedented, coronavirus-induced economic crisis.

“We will continue supporting the DOF’s reform initiatives that still have to be completed. In particular, we are calling for the swift passage of CREATE, the long-delayed rationalization of fiscal incentives together with the reduction of the corporate income tax,” Sta. Ana said in a letter to Finance Secretary Carlos Dominguez III.

The AER said the outright CIT cut from 30 percent to 25 percent provided under the CREATE bill is the right response to “give way to the expediency of the stimulus” needed to rev up the economy, but it proposed that the reduction be made contingent on job preservation and/or job creation.

“In this manner, we will be able to respond to the questions raised by some economists who question the effectiveness of a sharp tax cut as a stimulus. Other countries have attached conditionality to support the business during the pandemic,” Sta. Ana said.

Dominguez, who heads the government’s economic team, has described CREATE as “one of the largest economic stimulus measures in the country’s history,” given that the measure would free up almost P42 billion in business capital for 2020 alone—and P625 billion over the succeeding five years.

The Finance chief has also said the immediate and significant CIT rate reduction also aims to send a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains.

Sta. Ana agreed with Dominguez, and stressed that the CREATE bill has to respond to both the short-term goal of providing a stimulus for the economy and the long-term objective, “which is about tax and economic restructuring.”

He said making the CIT cut reduction contingent on job preservation or creation will prevent corporations from using this windfall to merely ride out the pandemic or to reacquire stocks or distribute dividends to their wealthy shareholders.

“The tax cut must find a way to be translated into wages that will boost aggregate demand,” Sta. Ana said.

He also pointed out that another essential feature of the CREATE bill is the elimination of the “one-size-fits-all” fiscal incentives regime in favor of a wider and more balanced menu of tax and non-tax incentives for deserving enterprises.

“This menu brings innovativeness, adaptability and sophistication that all the more requires having competent governance, which is organizationally expressed in the Fiscal Incentives Review Board (FIRB),” Sta. Ana said.

He noted that the CREATE bill, which used to be the Corporate Income Tax and Incentives Rationalization (CITIRA) Act, should have been passed on the heels of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, “if not for the intransigence” of the Philippine Economic Zone Authority (PEZA) and the compromises done that obstructed the bill’s early passage.

In its letter, the AER also cited the critical policy reforms that were successfully pushed by the DOF under Dominguez, such as those on tax policy and rice tariffication, which, the group said, “have strengthened the country’s economic fundamentals and have given us ample financial and fiscal space in this time of emergency created by the pandemic.”

The AER also welcomed Dominguez’s statements and actions on supporting reforms promoted by other government agencies, such as universal health care, agricultural modernization, and the cause of tobacco control through the proposal to restrict the unauthorized digital sales of tobacco and other ‘sin’ products.

“We do hope that the DOF under your leadership and the economic team will be able to weigh in on the challenges and be able to weather the headwind,” the AER said in its letter.

The AER also expressed its appreciation for the efforts of the DOF and the rest of the economic team in helping “flatten the COVID-19 infection curve, to provide social amelioration, and to enable a smoother recovery.”

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