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COVID-19 triggered economic losses since the first case was recorded in January 2020. The community quarantine measures imposed by the government severely disrupted business operations and commercial activities and led to a negative impact in our economic performance. For these reasons, the enactment of Corporate Recovery and Tax Incentives for Enterprises (CREATE) law this year was a welcome development.
CREATE law aims to provide relief to businesses adversely impacted by the pandemic, and reverse the effects of the COVID-19. Several government officials, business entrepreneurs, and stakeholders touted the measure as a well-crafted law.
CREATE law offers a three-tier structure of incentives to attract high-value and labor-intensive investments in the country. The determination on which incentives an entity can enjoy and the period of availment will depend on its registered project/ activity, location, and industry tier which will be defined in the Strategic Investment Priorities Plan (SIPP). Interestingly, the rule making power rests upon the Fiscal Incentives Review Board (FIRB) to ensure success of this incentive scheme.
One of the salient features of CREATE law is the expanded functions of FIRB. Prior to CREATE, the FIRB’s function was limited to the administration and grant of subsidies to Government-Owned and Controlled Corporations (GOCCs). With CREATE, FIRB is now granted vast power which include policy making and oversight function for the administration and grant of tax incentives, the approval and disapproval of the application for tax incentives or tax subsidies, the formulation of place-specific strategic investment plan, cancellation, suspension, and withdrawal of tax incentives and subsidies, among others. The most crucial of these powers are the formulation of the new SIPP which set out the countries’ list of priorities industries and the grant of the incentives.
Last June, the FIRB adopted already the SIPP drafted by the Department of Trade and Industry – Board of Investment. As envisaged, the framework include industries that are high-value and labor-intensive investments. Among the industries identified under the SIPP are electrical and electronics, chemical and pharmaceuticals, machinery and transport, agriculture and agribusiness, information technology-business process management, research and development, and artificial intelligence, automation, robotics, and digital technologies. As of date, the draft SIPP has yet to be approved by the President. The implementation of which is expected to begin in January 2022.
Pending the issuance of the new SIPP, FIRB issued Resolution 5-21 adopting the 2020 Investment Priorities Plan (IPP) as the transitional SIPP. Hence, list of priority sectors under the 2020 IPP are still eligible for incentives. To streamline the process of registration and application for availment of incentives, FIRB introduced the online Fiscal Incentives Registration and Monitoring System (FIRMS). Through this online portal, investors or enterprises can submit and monitor their applications for incentives in any of the investment promotion agencies.
With all these policies in place, we will expect a boost in investments, and economic recovery in the years to come. It must be emphasized, however, that the success still lies with the FIRB. Under CREATE, the FIRB is given the authority to grant tax incentives to registered business enterprises. It may only delegate its authority to investment promotion agencies for registered projects or activities with investment capital of one billion pesos (P1,000,000,000) and below.
It should be noted that the incentive scheme has its cost, that is, forgone revenue for the government. The Board should thus maximize the benefits from these tax incentives by granting the incentives to qualified target investors only. Otherwise, it will pose a burden to our economy.
To emphasize, the law was crafted not only to encourage investments but also to increase competitiveness of the country in the global market. The FIRB is tasked with the burden of streamlining an SIPP worthy of investors’ minimum investment capital of five hundred million pesos (P500,000,000.00) and more, which is required to enjoy the special corporate income tax of 5% (SCIT) of 10 years.
Presently, the board is composed of the Secretary of Finance, Secretary of Trade and Industry, Executive Secretary of the Office of the President, Secretary of Budget and Management, and Director General of the National Economic and Development Authority.
One notable aspect is that the board is composed of presidential appointees. We are uncertain if the present members of the FIRB will retain their posts after 2022 election. For now, we can only hope that the next set of members of the FIRB won’t be a rubberstamp for the new administration. Notwithstanding, this is a call to the FIRB to stay true to its mandate, and that is, to preserve the legacy of CREATE as a fiscal relief and economic recovery measure.
This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.
Princess Rexille V. Liboon is an Associate of the Tax Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).
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