The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE), signed into law last Nov. 11, is another good law pushed by the Department of Finance (DOF) and the economic team.
A key provision is the further reduction in corporate income tax (CIT) rate to 20 percent from 25 percent for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR) on their taxable income derived from registered projects or activities during the taxable year.
DOF Secretary and Fiscal Incentives Review Board (FIRB) chairperson Ralph Recto has been pushing for this proposal. I see at least four ways that this law will make the Philippines even more globally competitive in attracting and keeping investments.
One, our 20 percent CIT will put us at par with Vietnam (reduced from 22 percent until 2015), Thailand (from 23 percent until 2012), Taiwan (increased from 17 percent until 2017) and Cambodia (flat 20 percent for decades). It will be lower than Indonesia’s 22 percent, Malaysia and South Korea’s 24 percent and China’s 25 percent, but higher than Singapore’s 17 percent and Hong Kong’s 16.5 percent. Tax competition in East Asia is real and not fictional.
Two, our 20 percent CIT under EDR will put us nearer the global minimum tax (GMT) rate of 15 percent under Pillar Two of the Organization for Economic Co-operation and Development (OECD). Thus, businesses from rich OECD member-countries can easily align with Philippines’ CIT and still enjoy deductions on research and development, seminars and related expenses.
Three, RBEs have the option to choose between the Special CIT (SCIT) of five percent or EDR right from the start of their commercial operations, and these incentives have been extended from maximum of 10 years to 17 or 27 years.
Four, it increased the deduction for power expenses to 100 percent from 50 percent so that energy-intensive industries like manufacturing and tourism can further reduce their cost of business. This is in recognition of the fact that the Philippines has a higher cost of electricity than most East Asian neighbors, many of whom subsidize their power costs. There is additional 50 percent deduction for expenses related to trade fairs and tourism reinvestments until 2034.
Secretary Recto said during the signing ceremony of the law that “CREATE MORE will certainly fast-track the entry of more foreign investors into the Philippines, as evidenced by the bullishness and strong interest from nearly a thousand investors who attended our recent economic briefings abroad. This will help facilitate more partnerships and joint ventures with our local companies.”
Trump tax and spending cut plan
The US had a CIT rate of 46 percent in the 1980s, then former president Ronald Reagan cut it to 34 percent in 1988 during his second term. Succeeding presidents (Bush Sr., Bill Clinton, Bush Jr., Obama) raised and kept it at 35 percent. Trump came in 2017 and cut CIT to 21 percent. In his second term, Trump plans to further cut it to 15 percent.
Initial reduction in tax revenues will be compensated by (a) revenues from higher tariffs, especially imports from China, (b) a bigger number of companies from abroad that will locate to the US and (c) spending cuts.
Trump will create a Department of Government Efficiency (DOGE) to “slash excess regulations, cut wasteful expenditures and restructure federal agencies” and make the US government more efficient and non-burdensome to taxpayers. DOGE will be jointly led by Elon Musk and Vivek Ramaswamy. They will not get any government compensation along with their staff who will all be volunteers.
Elon is the richest man in the world because he created super-efficient and super-innovator companies like SpaceX, Tesla, and Starlink, and revolutionized X, formerly Twitter...
When Elon took over Twitter, he removed up to 80 percent of personnel and new technology allowed X to keep running even with a higher number of users and subscribers.
DOGE will not be a regular Department but an advisory Commission that is time-bound and not a forever bureaucracy. It will start work when Trump takes over Jan. 20, 2025 and end by July 4, 2026, or one and a half years only.
Elon stated that they can possibly slash up to $2 trillion yearly of the federal budget, both salaries/allowances and subsidies/freebies. That is equivalent to one-third of the $6.1 trillion federal spending in fiscal year 2023.
Our DOF made good timing slashing the CIT to 20 percent by 2025 as Trump will soon create shockwaves across Europe and Asian businesses with his planned 15 percent CIT possibly by 2026. Many European countries have 25 percent CIT, Germany has 30 percent. Great job, Secretary Recto and DOF team for pushing this kind of tax cut reform early enough.
Our Department of Budget and Management (DBM) also has a plan to improve government efficiency via the National Government Rightsizing Program (NGRP) bill in Congress. It intends to abolish, merge and restructure certain agencies to create a more efficient bureaucracy. Passed in the House, it is now in the Senate.
In a Viber message, DBM Secretary Amenah Pangandaman said that “the DBM intends to have the NGRP bill become a law soon. We need to make the government more efficient and less costly to the taxpayers.”
Go for it, Madame Secretary. And if you can suggest to the President to possibly follow the DOGE model – high caliber business people working for the government for a year, not receiving any tax money and proposing to make the government bureaucracy and welfare programs less burdensome to the taxpayers.