The bicameral conference committee on Monday approved the final version of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which exempts Covid-19 vaccines and medicines for several illnesses from taxes.
House Ways and Means chair Joey Salceda bared that the two panels have reconciled conflicting provisions of House Bill No. 4157 and Senate Bill No. 1357 and agreed to ratify the measure within 24 hours.
The bill will be ratified during Monday’s plenary session in the House and in the Senate the next day.
Through passing the bill, the Albay lawmaker expects at least P12 trillion in combined domestic and foreign investment over the next 10 years.
About $90 billion of that, Salceda noted, will be foreign direct investments.
“This will be the greatest economic reform of the post-EDSA years, second only to economic amendments to the Constitution. Removing the uncertainty will be like opening the floodgates to investment,” he said.
With CREATE, Salceda postulated that over 1.8 million jobs will be created over the next 10 years, and if the restrictive economic provisions of the Constitution will be successfully revised, he said this would result in some 8.4 million jobs.
VAT-free medicines and vaccines
The bill mandates VAT-free and duty-free importation of Covid-19 vaccines as well as the VAT-free importation and sale of Covid-19 medicines and personal protective gears until December 2023.
“With quick vaccine rollout, the chance is stronger that businesses will devote tax savings to creating new jobs,” Salceda said.
He explained that under the bill, the sale of capital equipment, its spare parts and raw materials which are necessary for the production of personal protective equipment components shall be tax-exempted.
This includes “coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes, and shoe covers.”
It also provides an exemption from value-added tax medicines for cancer, tuberculosis, mental illnesses and kidney diseases starting 1 January 2021.
Other key features
One of the other key features of the reconciled measure is lower corporate income tax at 25 percent from the previous 30 percent for large corporations, while 20 percent for small and medium enterprises.
It also provides incentives for exporters and “critical” domestic enterprises, which are to be identified by the national economic and development authority agency, with four to seven years of income tax holiday (ITH) and ten years of special corporate income tax (SCIT).
Four to seven years of ITH and five years of SCIT for corporations with investment capital of at least P500 million and five years of enhanced deductions otherwise, the bill further stated.
“Fixing the incentives regime to make it more performance-based is also crucial. The current investment priorities plan covers some 70 percent of gross domestic product,” Salceda said.
“While I am willing to give incentives, they must be linked with economic outcomes. Better jobs for our people. Higher wages. More training. More research and development. Stronger business. More competitiveness,” he added.
The bicameral panel version of the bill reduced P282 billion from the original revenue loss under the Senate version, he noted.
While CREATE will result in some P931 billion in tax savings for businesses, Salceda said, this is to frontload relief and cover the economic gap brought about by Covid-19.
“With CREATE, we are also lowering CIT to bring it closer to the ASEAN region’s average. ASEAN has been the fastest growing economic region in the world. Our neighbors are our friends, but they are also our competitors. We must strive to keep up with them,” he asserted.