The Philippines: CREATE to cost PHP250B in foregone revenues

  • THE CORPORATE Recovery and Tax Incentives for Enterprises Act (CREATE), once enacted into law, will cost the government as much as PHP250bn in foregone revenues in the next two years, after the corporate income tax cut was accelerated for local small businesses.
  • Finance Assistant Secretary Maria Teresa S. Habitan told BusinessWorld the CREATE bill approved by the Senate will cost the government PHP133.2bn in foregone revenues in FY21 and PHP117.6bn in FY22.
  • She said the latest estimates from the Department of Finance (DoF) assume CREATE will be signed into law by end-FY20 and the provisions applied retroactively to Jul 20.
  • The DoF’s latest estimated revenue impact of the CREATE bill is 72% higher than previous estimates of PHP145.4bn in combined foregone revenues in FY21 and FY22.
  • This is mainly due to the Senate version’s provision for an outright reduction of corporate income tax for local small businesses to 20% starting Jul 20, from the current 30%. Small businesses are those with total assets less than PHP100mn and total net income not exceeding PHP5mn.
  • The corporate income tax for all other companies will be reduced to 25% starting Jul 20, and gradually trimmed by 1% each year from FY23 to FY27.
  • Despite CREATE’s impact, the government still expects its overall revenues to inch up by 1% to PHP2.88tr in FY21, from the PHP2.85-tr target in FY20.

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