Tax Articles

Reformed Tax Incentives under CREATE MORE

By: Atty. Rodel C. Unciano

Atty. Rodel C. Unciano Partner   +632 8403-2001 loc.380 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

One significant amendment introduced by Republic Act No. 12066 or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) is the reformed bundle of tax incentives available to Registered Business Enterprises (RBE) duly registered with the Fiscal Incentives Review Board (FIRB) and other Investment Promotion Agencies (IPA).

Subject to certain conditions and period of availment, types of incentives that may be granted to registered projects or activities include 1) Income Tax Holiday (ITH), 2) Special Corporate Income Tax (SCIT) Rate, 3) Enhanced Deductions Regime (EDR), 4) Duty exemption on importation of capital equipment, raw materials, spare parts, or accessories, 5) Value Added Tax (VAT) exemption on importation and VAT zero-rating on local purchases, and 6) RBE local Tax.

ITH is an exemption from income tax on registered project or activity and is available for all both export and domestic market enterprises. The SCIT is a tax equivalent to five percent (5%) of gross income earned and is in lieu of all national and local taxes and local fees and charges. Only registered export enterprises may avail SCIT.

Under CREATE MORE, EDR has been made a separate tax regime where qualified enterprises shall be taxed at a rate equivalent to twenty percent (20%) of taxable income derived from registered projects or activities. This is in addition to the enhanced deductions enumerated under the law. Notably, CREATE MORE also increased from fifty percent (50%) to one hundred percent (100%) additional deduction on power expense incurred during the taxable year.

Registered export enterprises may opt one of the following: 1) ITH, which shall be followed by SCIT or EDR; or 2) SCIT, which shall be in lieu of all national and local taxes and local fees and charges and may be granted immediately at the start of commercial operations; or 3) EDR, which may be granted immediately at the start of commercial operations. Registered domestic market enterprises may opt for either 1) ITH, which shall be followed by EDR; or 2) EDR, which may be granted immediately at the start of commercial operations.

The RBE local tax may be imposed by the concerned local government unit through an ordinance issued by the concerned Sanggunian, at a rate of not more than two percent (2%) of an RBE's gross income during the ITH and EDR. This shall be in lieu of all local taxes and local fees and charges imposed by the local government unit. RBE local tax shall not be imposed on RBEs under SCIT.

Another significant amendment introduced by CREATE MORE is the different periods of availment of incentives for projects or activities approved by IPAs and FIRB. For export enterprises registered with IPAs, ITH shall be for a period of four (4) to seven (7) years, depending on location and industry priorities, followed by SCIT or EDR for ten (10) years, or SCIT or EDR for a maximum period of fourteen (14) to seventeen (17) years, depending on location and industry priorities.

For domestic market enterprises, ITH shall be for a period of four (4) to seven (7) years followed by EDR for ten (10) years, or EDR for a maximum period of fourteen (14) to seventeen (17) years, depending on location and industry priorities.

On the other hand, for export enterprises registered with the FIRB, the ITH incentive shall be for a period of four (4) to seven (7) years, depending on location and industry priorities, followed by SCIT or EDR for twenty (20) years, or SCIT or EDR for a maximum period of twenty-four (24) to twenty-seven (27) years, depending on location and industry priorities.

For domestic market enterprise, ITH incentive shall be for a period of four (4) to seven (7) years, followed by EDR for twenty (20) years, or EDR for a maximum period of twenty-four (24) to twenty-seven (27) years, depending on location and industry priorities.

As regards duty exemption, CREATE MORE modified the rules such that the exemption shall now apply to the importation of capital equipment, raw materials, spare parts, or accessories directly attributable to the registered project or activity of RBEs, including goods used for administrative purposes, unlike the old provision where the exemption applies only to those exclusively used in the registered project or activity.

For VAT, the exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly attributable to the registered project or activity of a registered export enterprise, or a registered high-value domestic market enterprise, including expenses incidental thereto.

Subject to certain conditions, RBEs may continue to avail of the VAT zero-rating on local purchases and VAT exemption on importation, and duty exemption on importation for the entire registration period as an RBE, reckoned from the date of registration, if the RBEs continue to meet the terms and conditions of their registration.

True to its objective as encapsulated in its title, CREATE MORE is expected to maximize opportunities and reinvigorate the economy. Let’s support CREATE MORE for it to meet its objectives set to be achieved.