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Let's Talk Tax

Here comes CREATE

More than three years have passed since Republic Act No. 10963 (the TRAIN Law) or the first package of the government’s comprehensive tax reform program was enacted. Now, the second package of the comprehensive tax reform program is a step closer to becoming law.

Last week, the second package or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill was approved by the bicameral conference committee of the House of Representatives and the Senate. The final version of the CREATE Bill is now up for signing by the President. If signed, the CREATE Bill aims to improve the corporate tax system, rationalize the fiscal incentives system and provide support to businesses to aid them in their recovery from the pandemic.

Below are some of the key features of the bicam-approved CREATE Bill:


Starting July 1, 2020, the corporate income tax (CIT) rate will be reduced to 25% for domestic and resident foreign corporations. Domestic corporations with net taxable income not exceeding P5,000,000 and with total assets not exceeding P100 million will be subject to an even lower CIT rate of 20%. Moreover, the minimum corporate income tax rate will be lowered to 1% between July 1, 2020 and June 30, 2023.

Once the CREATE Bill becomes a law, taxpayers will have to consider the above reduced rates  in their annual tax computation specially for those income tax returns that are due this April 15, 2021.

For non-resident foreign corporations that derive income within the Philippines, the CIT rate will also be at 25% based on gross income, and this rate will be used starting Jan. 1, 2021.


Non-profit proprietary educational institutions and hospitals which are non-profit are to be taxed at a much lower rate of 1% for the period beginning July 1, 2020 until June 30, 2023, and then, the rate will revert to 10%. However, the preferential rates or exemption for offshore banking units and Regional Operating Headquarters are being proposed for eventual repeal.


Under CREATE, the sale and importation of COVID-19 vaccines, medicine and medical devices prescribed and directly used for the treatment of COVID-19 and capital equipment, spare parts and raw materials necessary to produce personal protective equipment component will be exempt from VAT starting Jan. 1, 2021 until Dec. 31, 2023. The sale or import of prescription drugs and medicine for cancer, mental illness, tuberculosis, and kidney diseases will likewise be exempt from VAT starting Jan. 1, 2021.

Small businesses that are exempt from VAT are subject to percentage tax at the rate of 1% instead of 3% for the period between July 1, 2020 and June 30, 2023.


Under CREATE, incentives to be granted by the government to businesses will be rationalized to become more performance-based, targeted, time-bound, and fully transparent. Hopefully, this will encourage investors to invest in industries that are crucial to the country’s economic development, attract a new wave of foreign investment, and create more jobs.

The Fiscal Incentives Review Board (FIRB) or the investment promotion agencies (IPAs), under a delegated authority from the FIRB, are authorized to grant incentives to the extent of the approved registered project or activity under a Strategic Investment Priority Plan (SIPP).

Qualified registered enterprises under CREATE will be entitled to an income tax holiday (ITH) followed by either a Special Corporate Income Tax (SCIT) of 5% based on gross income earned, in lieu of all taxes, or regular CIT but with enhanced deductions. One notable change in the bicam-approved version from the previous versions of the bill is the requirement for domestic enterprises to have at least P500 million in investment capital in order for it to avail of the SCIT.

The period of availment of incentives will be limited to period of 14 to 17 years for export and critical domestic enterprises and 9 to 12 years for non-critical domestic enterprises, depending on the location and industry priorities. Registered enterprises that fully relocate from the National Capital Region during the duration of their incentives will be entitled to an additional three years of ITH. Also, registered enterprises that locate in areas recovering from armed conflict or major disasters will be entitled to an additional two years of ITH.

Businesses currently enjoying incentives under the existing laws governing their respective IPAs will still be allowed to enjoy existing incentives for a certain period. After expiration of the transitory period, existing registered export enterprises will have the option to reapply and avail of the incentives provided under CREATE and may still be extended for a certain period not exceeding ten years at any one time subject to the qualifications under the SIPP and performance review by the FIRB.

Indeed, the long wait may finally soon be over for CREATE once it becomes law. Here’s to hoping that it’s all worth it!

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

John Paulo D. Garcia is a manager of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.


As published in BusinessWorld, dated 09 February 2021