CREATE bill not a stimulus — IBON
MANILA, Philippines — Contrary to the pitch of economic managers, the Duterte administration’s revised corporate tax reform bill would not pass as a stimulus for a pandemic-stricken economy, a non-government think tank said on Thursday.
“CREATE is not a stimulus package. It’s a bill giving companies tax breaks,” Sonny Africa, executive director of IBON Foundation Inc., in a webinar.
Africa was pertaining to the administration-backed Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which the government repackaged from the old Corporate Income Tax and Incentives Rationalization bill or CITIRA supposedly to serve as one of its preferred stimulus measure.
The recalibration of the measure to CREATE meant the government is now willing to take an instant 5% cut in corporate income tax rates to 25%, which would be enforced retroactively to July once the measure is enacted. Present tax perks, initially wanted watered down quickly by the finance department under CITIRA, would also be maintained much longer under CREATE.
The idea is with lower tax rates and steady incentives, higher earnings from corporates should drive companies to retain workers heavily battered by the outbreak. But Africa said there is no certainty to this, citing past crises when firms held off investment plans while the economy was in bad shape.
“Why would you invest and hire people if there would be no one buying your goods because consumers are recovering from a crisis? The situation is not a favorable condition to invest domestically, even globally,” Africa said in Filipino.
“Bottomline, the argument that the bill will have multiplier effect was also made up,” he added.
Sought for comment, Finance Undersecretary Gil Beltran said while it was true that private investment was tepid in previous crises, such as the Asian financial crisis in 1997, that was because companies at the time were suffering from bad finances, with little access to credit.
“They were not as healthy as today in terms of finance, in terms of credit rating. But now is different. We are standing on a better ground,” Beltran said in a phone interview, pointing to the recent sovereign rating upgrade to A-, which can reduce interest rates on debts, from Japan Credit Rating Agency.
“I have a better expectation with local investors,” he said by phone.
MSMEs unlikely to benefit
That said, Africa pointed out that once CREATE is passed, three-quarters of companies that will benefit from lower tax rates are most likely to be the big firms, which account for only around 1% total local firms. Micro, small and medium enterprises (MSMEs), which corner 98%, would hardly feel any difference.
“CREATE is not new. They just dressed it up to look like a bill that will help the economy recover post-pandemic,” he said.
“It's opportunistic. If the bill is bad in the past, it's still bad until today,” he added.
For Beltran, however, the contrary is bound to happen once CREATE is passed. Since the bill, he said, is devised to reduce tax perks over time, the measure is expected to negatively affect large companies enjoying perks now, thereby putting MSMEs without these incentives in a level playing with them.
CREATE is expected to operate in tandem with another bill called Bayanihan to Recover As One, another state-preferred stimulus that makes use of funds under the existing P4.1-trillion national budget while only adding P140 billion in fresh funding. The new allocations will mostly go to state banks as fresh capital for lending.
Congress, however, ran out of time to pass both bills before lawmakers went on break last June 5. The measures are not expected to be discussed anew until July 26, when a new session opens.
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