Creating Tax Reforms towards Business and Economic Recovery in the Philippines

Navigating the significance of economic welfare is not only a matter of industrial and business investments but, more so, of sustainable and accommodative work livelihood. 

In response to societal and economic challenges, the Philippine business field is gaining greater allyship towards expansive business and work opportunities from the government. With initial laws implemented to sustain such enterprises and industries, the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act, or RA 12066, was proposed and legalized by President Ferdinand Marcos Jr. on November 11, 2024. This law seeks to improve tax incentives and reduce corporate income taxes for large and small businesses and industries with qualified activities and plans registered to Investment Promotion Agencies, such as the Philippine Export Zone Authority (PEZA) and Board of Investments (BOI), that help regulate better economic growth, investment, and job accessibility. 

 

“The signing of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy—a bit of a mouthful, so we’ll just refer to it as the CREATE MORE Act—is a resounding testament of our commitment to make the Philippines the destination of choice for investments,” said President Marcos on one of the main purposes of the newly-signed act. 

In a congress interview on November 11, 2024, chair of the Senate Committee Sherwin Gatchalian applauded the implementation of the act, supplying the economic resilience of the country.  

 

“With more foreign direct investments that CREATE MORE is expected to generate, more Filipinos will have better employment opportunities that will, in turn, redound to stronger domestic consumption, one of the major drivers of the local economy,” he emphasized, pointing to the importance of foreign businesses in helping directly create smoother investment operations and quality job opportunities for local businesses and workers in the business market, with the provision of the revised law enhancing foreign and domestic engagements and tax reliefs for both international and national businesses to further attract foreign business investors in sustaining the amplification and appeal of Philippine jobs and businesses. 

 

Such a revision of business-related decrees has further made visible the need of Philippine business markets and professions to integrate relevant enhancements for the people and the economy. And with its foreseen amendments, rudimentary events and principles are foundational in attaining a wider understanding of its purposes, benefits, and implications in the economic state of the Filipino society today. 

Philippine laws on business operations are significant in ensuring proper adherences of local and foreign investors and businesses. This would then increase successful investments, revenues, and job opportunities, especially for registered business companies and enterprises established in the country. 

Previous programs and acts, intended to improve business benefits, were initiated, paving the way for the creation of tax incentives based on satisfactory performance for business and industrial companies to utilize. Some of these programs and acts rose to legislation and prominence as the “Investment Incentive Acts of 1967” and the “Omnibus Investment Code of 1987,” serving as initial factors in the creation and proliferation of lesser revenue tax and incentives for local and foreign businesses and investors. 

But with inflated tax rates and complications in the distribution of subsidies and tax reliefs, placing the Philippines at an increasing disadvantage of attracting foreign investors compared to other Southeast Asian countries, particularly Vietnam, Indonesia, and Thailand, laid down the formation of the initial Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, or RA 11534, on March 26, 2021—signed into law by former President Rodrigo Duterte, deliberated to improve tax benefits and solutions in paving for milestone improvements in trade and investment in support for big and small business enterprises, especially during the COVID-19 pandemic. 

Investment hub of work-from-home industries 

In a short period, businesses and investors in 2021 and 2022 were encouraged to actualize the regulations listed in the law in consideration of the repercussions that needed to be handled to help proceed with the recovery and sustainability efforts from the effects of the COVID-19 pandemic. The reduction of tax rates improvised by the CREATE law stemmed from 30% to 25%, and the broadening of incentives for eligible corporate tax holidays, import exemptions, and relocation assistance would then support the mending of the Philippine economy, introducing significant contemporary changes to business and industrial fields with digital and non-digital sources. 

Remote allocations, although generally provided, did not extend to work popularity, with strict application of WFH arrangements at approximately 30%. In comparison, situated office availability and professions remained ideal to retain within 70% popularity rate under the Philippine Economic Zone Authority (PEZA), an online system directed to promoting the establishment of economic zones for local and foreign investments and work accessibilities. However, with the help of CREATE law, the enabling of remote work, seminars, and technologies became a more valuable and relevant option, especially in areas in which office establishments were costly and unattainable, leading to a wider allocation of job training and employment in digital work environments.

“The impact of CREATE is two-fold. First, it provides immediate relief to our MSMEs with a 5 or 10-percentage point reduction in the regular corporate income tax (CIT) rate. Second, it brings our corporate tax rate closer to our ASEAN peers and enhances our fiscal incentives system to help attract more foreign direct investments (FDIs), which will help generate more jobs and accelerate our recovery,” said National Economic and Development Authority (NEDA) planning secretary Karl Kendrick Chua, on the beneficial implications of the act on business and investment proliferation. 

Amid the positives instilled by the decree, businesses and industrial corporations continued to face several challenges and difficulties in successfully adhering to the standards and eligibility of the law. In a policy brief tackling the economic competitiveness of the CREATE Act, the Senate of the Philippines reiterated the ambiguity and inconsistencies found in its Implementing Rules and Regulations (IRR), more so in the distribution and beneficiaries of tax reductions and corporate incentives. 

“Registered business enterprises (RBEs) lamented that these issues have significantly impacted their operations and undermined their competitiveness,” stated the Senate of the Philippines, pointing to the issues raised by local enterprises in regard to the stability and immediate financial provisions to be equally provided for both large, medium, and small economic corporations.

Because of this, legislative initiatives from the Philippine Congress called for further clarification and revision of the law to mend these economic gaps between business and industrial organizations and successive work support and investments. As such, the CREATE MORE amendments, introduced as House Bill 9794, were then initialized in 2023, which sought to address and enhance regulations deemed vital to the administration and inclusion of tax exemptions, beneficiaries, and incentives, notably the value-added tax (VAT) incentive, that could be made to further polish the revenue and foreign appeal of large and small Philippine businesses that meets and qualifies for the requirements and qualifications of the revised law.

“The proposed amendments to the CREATE Act will enhance the incentives, clarify the rules and policies on the grant and administration of incentives to qualified enterprises, and address issues affecting the country’s investment climate,” said the Department of Finance’s (DOF) Finance Secretary Benjamin Diokno, in support of the execution and potentialities of the law’s initial status before its submission to the Philippine Senate on March 19, 2024.

After further deliberations and readings from the Senate, the decision to pass the proposals into one revised act, CREATE MORE, was publicly announced on November 11, 2024, with current President Ferdinand Marcos Jr. leading the signature of the law. Under its legislation are the newly amended tax rates from 25% to 20% for all registered and qualified businesses, enhanced VAT tax exemptions for eligible enterprises with direct distribution costs and locally purchased imports, heightened job creation for the Philippine workforce, and expeditious aid for incentive utilization for business and industrial markets and investments. 

In light of its positive implications, several concerns have been raised in regards to the transitional potential challenges that may arise amid the improvisations of the act. Although the law seeks to widen the economic scale and appeal of Philippine businesses, investments, and tax eligibilities, the act may fail to achieve balance in benefitting both foreign and local enterprises, and how they can be applied and understood can vary from business to business with the shifting provisions and regulatory requirements, particularly the rules regarding which goods and services qualify for tax exemptions, that pose large and small business corporations to catch up with the updated regulations to apply and avail for such incentives. Moreover, the provision for work-from-home setups, now approximately 50%, can affect business markets that prevalently depend on physical work engagement, such as the Business Process Outsourcing (BPO) industry, which also receives its tax incentives primarily on face-to-face job engagements, leading to a potential decline and utilization of infrastructure and tax benefits.