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Newly signed CREATE Act cuts corporate tax, exempts COVID-19 vaccine imports from duties

  • Signed on March 26, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act reduces corporate income taxes and providing incentives to businesses affected by the pandemic
  • The law cuts corporate income tax from 30% to 20% for small enterprises, and to 25% for big firms
  • It rationalizes fiscal incentives granted to investors and provides for a new system in administering incentives
  • The measure exempts imports of COVID-19 vaccines from value-added tax and import duties
  • Several provisions in the bill were vetoed, including those on real property VAT exemptions and tax incentives

President Rodrigo Duterte has signed into law the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which will reduce corporate income taxes and provide incentives to help businesses recover from the COVID-19 pandemic.

The President signed CREATE Act, a priority measure of his administration, on March 26, a day before it would have lapsed into law and more than a month after it was approved by the bicameral conference committee of the House of Representatives and the Senate. Duterte, however, also vetoed several items in the proposed legislation.

Republic Act 11534 cuts corporate income tax in the country, the highest in Southeast Asia, from the current 30% to 20% for micro, small and medium enterprises, and to 25% for big firms.

It also rationalizes fiscal incentives granted to investors in a bid to attract more foreign investment, and provides for a new system in the administration of incentives, making them targeted, performance-based, and time-bound.

The new measure will also exempt imports of COVID-19 vaccines from value-added tax and import duties. Imports of COVID-19 medicines and personal protective equipment will be VAT-free but only until December 2023.

The law exempts from VAT “all drugs, vaccines and medical devises specifically prescribed and directly used for the treatment of COVID-19 and the drugs for the treatment of COVID-19 approved by the Food and Drug Administration for use in clinical trials, including raw materials directly necessary for the production of the such drugs.”

In addition, the sale of medicines for diabetes, cholesterol-control and hypertension will be VAT-exempt, beginning Jan.1, 2020, while VAT exemptions for cancer, mental illness, tuberculosis and kidney medicines will be retroactive to Jan. 1, 2021.

The law aims to help distressed businesses recover from the COVID-19 pandemic and encourage more investors to place capital into the country. Foreign direct investments are a key source of employment for Filipinos, with more capital often expected to generate more jobs.

The law also offers higher incentives for enterprises outside of metropolitan areas and additional incentives for enterprises that fully relocate outside Metro Manila or to areas that are recovering from disasters or armed conflict.

The Philippine economy contracted by a record 9.5% in 2020, the steepest economic contraction in the country’s history, making the nation one of the worst affected in the region.

Vetoed provisions

At the same time, Duterte vetoed several items included in CREATE Law.

He thumbed down some of the portions on real property VAT exemptions, sections granting redundant incentives, those automatically approving applications for tax incentives after a certain number of days, and lines allowing registered companies to apply for new incentives they already enjoy.

Also vetoed was the provision enumerating the industries that are up for incentives. The reason cited for the rejection is there are industries mentioned that do not merit support through incentives or are expected to become obsolete shortly.

Duterte also rejected a would-be limit on the power of the Fiscal Incentives Review Board over projects or activities with an investment capital of above P1 billion. 

In addition, he vetoed provisions that would allow a future President to exempt an investment promotion agency from coverage of the CREATE Act. 

RA 11534 takes effect 15 days after its complete publication in the Official Gazette or in a newspaper of general circulation.

 

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