On September 2019 the house approved on the third and final reading the Corporate Income Tax and Incentives Rationalization Act (CITIRA). However, due to the COVID-19 pandemic and contraction 0.2 percent of the Philippine economy for the first quarter, the house of representatives has seen it fit to recalibrate the said bill to make it a big stimulus package to help businesses recover.
Currently, many calls were made, especially the business sector to urgently pass the bill to fast-track the recovery of businesses and the economy.
CORPORATE INCOME TAX UNDER CREATE BILL
Under the CREATE bill, corporate income tax (CIT) will be immediately slashed from the current 30% to 25% by the end of July 2020 and will see a further reduction of 1% every year starting 2023 until 2027 to bring the CIT down to 20%. In contrast, the CITIRA proposes a 10% percent cut on the CIT spread in ten years or up to the year 2030.
The government through finance secretary Carlos Dominguez stated in interviews that the above-proposal would result in savings that would amount to a Php42 billion extra capital for businesses for the year 2020 and around Php625 billion in the next succeeding five years.
The immediate impact that the government hopes this move will result in is the attracting of foreign investors in the Philippines and for local ones to establish a new business or expand their current one. Both will mean more jobs for Filipinos who lost their livelihood as a result of quarantine measures which in turn will result in more consumer demand.
THE NET OPERATING LOSS CARRYOVER (NOLCO) UNDER THE CREATE BILL
Under the CREATE bill, the net operating loss of companies for the year 2020 can be carried cover to five (5) years for non-large taxpayers. This is a revision of the original NOLCO which only allows a carryover of net operating loss for a maximum of three (3) years.
This amendment is quite timely as it is expected that because of the wide quarantines imposed, many micros, medium, and small enterprises (MSMEs) will experience significant losses due to lack of operations and lack of sales. The extension of the time to carry over the said losses can be a big help for the companies to manage their finances.
STATUS QUO FOR BUSINESS ACTIVITIES THE 5% GROSS INCOME EARNED (GIE) INCENTIVE
Under the CREATE bill, the sunset period for business activities currently enjoying the GIE incentive is four (4) to nine (9) years. In contrast, under the CITIRA, the sunset period is only from two (2) to (7) years.
A sunset period is the time where a provision of law will only be applicable starting from the date of effectivity of the law. The 5% GIE on the other hand is the incentive that a qualified business activity enjoys under which sees them pay the same in lieu of income, VAT, and local taxes.
Considering that the government will need many of the businesses to keep operating in order to keep the economy afloat, extending the sunset period for the GIE is a very good move.
Written by: Atty. Jon Dominic Penaranda