On 26 March 2021, President Rodrigo R. Duterte signed Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act ("CREATE") into law. CREATE aims to provide fiscal relief and serve as a recovery measure for Filipino businesses which are still reeling from the impact of the COVID-19 pandemic. The law has reduced corporate income tax rates in the Philippines, which have been considered as one of the highest in the Association of Southeast Asian Nations ("ASEAN") region.
Domestic and foreign corporations will now pay an income tax rate of 25% of their net taxable income, compared to the previous 30% rate. However, for domestic corporations whose net taxable income does not exceed PHP 5 million and whose total assets do not exceed PHP 100 million, the income tax rate is 20%. Beginning 1 July 2020 until 30 June 2023, proprietary educational institutions shall pay at a rate of 1% of their net taxable income. For those opting to pay the Minimum Corporate Income Tax ("MCIT"), the MCIT rate shall be 1% from 1 July 2020 until 30 June 2023.
Another focal point of the law is to increase the competitiveness of the Philippines in knowledge-based industries to recover from the country's slumping innovation performance. Section 294 (C)(3) of CREATE provides an incentive by way of an additional 100% deduction on research and development expenses incurred within the taxable year. Through this incentive, the government hopes to attain breakthroughs in science and health, create high-paying jobs, usher in a generation of new knowledge and intellectual property registered and/or licensed in the Philippines, as well as a commercialisation of patents, industrial designs, copyrights, and utility models owned or co-owned by a registered business enterprise.
With CREATE, the Philippine government will be able to strengthen its partnership with India to put up science and technology joint ventures following the signing of three Memoranda of Understanding between Batangas State University and several Indian companies. Through this partnership, the government sees the possibility of the Philippines becoming India's ASEAN startup regional base.
However, President Duterte exercised his line-item veto power over nine provisions of the CREATE bill. The President disallowed the move to increase the threshold for value-added tax-exempt sales of real property from PHP 2.5 million to PHP 4.2 million. Another vetoed provision was on granting the Chief Executive the power to exempt any Investment Promotion Agency from complying with the provisions of the new law as this could become a highly political tool. President Duterte likewise vetoed the automatic approval of applications for incentives to ensure that the applications would be based on merit and presentation of empirical evidence. The President noted that it would be fiscally irresponsible to enact redundant incentives and to allow existing registered activities to apply for new incentives for the same activity.
