A drastic cut in Philippine corporate income tax rate, from 30% down to 25% for all corporations and as low as 20% for smaller businesses under the Corporate Recovery and Tax Incentives for Enterprises Act, also known as “CREATE” will help businesses survive and recover during the COVID-19 pandemic. The tax cut will take effect retroactively from July 2020, according to the Philippine Department of Finance. Furthermore, the tax reduction will continue with an annual reduction of -1% from 2023 until 2027. This is faster than the originally proposed bill that would have brought down the levy to 20% by 2029. The new measure will also have an impact on the tax system by giving more power to the Fiscal Incentives Review Board of the Philippines to give more tailored tax incentives to businesses that invest in specific industries in the Philippines. The CREATE bill is meant to be an addition to the Philippine government’s COVID-19 recovery strategy along with the P140-billion Bayanihan II, which was passed earlier on in the year.
How Will Businesses in the Philippines Benefit?
CREATE will immediately reduce income tax from the current 30% down to 25% for all businesses in the Philippines. If you are a business with less than Php 100 million in assets and less than Php 5 million in net income, then the tax rate is further reduced to 20%. In addition, businesses with less than Php 3 million in gross sales will only need to pay a tax of 1% until 2023, a decrease of 2% from the current tax rate for small businesses.
What is the Benefit to the Philippine Economy?
The decreased Philippine tax rate will make the country more competitive among its peers in Asia. In addition, with the recent supply chain developments due to COVID-19 and an ongoing trade war, businesses around the world are looking to diversify away from Chinese manufacturing and the Philippines can position itself as an attractive alternative.
Furthermore, according to Mr. Carlos Dominguez of the Department of Finance, “These reforms in the fiscal incentives system are crucial for us to be able to compete for high-value investments, which are what we (the Philippines) want to attract. The implementation of the CREATE bill is also part of the Philippine government’s strategy to attract investors located in China who are now looking for alternative destinations to avoid a repeat of the supply chain disruptions they encountered earlier. The country will also be able to attract more foreign direct investment (FDI) with an improved incentives menu, which will maximize desirable economic outcomes such as job creation, domestic value-added, and technology transfer.”
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