House Ways and Means Committee Chair Albay Rep. Joey Sarte Salceda said the “recalibrated” tax reform package now called Corporate Recovery and Tax Incentives for Enterprises Act could produce at least 1.1 million jobs in five years and trigger a V-shaped recovery for the country’s economy by next year.
Salceda, who is also co-chair of the Defeat COVID-19 Committee Stimulus Package, said the number of jobs by the passage of the CREATE bill WOULD be equivalent to half of the lower end of his estimates that 2.2 million to 4.4 million people who would be unemployed this year amid the Covid-19 pandemic.
“I think a good strategic objective would be to recover at least 50 percent of that this year; let’s recover at least 50 percent. That would go for something like 1.1 to 2.2 million jobs,” Salceda said in an interview recently.
The economist-lawmaker also added that the CREATE bill — formerly known as Corporate Income Tax and Incentives Rationalization Act or Citira — could contribute an additional 1.2 percent per year to the country’s GDP.
Salceda expressed optimism that the country can hit 8 % growth next year given the base effect.
The Cabinet-level Development Budget Coordination Committee is projecting the country’s economy to grow by 7.1 percent to 8.1 percent by 2021. For this year, the DBCC expects the economy to contract by 2 percent to 3.4 percent, in what could be the worst GDP situation since 1985’s 6.9 percent GDP contraction.
“I think we need CREATE in order to trigger a V-shaped recovery next year,” Salceda said adding that their colleagues have also expressed support to the bill, and that the measure could be passed soon.
The CITIRA bill was passed by the House of Representatives last year and is awaiting approval in the Senate. It has also been certified urgent by President Duterte in March.
Salceda reiterated that the House is willing to adopt the Senate version of the modified Citira to fast-track the approval of the measure as long as it is fiscally sound.
The CREATE seeks an outright cut in the country’s CIT rate from 30 percent to 25 percent, which is said to be “the first-ever revenue-eroding package proposed in the country”, having a CIT rate of 30 percent that is the highest in the region.
The proposal further offers more flexible incentives, with an immediate 5 percent income tax slash, after which the CIT will be reduced by 1 percent every year from 2023 to 2027 until it reaches the 20-percent mark.
The government’s losses due to the reduction in CIT may reach at least P667 billion between 2020 and 2027, according to the Department of Finance.
With the outright cut in the CIT rate to 25 percent by July this year, the government is expecting revenue losses of P42 billion for this year, but nevertheless reflected as savings for small businesses in the country. Between 2021 and 2025, the government is projecting total revenue losses to reach P625 billion.
It also extends the net operating loss carryover (Nolco) for non-large taxpayers from the current three years to five years, which will be credited for losses incurred in 2020.
Several business groups have earlier expressed support to the drastic cut in the CIT rate to 25 percent this year.
The Makati Business Club also urged Congress for the swift passage of the bill to end two years of uncertainty for investors.
However, MBC urged the DOF and Congress to add five years to the sunset provisions in Citira for existing investors, and offer new investors at least 10 years, given the impact of Covid-19.
Under the CREATE bill, there will be a longer sunset transition period for firms currently enjoying the special rate of 5 percent on gross income earned incentive.
A transitory period of four years is being proposed for those companies enjoying the GIE incentive for more than 10 years, sunset period of five years for those enjoying the GIE incentive for five to 10 years, seven-year transition period for firms enjoying GIE below five years and nine-year sunset period for 100 percent exporters with at least 10,000 employment and footloose projects or activities.