The Department of Trade and Industry (DTI) and the Board of Investments (BOI) hailed the signing of the landmark Republic Act. No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act by President Rodrigo Duterte after it passed both Houses of Congress recently.
“We thank President Rodrigo Roa Duterte and the Congress for enacting the CREATE Act. This is one the most important policy reforms initiated about two decades ago, but has only been successfully legislated under our current administration,” DTI Secretary and BOI Chairperson Ramon Lopez said.
“It will open up cash flows to support efforts of businesses to rebuild during this pandemic.”
“I always say it is a game-changer as it significantly brought down corporate income taxes that benefit the micro, small, and medium enterprises (MSMEs) and even the large firms. It has also modernized and improved the investment incentive regime to one that is performance-based, focused, and innovation-oriented. First, for business in general, we cannot overemphasize the impact of the reduction in Corporate Income Tax (CIT) from 30% to 25% for big firms and for [SMEs] to 20%. The drop is very significant as it will open up cash flows to support efforts of businesses to rebuild during this pandemic,” Lopez explained.
“Second is the granting of a clearer set of incentives with 4-7 years of Income Tax Holidays (ITH) and followed by 10 years of Special Corporate Income Tax (SCIT)/ Enhanced Deductions (ED) for exporters, or 5 years ED for domestic market enterprises. Equally important, the removal of restriction for providing incentives to foreign companies, will attract more foreign direct investments (FDIs) as multinationals are not only going to target the domestic market but also boost the country’s export market,” the trade chief noted.
This restriction dates back to Executive Order No. 226, which was issued more than 35 years ago—when there was no free trade in ASEAN nor was there a World Trade Organization (WTO)—and amid the current context where imported goods are coming in duty-free, and factories are just set-up in other countries where they are given incentives and then exported to the Philippines at duty-free rates.
The trade head stated, “The CREATE Act rationalizes, modernizes, and offers more relevant incentives to investors in line with the times. Rather than locate in other countries and export to our domestic market, we have to capture those investments as long as they are in the prioritized sectors and allow them to target the domestic market. This can also encourage higher local content for our manufacturers sourcing from abroad, as part of value chain enhancement. What’s more, we are also committed in supporting further liberalization to enhance our country’s competitiveness and create more jobs.”
“That is why apart from CREATE, we are also supporting the amendment of the Retail Trade Liberalization Act, Foreign Investments Act, and the Public Service Act to attract more investors,” he stressed.
“Under a CREATE regime, it will step up support for industrial development.”
“Under a CREATE regime, it will step up support for industrial development. In particular, the option for Enhanced Deduction will promote investments in developing supply-chain networks, research and development (R&D), and training which are very critical for enhancing the long-term competitiveness of our country,” Lopez added.
He explained that the BOI will intensify coordination with the Department of Finance (DOF) for the issuance of the Implementing Rules and Regulations (IRR) of the CREATE Act as well as the Strategic Investment Priorities Plan (SIPP) under the same law.
Trade Undersecretary and BOI Managing Head Ceferino Rodolfo said, “The BOI is mandated under CREATE Act to craft the SIPP and at the moment, we are formulating a transitional SIPP that will be based on the current Investment Priorities Plan (IPP) which was signed by the President in December 2020. It must be highlighted that the said IPP has been consulted extensively with private stakeholders and with other government agencies—in particular with the National Economic and Development Authority (NEDA) and DOF.”
Rodolfo emphasized that investment promotional campaigns for the new incentive regime have already been ongoing as early as March 2020, upon the submission of the then CREATE bill to the Office of the President.
He added that the DTI-BOI will redouble efforts on its campaigns as more fora and webinars are scheduled in the coming months. The BOI recently conducted the Make It Happen in the Philippines (MIH) campaigns targeting Australia-New Zealand (ANZ) and Europe.
“We also expect projects in the pipeline as they have been awaiting for the passage of the new Incentive Regime to be finalized and this includes a motorcycle engine assembly project, data centers, and IT infrastructure network, advanced metal/plastic packaging manufacturing facility, modern textile assembly, to name a few,” Rodolfo concluded.