EDITORIAL - Create More

In line with efforts to attract more investments, President Marcos has signed into law Republic Act 12066, which broadens fiscal incentives and lowers the corporate income tax on certain foreign enterprises. Called the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act, CREATE MORE has been welcomed by the business community.

As in any move to reduce taxes, the government stands to lose a substantial amount of revenue under CREATE MORE. Fiscal managers are hoping that the loss of nearly P6 billion will be only for the short term, and will be offset by the entry of more foreign direct investments as well as expansion of domestic enterprises and the creation of more jobs.

The government, by its own estimate, stands to lose about P5.9 billion in taxes in the next four years as a result of CREATE MORE, which further cuts corporate income taxes for registered business enterprises from 25 to 20 percent. The reduction in CIT accounts for the bulk of the expected forgone taxes, at around P4.06 billion. The RBEs also get their power expense deduction doubled to 100 percent, with the forgone government revenues placed at P926.82 billion.

Another P601.89 billion will be lost from the additional 50 percent deduction for tourism reinvestments and expenses related to trade fairs for the next 10 years. Export-oriented enterprises’ importations will be exempted from value-added tax while local purchases will be zero-rated. Flexible work arrangements are now institutionalized in RBEs operating in economic zones and freeports.

Whether CREATE MORE will draw a significant volume of new FDI remains to be seen. The country remains an investment laggard in the region, with neighbors providing better environments for business. Even as foreign enterprises are leaving China because of geopolitical and other issues and relocating elsewhere, the Philippines is being overlooked in favor of other countries such as Vietnam, Thailand and India.

CREATE MORE addresses a few of the concerns that investors have raised. There is a continuing effort to improve infrastructure and reduce power and logistics costs. The government has yet to adequately address the other concerns, including enormous red tape and redundant fees beginning at the local government and barangay level, weak regulation and rule of law as well as an unpredictable and corrupted judicial system. Two laws have been passed to improve ease of doing business, with minimal effect. CREATE MORE must be complemented by aggressive efforts to address the other major hurdles to doing business in this country.