CREATE Tax Losses Lower Than Expected

Foregone taxes due to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) act were lower than expected last year, Bureau of Internal Revenue (BIR) data showed.

Photo Insert: Former Finance Secretary Carlos G. Dominguez III said CREATE was one of the “largest economic stimulus measures in the country’s history” that aimed to aid businesses in recovering from the prolonged pandemic.

Based on the document obtained from the BIR, the CREATE law, which reduced the income tax rates slapped on large corporations as well as micro, small and medium enterprises (MSMEs), resulted in P68 billion in tax losses in 2021.

The actual foregone revenues incurred by the BIR were only about half of the P138.2 billion estimate by the Development Budget Coordination Committee for last year.

Full-year implementation of the CREATE law began in 2021 that effectively reduced corporate income tax (CIT) for MSMEs—those with total assets less than P100 million and total net income not exceeding P5 million—to 20 percent from 30 percent.

Likewise, big corporate taxpayers enjoyed tax savings, with their CIT rate down to 25 percent, and gradually trimmed by one percentage point each year from 2023 to 2027.

Former Finance Secretary Carlos G. Dominguez III said CREATE was one of the “largest economic stimulus measures in the country’s history” that aimed to aid businesses in recovering from the prolonged pandemic.

For 2022, the Department of Finance (DOF) estimated that the CREATE law would cost the government as much as P117.6 billion in foregone revenues. However, the actual CREATE-induced tax losses amounted to only P44.9 billion in end-July, equivalent to 38.2 percent of the DOF’s full-year estimate.

CREATE is part of former President Duterte’s comprehensive tax reform program (CTRP), which the Marcos administration also wants to continue to pursue.

The two pending CTRP measures that President Marcos wants Congress to enact are the reform in real property valuation, and the Passive Income and Financial Intermediary Taxation Act (PIFITA). Earlier, the BIR had reported that the net revenues from the tax packages under the CTRP reached P107.7 billion from 2018 to end-July this year.

Broken down, the tax reform acceleration and inclusion law (TRAIN) added P100.2 billion to the BIR collection, while the sin tax reform laws that raised excise taxes on cigarettes, heated tobacco products, vapor products, and alcoholic beverages put in P120.4 billion.

However, the subsequent CREATE Act inflicted P112.9 billion in foregone revenues since its implementation in 2021.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic