Making the case for MORE incentives

By: Senen Quizon

LAST Oct. 9, 2024, the enrolled copy of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill was sent to the Office of the President for President Ferdinand Marcos Jr.'s signature.

CREATE MORE aims to further drive investment and economic recovery in the Philippines and offers several advantages for taxpayers, including enhancing the tax incentives regime for registered business enterprises (RBEs), clarifying existing rules and policies on the grant and administration of fiscal incentives and fostering a favorable investment climate for foreign investors.

Provisions in the bill are a step in the right direction as they provide clarity to specific provisions in the earlier CREATE Act. With regard to tax incentives, it:

• Extends the incentive period to a maximum of 24 or 27 years for high-value projects of over P15 billion and provides taxpayers the option to forgo the income tax holiday (ITH) and directly avail the 5 percent special corporate income tax or enhanced deductions (ED).
• Reduces the corporate income tax to 20 percent for those availing of ED.
• Increases the additional deduction on power expenses from 50 percent to 100 percent.
• Allows RBEs within an ecozone or freeport to implement a work-from-home setup for up to 50 percent of their total workforce without losing their incentive.

Meanwhile, certain purchases in the Negative List for value-added tax (VAT) zero-rating per Revenue Regulations 3-2023 can now be favorable for taxpayers via the adoption of "directly attributable" instead of "directly and exclusively used" in the registered activities of the RBEs.

Local government units (LGUs) can delegate certain powers to investment promotion agencies (IPAs), such as the acceptance, processing and grant of business permits and licenses. IPAs must issue their decision on tax incentive applications within 20 working days, ensuring a swift and efficient approval process.

LGUs may impose up to 2 percent RBE local tax (RBELT) in lieu of all other local taxes, charges and fees for those under ITH and ED.

The Department of Finance, instead of the Bureau of Internal Revenue, will be responsible for the processing of VAT refund claims to cut delays.

CREATE MORE aims to improve business confidence in the Philippines and boost the country's competitive standing by imposing a lower corporate income tax rate and providing more incentives to RBEs. However, alongside its well-intentioned solutions, it also introduces provisions that merit further consideration.

The RBELT may have varying impacts on taxpayers, depending on their specific circumstances. Moreover, the RBELT reduces the taxes imposed by LGUs as it is in lieu of local fees and charges — meaning no additional permit fees or other charges can be imposed on RBEs — while LGUs are still expected to provide uninterrupted services to taxpayers under its jurisdiction.

Another aspect of CREATE MORE is the reduction of the powers of the Fiscal Incentives Review Board (FIRB), the government body with the authority to grant tax incentives to RBEs. At present, the President has residual power to grant incentive packages based on the FIRB's criteria and recommendations. CREATE MORE allows the president to grant incentives without the recommendation of the FIRB.

Additionally, CREATE MORE seeks to return the power to grant incentives to the IPAs, while the policymaking and oversight functions of the FIRB shall be retained.

Another provision of CREATE MORE that warrants careful implementation is the use of "directly attributable" in terms of RBE purchases. Will the determination of directly attributable purchases be limited to the IPAs or will the Bureau of Internal Revenue continue its current approach in saying that such purchases will be subject to post-audit verification?

Furthermore, are IPAs, like the Board of Investments and Philippine Economic Zone Authority (PEZA), aligned as to the determination of directly attributable purchases for RBEs under the same industry?

While CREATE MORE builds on the CREATE Act and establishes the Philippine's strong pro-investment record, certain clarifications remain essential. For instance, in what cases would it be most beneficial for taxpayers to skip the ITH? Which existing projects need to register by Dec. 31, 2024 to qualify for CREATE incentives?

If they do not register or start commercial operations until the end of this year, can they still avail of said incentives if they start their commercial operations next year? Additionally, for VAT on local sales, if the buyer is liable for VAT under CREATE MORE, how will this impact the seller's VAT reporting? Furthermore, it made mention of "services," which is not covered by technical importation through the PEZA and the Bureau of Customs.

Despite the government's focus on fostering economic growth, CREATE MORE should balance incentives with practical limitations. The bill's provisions must be further examined to ensure a well-rounded approach that benefits all taxpayers and stakeholders. Moreover, clear guidance in the implementation of CREATE MORE will be crucial for its success.

As published in The Manila Times on 4 November 2024. The author is a Tax & Legal Principal at the Tax & Legal practice of Deloitte Philippines. Discover more insights on CREATE MORE and other tax reforms at Deloitte Philippines’ inaugural tax summit, Tax Reforms Unlocked: Opportunities and Implications for Taxpayers, on Tuesday, 19 November 2024. Register here: https://deloi.tt/3Btvt9b