Economic Medicine: CREATE Bill Must Be a Law

As the Covid-19 pandemic arises, all of us are affected. Young and old, rich and
poor suffer a lot because of Covid-19. Most businesses, particularly the micro, small
and medium enterprises, which used to get their fair share of consumer spending, were
forced to temporarily close and retrench employees due to the pandemic. That is why
for me, I really hope that the CREATE Bill will become a law that will help businesses
recover the losses they have made because of this unexpected pandemic that
happened this year that affects the whole world.
So, what is the CREATE bill? According to the Department of Finance (DoF), the
Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) is the latest
incarnation of the TRABAHO and CITIRA bills and is now part of the COVID-19 stimulus
package put together by the government’s economic team. This is the largest tax
stimulus program and the first-ever revenue-eroding package in the country’s history
and is expected to free up almost P42 billion in capital over the second half of 2020 and
P625 billion in the next five years, with the government assuming that businesses
reinvest their tax savings to create sustainable economic opportunities according to
what I have learned in our Income Taxation subject during this semester. This bill
proposes a lot of provisions on our current TRAIN Law so I will just mention some of the
provisions and summarize the purpose and the need for our country to have this kind of
bill to become a law.
We cannot deny the fact that TRAIN Law has become one of the reasons for the
rapid inflation that happened in our country. Yes, our current taxation exempts people
who earn PHP 250,000 per year but our business really suffered from having a 30% tax
rate on their taxable income. Currently, our country has the highest corporate taxes in
our region. Thus, if this bill will become a law, it will make way for the reduction of 5% in
the CIT, making it a flat rate of 25%, retroactive to July 1, 2020, then a gradual 1
percentage point reduction every year starting from 2023 until it hits 20% by 2027. This
new rate applies to both domestic and foreign corporations. Domestic corporations with
total assets not exceeding P100 million and total net taxable income not exceeding P5
million may end up paying as little as 20% CIT. Effective also July 1, 2020, the MCIT
drops to 1% from 2% but the rate will revert to 2% after June 30, 2023. Non-large
taxpayers will be allowed to carry over net operating losses incurred in 2020 over a
period of five years from the current three years. This is a practical incentive to help
MSMEs and enterprises rebuild their business operations.
So, what does this mean? This means that the reduction of the tax rates,
additional exemptions, and expansion of incentives will certainly help businesses
recover business from the damage they have suffered during this year and will also
attract potential multinational investors seeking to diversify their supply chain here in our
country. This will help restore confidence, especially among micro, small and medium
enterprises (MSMEs) that have been battered by the effects of COVID-19. The tax
savings can then be used for additional working capital and sustain a massive
employment drive for displaced workers. Probably, by 2027, our CIT rate will be
comparable to Vietnam and Thailand, and just a matter of time before our country
matches the ASEAN average of 23%.
Of course, knowing the fact that this CREATE Bill was certified by our very own
President Rodrigo Duterte as urgent, I am sure that most investors and business
owners are really hoping that lawmakers will pass this bill because this will become the
medicine towards an economic decline that this pandemic gave to us. however, I am
sure that not all people will see this good news especially those who do not know how
our economy works. Others might say that our government sides with the riches setting
aside the welfare of the poor. But, how can the government provide job opportunities to
those unemployed people if businesses are not doing well? Are they going to still
operate while incurring too much loss? Of course, NO. Aside from that, we knew that
taxation is the bloodline our government funds, without taxes from different businesses
like firms and corporations which constitute the majority of tax that our government
receives, projects for the benefit of all and public services will also be affected because
by incurring loss during the annual operation, businesses cannot be taxed. Where will
we get government funds? Are we going to loan again increasing debts? Well, in my
perspective as a business-related student, I see a concrete image that by helping
businesses gain from what they have lost, jobs will also be available to our nation,
giving a chance to those unprivileged ones to have a source of income to sustain their
daily needs by getting a decent job. It is a win-win situation for all of us and this is what
reality is. I do hope that this so-called economic medicine – the CREATE Bill which may
become law if approved (hopefully) – will be ensured that the benefits of the tax
incentives will be given directly to the economy, workers, and businesses by our
legislators and not to their pockets.