Status and features of CITIRA/CREATE bill

Senen Quizon, Tax Principal, Navarro Amper & Co. (Deloitte Philippines)
02 December 2020

CITIRA/CREATE Bill

Status update and features

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CITIRA/CREATE bill
Legislative Status

HOUSE OF REPRESENTATIVES

• 10 September 2019 - House of Representatives approved House Bill No. 4157

SENATE OF THE PHILIPPINES

• 19 February 2020 – Sponsorship speech delivered by Sen. Pia Cayetano

• 15 September 2020 – Filed substituted bill (Committee Report No. 50 - SB 1357)
• 12 October 2020 – Interpellation closed and commenced period of amendments
• 26 November 2020 – Closed period of amendments, and approved on second and third reading

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CITIRA/CREATE bill
Legislative Status

WHAT TO EXPECT

BICAMERAL CONFERENCE COMMITTEE (?)

1. Bicameral conference committee shall be called to reconcile the difference in the Senate and House versions.
2. Approval ratification of the conference report by both Houses.
3. Enrolled bill will be printed, signed by the Speaker of the House and the Senate President, and send to the
President for signature.
4. President has 30 days from receipt to sign the bill. If the President does not sign a bill within 30 days from
receipt in his office, the bill becomes a law. A bill may also become a law without the President’s signature if
Congress overrides a presidential veto by two-thirds vote.

Senate designated Senators PIA S. CAYETANO, RALPH G. RECTO and FRANKLIN M. DRILON as conferees to the
Bicameral Conference Committee on the disagreeing provisions.

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 Corporate income tax
and other tax reforms

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Corporate income tax reforms

Reduction in corporate income tax

• HB 4157 – staggered reduction by 1% every year, until it reached 20% in 2029

• CR NO. 50 - SB 1357 (Original Proposal) - Outright drop to 25% beginning July 2020, followed by 1%
point reduction beginning January 2023 until it becomes 20% CIT rate beginning January 2027

CITIRA (HB 4157) CREATE (SB 1357)

35%
Total Assets Taxable Income Tax Rate
30%
25% Not over P100,000,000 P5,000,000 and below 20%
20%
15%
Above P5,000,000 25%
10%
5% Over P100,000,000 25%
0%

NOTE: The value of the land where the property plant and
equipment are situated shall not be included in the
determination of total assets.

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CITIRA/CREATE: Other salient features
Tax Reform Measure
Minimum Corporate Income Tax
(MCIT)
Tax on resident foreign corporations
(RFC) and nonresident foreign
corporations (NRFC)
Tax on proprietary educational
institutions
Tax on Regional Operating
Headquarters
Tax on offshore banking units
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CITIRA/CREATE: Other salient features
Tax Reform Measure
Taxation of foreign sourced-dividends
Interest income derived by resident
foreign corporations from foreign
currency deposits
Gains on the sale of shares of
unlisted shares of stock by a resident
and nonresident foreign corporation
Exemption from branch profit
remittance tax of PEZA enterprises
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House Bill No. 4157
None
Staggered reduction by 1% every
year from 30% until it reached
20% in 2029
None
After two years from the
effectivity of CREATE, subject to
regular CIT
Subjects OBUs to regular
corporate income tax (10%
preferential tax rate will be
removed)
House Bill No. 4157
None
Increases the rate from 7.5% to
15%
Replaces the two-tiered rates of
5% and 10% tax on the sale,
transfer, or exchange of shares of
stock by resident and nonresident
foreign corporations with a fixed
rate of 15%.
Subjects branch profit remittances
of PEZA enterprises to 15% tax
Senate Version
Effective 01 July 2020 until 30 June 2023, the
MCIT shall be reduced from 2% to 1%
RFC – Effective 01 July 2020, subject to 25%
tax on net taxable income
NRFC – Effective 01 July 2020, subject to 25%
tax on gross income
Beginning 01 July 2020 until 30 June 2023, the
tax shall be reduced from 10% to 1%.
10% shall continue up to 31 December 2021.
Subject to regular corporate income starting
from 01 January 2022. However, they may avail
of tax incentives under CREATE.
Same
Senate Version
Exempt from tax provided it is reinvested in
the business operations of domestic
corporation; limited to funding working
capital/infra project/investment in domestic
subsidiaries/dividend payments; and
domestic corporation holds directly at least
20% of the outstanding shares of the foreign
corporation and held shareholdings for a
minimum of two years from time of dividend
distribution.
Same
Same
Same
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CITIRA/CREATE: Other salient features
Tax Reform Measure
Optional standard deduction
Tax exemption of transactions under
Section 40(C)(2)
General Anti Avoidance Rules (GAAR)
Liquidating dividends
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CITIRA/CREATE: Other salient features
Tax Reform Measure
Exemption from VAT of sale,
importation, printing or publication of
books and any newspaper, magazine,
review and bulletin
VAT on sale or importation of
prescription drugs and medicines for
cancer, mental illness, tuberculosis,
and kidney diseases
VAT on sale of real properties not
primarily held for sale to customers
or held for lease in the ordinary
course of business or real property
utilized for low-cost and socialized
housing.
3% percentage tax
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House Bill No. 4157
Limits the 40% OSD to individuals
and corporations classified as
MSME. OSD shall uniformly be
based on gross income.
Adds in the definition of
reorganization considered not
subject to tax recapitalization and
reincorporation.
Introduces GAAR under Section 50
Liquidating dividends should be
considered as taxable income or as
deductible loss, as the case may be
House Bill No. 4157
None
None
Senate Version
None
Same
Added: No prior BIR confirmation of tax ruling
shall be required to avail of exemption.
None
None
Senate Version
Includes journal and educational reading
materials covered by UNESCO Agreement and
importation of educational and cultural
materials including digital or electronic format.
VAT exemption beginning January 01, 2021
Increases VAT exemption threshold:
Residential lot from P1.5M to P2.5M
House and Lot and other residential dwellings
from P2.5M to P4.2 M
Effective 01 July 2020 until 30 June 2023, the
rate shall be 1%.
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Making the right choice
8% or regular IT (P3M) under 3% PT

Regular Income Tax

8% Tax on Gross Itemized Deductions Optional Standard Deduction

Gross sales/receipts – P 3,000,000 Gross sales/receipts – P 3,000,000 Gross sales/receipts – P 3,000,000

Less: (250,000) Less: Cost & Itemized Less: 40% OSD - (1,200,000)
Taxable sales/receipts - 2,750,000 Deductions (80% of Taxable sales/receipts – 1,800,000
gross sales/receipts) - (2,400,000)
Multiply: 8% tax 8% Income tax (IT) due
Tax due * - 220,000 Taxable sales/receipts –P 600,000 (P130,000
Plus 30% of over
Income tax due P800,000) - P 430,000
* Tax due is in lieu of income tax (P30,000 plus 25% of
and percentage tax. Over P400,000) - P 80,000 Percentage tax (PT) - 90,000
(3% x P3M)
Percentage tax (PT) - 90,000
(3% x P3M) Total tax due - P 520,000
(PT + IT)
Total tax due - P 170,000
(PT + IT)

Effective tax rate – 7.33% Effective tax rate – 5.7% Effective tax rate
(P220,000/P3M x 100%) (P170,000/P3M x 100%) (P520,000/P3M x 100%) – 17.33%

Making the right choice

8% or regular IT (P3M) under 1% PT

Regular Income Tax

8% Tax on Gross Itemized Deductions Optional Standard Deduction

Gross sales/receipts – P 3,000,000 Gross sales/receipts – P 3,000,000 Gross sales/receipts – P 3,000,000

Less: (250,000) Less: Cost & Itemized Less: 40% OSD - (1,200,000)
Taxable sales/receipts - 2,750,000 Deductions (80% of Taxable sales/receipts – 1,800,000
gross sales/receipts) - (2,400,000)
Multiply: 8% tax 8% Income tax (IT) due
Tax due * - 220,000 Taxable sales/receipts –P 600,000 (P130,000
Plus 30% of over
Income tax due P800,000) - P 430,000
* Tax due is in lieu of income tax (P30,000 plus 25% of
and percentage tax. Over P400,000) - P 80,000 Percentage tax (PT) - 30,000
(3% x P3M)
Percentage tax (PT) - 30,000
(1% x P3M) Total tax due - P 460,000
(PT + IT)
Total tax due - P 120,000
(PT + IT)

Effective tax rate – 7.33% Effective tax rate – 4.0% Effective tax rate
(P220,000/P3M x 100%) (P140,000/P3M x 100%) (P460,000/P3M x 100%) – 17.33%

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CITIRA/CREATE: Other salient features

Tax Reform Measure House Bill No. 4157 Senate Version

Sale or importation of the following: None VAT exemption starting 01 January
2021 to 31 December 31, 2023
1. Capital equipment, its spare parts and raw
materials necessary for the production of personal
protective equipment components such as coveralls,
gown, surgical cap, surgical mask, N-95 mask, scrub
suits, goggles, and face shield, double or surgical
gloves, dedicated shoes, and shoe covers, for COVID-
19

2. All drugs vaccines and medical devices specifically

prescribed and directly used for the treatment of
COVID 19 registered with and approved by the FDA;
and

3. Drugs for the treatment of COVID 19 approved by

the FDA for use in clinical trials, including raw
materials directly necessary for the production of such
drugs.

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Transition period on tax

incentives

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 Transitory rules for tax incentives
Registered business enterprises under income tax holiday (ITH)

HOUSE BILL NO. 4157

Continued availment of ITH for the

remaining period of ITH or period of
five years, whichever comes first.

SENATE VERSION

Continued availment of ITH until the

remaining period ends. If the firm has
not availed of the ITH yet, they may use
the ITH for the period specified by their
registration.

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Transitory rules for tax incentives

Existing registered business enterprises under 5% GIT

House Bill No. 4157 LATEST SENATE VERSION

Number of years Sunset

under GIT
More than 10 years 2 years 10 years transition period
5 to 10 years 3 years
(Regardless of number of
years under 5% GIT)
Less than 5 years 5 years

Option to avail of incentives under SIPP:

Qualified existing enterprises may avail of incentives
under SIPP upon surrendering of their certificate of
registration.
• After expiration of the transitory period, the
export enterprises registered prior to the
effectivity of the CREATE shall have the option to
reapply and avail of the tax incentives under
CREATE.

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 Tax incentives under
CITIRA/CREATE

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Strategic Investment Priority Plan

(House Bill No. 4157 vs. Senate version)

SIPP CONTENT House Bill No. 4157 Senate Bill No. 1357
1. Priority Projects/Activities under Philippine
Development Plan
• Substantial amount of investments √ √
• Considerable generation of employment √ √
• Adoption of adequate environmental
√ √
protection systems
• Addressing missing gaps in value chain √ √
• Promotion of market competitiveness √ √
• Export of at least 70% of products/services
√ X
from its registered activities
• Considerable amount of net exports X √

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Strategic Investment Priority Plan
(House Bill No. 4157 vs. Senate version)

SIPP CONTENT House Bill No. 4157 Senate Version

2. Agribusiness activities in less developed areas or
those recovering from armed conflict and major √ X
disaster
3. Determine services and activities that can spur
√ √
regional or global operations in the country
4. Include existing registered projects or activities
that shall relocate from Metro Manila to other √ X
areas of the country.
5. Terms and conditions on the grant of enhanced
deductions including appropriate level of X √
percentage of deductions

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Senate version: Category of tax incentives

Category of tax incentives = location + industry tiers

AREAS OUTSIDE OF AND

CONTIGUOUS OR ADJACENT
LESS DEVELOPED TO NCR AND METROPOLITAN
AREAS AREAS

AREAS OUTSIDE OF
NATIONAL CAPITAL REGION
(NCR) AND OUTSIDE OF NCR AND OTHER
METROPOLITAN AREAS THAT METROPOLITAN AREAS
ARE NOT LESS DEVELOPED

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Senate version: Category of tax incentives

Industry TIER 2 shall include activities that produce supplies,

parts and components that are not locally produced
TIER 1 shall include agriculture, fishing, or manufactured but are critical to industrial
forestry, agribusiness activities and energy, development and import-substituting activities
ecozone and Freeport zone development; operating under highly-contestable markets.
manufacturing of medical supplies,
devices and equipment, and construction
of healthcare facilities and infrastructure,
TIER 3 shall include research and
including manufacturing and service
development, generation of new
industries that are emerging resulting
knowledge and intellectual property
from innovation, upgrading or addressing
registered and/or licensed in the
gaps in the supply and value chain, mass
Philippines highly technical
housing, as well as infrastructure,
manufacturing and services activities
transportation, utilities and logistics that
that indispensably requires the
are critical to the country’s
employment of knowledge, modern
industrialization.
science, engineering, and research in
the process of production of goods,
resulting in demonstrably significant
value added and high-paying jobs.

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Senate version
Category and maximum availment period

Location + industry tiers

Location/ Industry Tiers TIER I TIER II TIER III
NCR and other Metropolitan A (14) B1 (15) B2 (16)
areas
Areas outside of and B1 (15) B2 (16) C (17)
contiguous or adjacent to NCR
and Metropolitan areas
Areas outside of NCR and B2 (16) C (17) C (17)
outside of Metropolitan areas,
and all other areas not less
developed
Less developed areas C (17) C (17) C (17)
• Figures in parenthesis ( ) are the maximum number of years of availment of tax incentives.

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ROLE OF FISCAL INCENTIVES REVIEW BOARD (FIRB)

Fiscal Incentives Review Board (FIRB) – To approve or disapprove

the grant of tax incentives to the extent of the registered project or
activity upon the recommendation of the investment promotion
agencies (IPA).

Delegated authority

For investment capital of P1Billion and below, the approval or

disapproval of tax incentives shall be delegated by the FIRB to the
IPAs.

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House Bill No. 4157:

Tax incentives for qualified enterprises
SET A SET B
(ITH + Reduced CIT) (ITH + Enhanced Deductions)
• Income tax holiday (ITH) for a period of 3 to 6 years • ITH for a period of 3 to 6 years

NCR – up to 3 years • Enhanced deductions for 2 to 4 years

Laguna, Batangas, Cavite, Rizal – up to 4 years
All other areas – up to 6 years
• Reduced CIT: 18% (2019) to be gradually lowered to
13% (2030) on taxable income after expiration of ITH
for 2 to 4 years
NCR – up to 2 years
Laguna, Batangas, Cavite, Rizal – up to 3 years
All other areas – up to 4 years
PLUS 3 years for:
o Investing in agribusiness
o Relocating from NCR or adjacent areas
o Areas recovering from armed conflict/major
disaster
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NCR – up to 2 years
Laguna, Batangas, Cavite, Rizal – up to 3 years
All other areas – up to 4 years
o Depreciation allowance: 10% for buildings and 20% for
machineries and equipment
o 50% additional deduction on labor expense
o 100% additional deduction on research and development
o 100% additional deduction on trainings
o 100% additional deduction on infrastructure development
o 50% additional deduction for reinvestment allowance to
manufacturing enterprises
o Carry over of losses for 5 consecutive taxable year on losses
incurred for the first 3 years of operation
o 50% additional deduction on domestic input expense

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House Bill No. 4157:
Tax incentives for qualified enterprises
SET C
Enhanced Deductions (For industry-specific basis)
• Enhanced deductions for 2 to 4 years
o Depreciation allowance: 10% for buildings and 20% for
machineries and equipment
o 50% additional deduction on labor expense
o 100% additional deduction on research and
development
o 100% additional deduction on trainings
o 100% additional deduction on infrastructure
development
o 50% additional deduction for reinvestment allowance
to manufacturing enterprises
o Carry over of losses for 5 consecutive taxable year on
losses incurred for the first 3 years of operation
o 50% additional deduction on domestic input expense
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Senate version
Tax incentives for qualified enterprises
Export Oriented Activities or Projects
1. Income tax holiday (4-7 years)
2. 5% tax based on gross income or Enhanced
deductions under RCIT (10 years)
3. Duty exemption on importation of capital equipment,
raw materials, spare parts or accessories.
4. VAT exemption on importation and VAT zero-rating on
local purchases of goods and services directly and
exclusively used in the registered project or activity
by registered business enterprises located inside an
economic zone or Freeport.
Export enterprises as those registered under IPA
engaging in manufacturing, assembling or processing
activity and IT/BPO services resulting in direct
exportation of at least 70% of its total production or
output or sales of its product that will form part of the
final export product or services.
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CUSTOMS AND VAT EXEMPTION
• Customs duty exemption on imported capital equipment
and spare parts on equipment which are used directly and
exclusively on registered activity
• VAT exemptions on importations, including source
documents, and VAT zero-rating on domestic purchases of
capital equipment, and raw materials used in the
manufacturing and processing of products for registered
enterprises whose exports meet the 90% threshold
• Refund of VAT paid on importations of capital equipment
and raw materials of export registered enterprises with do
not meet the 90% export sales threshold
AVAILABLE TO ALL REGISTERED ENTERPRISES
Domestic Oriented Activities or Projects
1. ITH (4 to 7 years)
2. Regular CIT under enhanced deductions (10 years)
• Depreciation allowance: additional 10% for buildings and
20% for machineries and equipment
• 50% additional deduction on labor expense
• 100% additional deduction on research and development
• 100% additional deduction on trainings
• 50% additional deduction for reinvestment allowance
• Carry over of losses for 5 consecutive taxable years on losses
incurred for the first 3 years of operation
• 50% additional deduction on domestic input expense
• 50% deduction on power expense
3. Duty exemption on importation of capital equipment, raw
materials, spare parts or accessories.
4. VAT exemption on importation and VAT zero-rating on local
purchases of goods and services directly and exclusively used
in the registered project or activity by registered business
enterprises located inside an ecozone or Freeport.
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