The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was enacted on Feb. 3, 2021. Based on the data from the Department of Finance, 910 projects with total investments of P1.02 trillion, across varying priority sectors listed in the Strategic Investment Priority Plan, have been approved under the CREATE Act as of 2023. However, during the three years since its passage, investors and industry groups have raised concerns on the lack of clarity and consistency in the implementation of CREATE.
There are two proposed CREATE MORE (to Maximize Opportunities for Reinvigorating the Economy) bills currently pending with Congress: Senate Bill No. 2654 (SB No. 2654) and House Bill No. 9794 (HB No. 9794). The salient features include:
On Value-Added Tax (VAT) Refund Claims — Both bills propose to categorize claims into low, medium, and high-risk claims based on the amount of claim, tax compliance history, and other criteria. SB No. 2654 proposes to transfer refund claims to the Revenue Operations Group under the Department of Finance. HB No. 9794 proposes to create a refund lane for expediting low risk claims and prescribes a threshold for automatic grants without the need for verification.
The 90-day period to decide remains. However, in case of denials, HB No. 9794 provides that the taxpayer will have 10 days from communication of the denial to file substantiation documents in the form of a request for re-consideration and that the denial shall not be final unless the taxpayer has been provided the opportunity to request a reconsideration. The proposed process may need to be clarified considering the Tax Reform for Acceleration and Inclusion Law (TRAIN) has already reduced the administrative period from 120 to 90 days. Will the 10-day period be included in the 90-day period? How many days should the Commissioner have to act on the reconsideration?
On Enhanced Incentives to Registered Business Enterprises — HB No. 9794 seeks to grant corporations electing to be under the enhanced deductions regime an income tax rate equivalent to 20% rather than 25% for income de-rived from its registered projects or activities. HB No. 9794 also seeks to grant a local business tax rate not exceeding 2% of gross sales for registered business enterprises (RBEs) availing of income tax holidays or enhanced deductions. Further, both bills seek to enhance the deductions by allowing 100% of expenses attributable to expenses relating to trade fairs, exhibitions, or trade missions. SB No. 2654 also included equipment attributable and not just those which are exclusively used for the registered project or activity.
However, the website of the Organization for Economic Co-operation and Development’s reveals that the Philippines, along with other ASEAN countries, have undertaken to work and adopt appropriate legislation consistent with the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The framework introduces a 15% global tax for multinational companies with at least €750 million in revenue. It is reasonable to expect that the final version of CREATE MORE will be forward-thinking and consider how to evolve tax incentives to align with the global minimum tax, but still attract and retain the covered foreign investors.
Both bills also propose to amend Section 294 of the Tax Code by providing a separate provision on local business tax. HB No. 9794 also seeks to exempt RBEs from the following: taxes on the business of printing and publication; franchise tax; amusement tax; annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers or dealers, or retailers of, certain products; local business tax; fees for sealing and licensing of weights and measures; regulatory, building, inspection, or permit fees and charges imposed by local government units; taxes levied by provinces, cities, or municipalities on business; barangay taxes, fees, charges, fines, and other financial impositions and real property taxes, except on property owned by developers. The additional exemption may serve as an additional incentive since RBEs still find the 2% local tax on gross sales to be onerous.
On the Work from Home Arrangement — Lastly, both bills also seek to provide a work from home arrangement for RBEs in the IT-BPO (information technology and business process outsourcing) sector provided that they are compliant with the requirements set by their IPA (Investment Promotion Agencies), within the geographical boundaries of the economic zone or freeport, and should not be more than 50% of the total workforce.
However, the telecommuting law has always been an existing law. Certainly, our lawmakers must also consider transitory rules for those IT-BPO companies that opted to shift to the Board of Investments.
The policy behind the crafting of both bills is laudable. Both seek to enhance fiscal incentives regimes and give a more stable investment climate to attract new investors and to ensure old investors stay in the country. It is the hope of this author that the eventual law crafted by our lawmakers will ensure the economic growth of our country and certainly CREATE more, rather than less.
The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not offered as, and does not constitute, legal advice or legal opinion.
Evangeline R. Villajuan is an associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.
Ref.: https://accralaw.com/2024/06/19/creating-more-or-less/