Metro Manila (CNN Philippines, November 30) — A drastic cut in corporate income taxes — from 30% down to 25% for all corporations and as low as 20% for smaller businesses — will take effect retroactively from July 2020, the Department of Finance said as it seeks to provide fresh relief for businesses.
Finance Secretary Carlos Dominguez III said the looming passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act will grant lower tax rates for the second half of 2020.
“This will allow taxpayers to properly adjust their books and returns for the filing season as the reduction of the corporate income tax rate will be retroactively applied to July 1 of this year,” Dominguez said in a statement on Sunday.
CREATE, which forms part of the government’s tax reform program, revamps the tax structure for businesses by cutting the corporate income tax rate, offset by a restructured scheme for the grant of tax breaks and other fiscal incentives.
The bill will immediately reduce income tax from 30% to 25% for all firms operating in the country. For smaller businesses which have assets worth lower than ₱100 million and net taxable income of below ₱5 million annually, they only have to pay a tax worth 20% of their earnings.
The Senate finally approved its version last week, which will be the version to be adopted by the House of Representatives to avoid the need for a bicameral committee meeting. Once ratified by the chamber, it will be sent to Malacañang for signing into law.
“The passage of CREATE is timely as many investors located in China are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier when parts of China were locked down to prevent the spread of COVID-19,” Dominguez added.
CREATE is a modified version of the Corporate Income Tax and Incentives Rationalization Act or CITIRA, the original DOF proposal before the pandemic. The updated bill was formally pitched to Congress in May.
Companies that have gross sales of less than ₱3 million will only need to pay a percentage tax of 1% starting July 1, 2020 until June 20, 2023. The rate is currently at 3% of gross receipts.
More than 30 business groups earlier called on Congress to pass the measure as “instant relief” for businesses that have suffered great losses due to the pandemic.
This year’s tax rate reduction will be followed by an annual reduction of 1 percentage point from 2023 until 2027. This is faster than the original version that will bring down the levy to 20% only by 2029.
A massive corporate income tax reduction is unprecedented for the DOF, an agency whose main task is to collect and raise revenues to fund state projects.
Previously, a group of economics experts from the University of the Philippines, Ateneo de Manila University, and De La Salle University said CREATE will likely do more harm than good, saying it was “imprudent” to shed tax revenues when funding is most needed to respond to the COVID-19 outbreak.
For tax perks, the Fiscal Incentives Review Board will approve or reject proposed perks for new entrants, especially for those involving investments worth more than ₱1 billion.
Incentives can be given to new or expanding investments projects for 14-17 years, with an extension of up to 10 years. Those enjoying income tax holidays will be retained as scheduled, while exporters enjoying the special rate of 5% of gross income earned can continue to avail of this for up to 10 years, according to bill author Senator Pia Cayetano.
RELATED: Special, mandatory laws granting incentives not affected by CREATE, senator says
