GENERAL GUIDE in using this illustrative note disclosure:

1. Delete guides - those written in blue font

2. Modify information as applicable to the client - those written in red font

The reconciliation of the income tax expense computed at statutory income tax rate to the actual expense shown
in the statements of total comprehensive income is as follows:
2021 2020
Income before income tax Pxxx Pxx
Income tax using statutory rate xxx xx
Income tax effects of:
Nondeductible expenses - xx
Interest income subjected to final tax (xxx) (xx)
Book and tax difference in income tax expense
due to CREATE1 (xxx) -
Changes in deferred tax assets due to
reduction in income tax rates under
CREATE2 xxx -
P5,495,965 Pxx

1
Difference between current income tax expense presented in the financial statements and annual income tax
return filed for the year ended December 31, 2020.
2
Effect of the decrease in income tax rate from 30% to 25% on the deferred tax assets as at December 31,
2020.

Impact of the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)
On March 26, 2021, the President signed into law the “Corporate Recovery and Tax Incentives for Enterprises
Act” or “CREATE”, which seeks to reduce the corporate income tax rates and to rationalize the current fiscal
incentives by making it time-bound, targeted, and performance-based.

The following are certain provisions of the law that had an impact on the Company’s financial statements.

 Reduced RCIT rate effective July 1, 2020 of 25%

 Reduced MCIT rate of 1% effective July 1, 2020 until June 30, 2023

As mentioned above, the reduction in income tax under CREATE took effect on July 1, 2020. However,
Philippine Interpretations Committee issued Questions and Answers No. 2020-07, in which it stated that the
CREATE Law is considered to be not substantively enacted as of December 31, 2020; accordingly, the current
and deferred taxes for financial reporting purposes as of December 31, 2020 are measured using the regular
income tax rate in effect as of December 31, 2020, which is 30%. The difference was reflected as adjustment to
the current income tax for the year ended December 31, 2021 in accordance with PAS 12, Income Taxes.

In addition, the effect of the reduction in the income tax rates under CREATE on deferred tax asset (liability) as
at December 31, 2020 amounted to Pxxx and is shown in the statement of total comprehensive income as
addition to (reduction of) income tax expense (benefit).

Presented below are the effects of the changes in tax rates under the CREATE Act.
 Amounts
Effect of
Based on the
As at December 31, Changes in
Reduced Tax
2020 Tax Rates
Rates
Statements of Comprehensive Income
Current tax expense Pxx Pxx (Pxx)
Deferred tax expense (benefit) xx (xx) xx
Net income for the year xx xx xx
Statements of Financial Position
Deferred tax assets (liabilities) xx xx (xx)
Prepaid taxes xx xx xx
Retained Earnings xx xx xx