Create law cultivates confidence, confusion; booster shot required

• Published date: 05 August 2021
• Publication title: Business Mirror

REP. Joey Sarte Salceda of Albay took off his sports jacket and ran a hand on his blue tie during an online discussion (https://www.youtube.com/watch?v=xZIczR2aWjk) on a law that he touts as 'the most readily available tool for economic recovery.'

Salceda appeared exasperated, especially with the Bureau of Internal Revenue (BIR), in that online forum days after President Duterte signed Republic Act (RA) 11534 on March 26.

Four months later, the House Committee on Ways and Means Chairman remains bullish that the law, also called Corporate Recovery and Tax Incentives for Enterprises, or CREATE, that he helped craft is one of the country's tools to climb out of the economic rut.

'We need a booster to prevent anemic post-pandemic growth,' Salceda said. '[The] CREATE [law] is the best tool for this, so we need to maximize its benefits by fully carrying it out early and selling it to the world aggressively.

His exasperation is no longer visible, noting there are already signs that RA 11534 has opened the doors to greater investments coming from outside the country's borders.

According to Salceda, an economist, the net inflow of foreign direct investments (FDIs) more than doubled to $679 million in April from $317 million in 2020.

SIPP as bible

SALCEDA'S view of CREATE law as 'a principal agent of economic recovery,' rests on the move of the Board of Investments (BOI) and its timely release of the Strategic Investment Priorities Plan (SIPP), which 'will be our bible for industrial planning over the next few years.'

'The urgent release of the SIPP is also crucial, because investors need something to refer to as they decide whether prospective internal rates of return justify investing in the Philippines,' the lawmaker said. 'The SIPP tiering, in particular, decides how much incentives they get. So I hope the BOI can release this soon, even a partial 'no-brainer' SIPP for now, while we tackle the nuances of the other more complicated sectors.'

According to Salceda, the business process outsourcing (BPO) industry, or at least certain segments of it, will qualify for the highest incentives under the Create law, once the SIPP is released.

'So I implore BOI to do it soon, and watch the BPO sector and other industries grow substantially.'

He noted that before CREATE was enacted, office space demand in the BPO sector in the first quarter of the year was just 35,000 square meters. Now it is up to 92,000, higher than it has been in 2020, even before the lockdown measures.

'That is also an eye-popping 162-percent growth in the industry's office space needs,' Salceda cited.

'Of course, more office space needed also means more direct jobs. It also means more indirect jobs, through janitorial services, property sector jobs, transport, service provider jobs, among others.'

Tax cuts

SALCEDA points out that CREATE is 'the largest tax stimulus for businesses in the country's history.'

The law reduces the corporate income tax (CIT) to 25 percent for large corporations and 20 percent for small and medium-scale corporations (with net taxable income of up to P5 million and total assets of up to P100 million).

'The size of it, especially in the medium term, is hard to overstate,' Salceda said.

He explained that in net present value terms, the law grants businesses P7.2 trillion in financial resources to fund expansion and job creation.

'No fiscal reform package has come close to freeing up that much resources for business expansion,' Salceda added.

He also pointed out that the tax incentives regime under CREATE 'is generous and partial' to countryside development, increases value-added activities and boosts research and development.

Added incentives

SALCEDA noted the law's generosity in this: everyone gets four years to seven years of income tax holiday (ITH) as part of the basic package, the longest being for those who locate to the countryside and those higher up the industry tiers.

'If you are an exporter, you get 10 years more of a 5-percent tax on gross income, or enhanced deductions,'...