Blog

Author Atty. Mary Elizabeth M. Belmonte, Atty. Rhoel Recheta, Atty. Stephen Vera Cruz

On March 26, 2021, after several years of waiting, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) as Republic Act No. 11534 was enacted and signed into law albeit with line veto items by President Duterte. CREATE was published on March 27, 2021 and became effective on April 11, 2021.
 
CREATE is the second package of the comprehensive tax reform program of the Duterte administration. It aims to improve the corporate tax system, rationalize the fiscal incentives system, and provide support to businesses to aid them in their recovery from the COVID-19 pandemic.
 
President Duterte vetoed some important provisions of CREATE. First, the proposed increased on the VAT-exempt threshold for the sale of residential lot from P1.5 million to P2.5 million and house and lot from P2.5 million to P4.2 million, which, according to him, is highly distortive and prone to abuse. Second, the 90-day period of processing general tax refunds, which may cause damage to the government or more delays to the prejudice of the taxpayers. Thus, he suggested that the legislature, the Department of Finance, and the Bureau of Internal Revenue (BIR) come up with mechanisms to streamline the process of tax refunds. Third, specific industries mentioned under the activity tiers to keep CREATE flexible and to be able keep up with the changing times. Fourth, the limitation on the power of the Fiscal Incentives Review Board (FIRB) since the oversight functions of the FIRB should ensure the proper grant and monitoring of tax incentives. Fifth, the grant of power to the President to exempt any investment promotion agency from the reform, which could be used for political gains. Finally, the automatic approval of applications for incentives, which is contrary to the declared policy to approve or disapprove applications based on merit.
 
The comparison of the provisions of the 1997 Tax Code and its corresponding amended provisions in CREATE and the new provisions on Tax Incentives may be accessed through the links below.
 
While the reduced corporate income tax rates significantly affect the Annual Income Tax Return (AITR) for the year 2020, the BIR did not extend the deadline of the filing of the AITR which is due on April 15, 2021. Instead, the BIR issued Revenue Memorandum Circular (RMC) No. 46-2021 states that the AITR may be amended on or before May 15, 2021 without any imposition of increments. Moreover, taxpayers whose amended AITRs result in overpayment of taxes paid may opt to carry over the overpaid tax against the tax due in the succeeding period or file a claim for refund. Furthermore, in RMC No. 41-2021, the BIR adopted a file and pay anywhere system for taxes falling within the period March 22, 2021 to April 30, 2021. The BIR also encouraged taxpayers to pay taxes through any ePayment channels.
 
Lastly, the BIR has already started issuing regulations, beginning with Revenue Regulations No. 2 to 5-2021 on final tax, VAT, and income tax, to implement the provisions of CREATE but with certain controversial provisions. Hence, let’s await the succeeding regulations of the BIR which hopefully will clarify any controversies and fully implement CREATE.
 
For the meantime, we hope that the amendments brought about by CREATE will encourage more corporations to set up their businesses in the Philippines and create jobs for the public as this is certainly a welcome incentive to help the Philippine economy wade through the challenges brought by the pandemic. We look forward to seeing these gains soon.