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Create for global competitiveness









By. Atty. Euney Marie Mata-Perez on December 17, 2020

Last month, the Senate finally passed on third reading Senate Bill 1357, or the “Corporate Recovery and Tax Incentives for Enterprise Act” (Create), which aims to reform our corporate income tax (CIT) and incentives system, and propose significant amendments to our National Internal Revenue Code (Tax Code). Its main objective is to make the Philippines globally competitive, and to promote productivity, employment generation, countrywide development and more inclusive growth while maintaining fiscal stability and prudence.

As expected, Create embodies the proposals of the Department of Finance (DoF) to immediately reduce the CIT rate. Specifically, it proposes to cut it from 30 percent to 25 percent, or even to 20 percent, for domestic corporations with a net taxable income not exceeding P5 million and total assets — excluding the land on which the particular business entity’s office, plant and equipment are situated — not exceeding P100 million, effective July 1, 2020.

Other significant amendments to the Tax Code include reducing the income tax rate of proprietary educational institutions and hospitals that are nonprofit from 10 percent to 1 percent beginning July 1, 2020 until June 30, 2023; exempting from tax foreign-sourced dividends of domestic corporations, provided that these are reinvested in the Philippine domestic corporation’s operations, and the domestic corporation owns at least 20 percent of the outstanding shares of the foreign corporation; reducing the minimum CIT from 2 percent to 1 percent effective July 1, 2020 until June 30, 2023; subjecting regional operating headquarters to the regular CIT beginning Dec. 31, 2021; repealing Section 29 of the Tax Code on the imposition of improperly accumulated earnings tax; and granting an additional deduction from taxable income of one-half of the value of labor training expenses incurred for the skills development of enterprise-based trainees enrolled in public senior high schools, public higher education institutions or public technical and vocational institutions duly covered by an apprenticeship, provided that such deduction shall not exceed 10 percent of the direct labor wage.

Create also embodies amendments to Section 40(C)(2) of the Tax Code and tax-free exchanges, confirming that the sale or exchange of the property used for business for shares of stocks for tax-free exchanges shall not be subject to value-added tax (VAT), and that no prior Bureau of Internal Revenue confirmation or tax ruling shall be required for such tax-free exchanges. (We will discuss these and other amendments in more detail in another article.)

On the VAT exemption, Create proposes increasing the VAT exemptions on the residential lots threshold from P1.5 million to P2.5 million, and on the house-and-lot and other residential dwellings threshold from P2.5 million to P4.2 million.

It also proposes including the following as VAT-exempt:

– sale or importation of educational reading materials covered by the United Nations Educational, Scientific and Cultural Organization agreement, as well as digital or electronic reading materials;

– sale or importation of medicines for cancer, mental illness, tuberculosis and kidney diseases that will take effect on Jan. 1, 2021, instead of Jan. 1, 2023;

– sale or importation of the following beginning Jan. 1, 2021 to Dec. 31, 2023: capital equipment, its spare parts and raw materials necessary for the production of personal protective equipment; drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of Covid-19; and drugs for the treatment of Covid-19 that are approved by the Food and Drug Administration for use in clinical trials; and

– reducing the “other percentage tax” for persons exempt from VAT from 3 percent to 1 percent from July 1, 2020 to June 30, 2023.

It is apparent that the majority of the foregoing amendments are aimed at enabling corporate taxpayers, including hospitals, to cope with the Covid-19 pandemic. However, it is noteworthy that Create did not include any amendment on the period to carry over net operating loss, or the Nolco. Originally, the DoF proposed to extend the three-year carry-over period to five years for nonlarge taxpayers. A five-year extension, though, is permitted under Republic Act 11494, or the “Bayanihan to Recover as One Act” (Bayanihan 2), for losses incurred in 2020 and 2021.

Create, as expected, included a new title on the rationalization of our tax incentives. We shall discuss these amendments in another article.

As mentioned, Create seeks to make our country globally competitive, and we laud the immediate reduction of the CIT rate to 25 percent or 20 percent, as the case may be. However, we are going into the last two weeks of the year, and it seems the Senate and the House of Representatives would still have to constitute a bicameral committee to harmonize their respective versions of the proposed amendments. If it would take time for the committee to come up with an agreed and harmonized version, Create’s passage would most likely be delayed.

Taxpayers are still hoping that the reduction in the CIT rates would still be effective as of July 1, despite any such delay in the passage of the measure. Thus, we urge our legislators to act urgently on this very significant piece of legislation that our country direly needs.

Euney Marie J. Mata-Perez is a CPA-lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, email the author at or visit

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Euney Marie J. Mata-Perez

Mark Anthony P. Tamayo

Gerardo Maximo V. Francisco