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Line Of Sight

Is CREATE better or worse for the economy?

THE LONG wait is over. The signing into law of the Corporate Recovery and Tax Incentives for Enterprises or the CREATE Bill came a day earlier. On March 26, 2021, the President signed the legislative measure into law, although with nine vetoed line-items.

What are these vetoed items?

  • Sec. 109(P) - Increasing the Value Added Tax (VAT)-exempt threshold on sale of real property
    • CREATE Law: 
      • Sale of residential lots valued at P2,500,000 and below and house and lot and other residential dwellings valued at P4,200,000 and below shall be VAT-exempt; Provided that beginning January 1, 2024 and every three years thereafter, the amounts herein stated shall be adjusted to represent values using the consumer price index as published by the Philippine Statistics Authority.
    • Rationale of Veto:
      • VAT exemption on housing shall generally be given to buyers of socialized housing. Increasing the threshold will benefit those who can easily afford proper housing and will be an avenue for abuse.
  • Sec. 204 - 90-day period for the processing of general tax refunds
    • CREATE Law:
      • Claims for tax credit or refund shall be granted by the Commissioner within 90 days from date of complete submission of documents in support of the application filed, provided that full or partial denial of claim for tax refund must be appealed with the Court of Tax Appeals within 30 days.
    • Rationale of Veto:
      • Tax refunds require full audit of all internal revenue tax liabilities unlike VAT refunds. As such, the 90-day period is not feasible given that complete examination of the books and tax returns of a taxpayer requires material time. A shortened period would lead to delayed or erroneous processing of tax refunds. A better alternative would be to streamline the process of tax refunds
  • Sec. 293(g) - Definition of investment capital
    • CREATE Law:
      • Investment capital refers to the value of an investment indicated in Philippine currency, excluding the value of land and working capital, that shall be used to carry out a registered project or activity, except that land shall be included as investment capital for registered real estate development. Investment capital may include the cost of land improvements, buildings, leasehold improvements, machinery and equipment, and other non-current tangible assets.
    • Rationale of Veto:
      • The current measures used by the investment promotion agencies (IPAs) in determining investment capital will be retained. Exclusion of land and operating expenses may lead to undervaluation of capital and underestimation of investment performance.
  • Sec. 294(B) and (C), 296 (A) and (B) - Redundant activities for domestic enterprises
    • CREATE Law:
      • Domestic market enterprises with minimum investment capital of 500 million pesos and domestic market enterprises under the Strategic Priority Plan engaged in activities that are classified as “critical” can avail of the special corporate income tax on gross receipts in lieu of all national taxes and additional enhanced deductions under Section 294 of the Act.
    • Rationale of Veto:
      • Given that domestic market enterprises sell goods and services to markets with viable demand, performance-based enhanced deductions to domestic activities in priority industries, after the expiration of income tax holiday, are deemed sufficient incentives, and the special corporate income tax rate for domestic market enterprises, in lieu of all local and national taxes is redundant and unnecessary.
  • Sec. 296 (A) and (B) - Allowing existing registered activities to apply for new incentives for the same activity
    • CREATE Law:
      • Registered business enterprises may qualify to avail of a new set of incentives and the period of availment granted under Sections 294 and 296 of this Act. Provided, that existing registered projects or activities prior to the effectivity of this Act may qualify to register and avail of the incentives granted under this Act for the prescribed period subject to the criteria and conditions set forth in the Strategic Investment Priority Plan (SIPP) …and may still be extended for a certain period not exceeding 10 years at any one time.
    • Rationale of Veto:
      • Registered business enterprises must engage in new activities and projects to be granted incentives. Granting a maximum of additional 27 years for the same activity is deemed unfair and subject to abuse.
  • Sec. 296 (B) - Specific industries mentioned under activity tiers
    • CREATE Law:
      • These activities shall include agriculture, fishing, forestry, and agribusiness activities, including handicrafts intended for export, and energy; ecozone and freeport zone development; manufacturing of medical supplies, devices and equipment, and construction of healthcare facilities; facilities for environmentally-sustainable disposal of waste; infrastructure; manufacturing and service industries that are emerging resulting from innovation, upgrading, or addressing gaps in the supply and value chain; mass housing, as well as infrastructure, transportation, utilities, logistics, and support services; the provision of cybersecurity services; and planned developments that use technologies and digital solutions that are critical to the country’s development.
        These activities shall include agriculture, fishing, forestry, agribusiness, and other activities and services that indispensably require the employment of knowledge processing, modern science; data analytics; creative content; engineering; state of the art technologies; technologies that are available in other countries but are not yet available or widely used in the Philippines; and research and development in the process of production of goods and services, resulting in demonstrably significant value-added, productivity, efficiency, breakthroughs in science and health, and high-paying jobs and manufacturing of FDA-approved investigational drugs, medicines and medical devices. 
    • Rationale of Veto:
      • The CREATE Law must be flexible to incentivize relevant industries at a given time. The enumeration of specific projects and activities can be laid out in a separate list such as the SIPP, which must be regularly reviewed.
  • Sec. 297 (A) (1) and (5), (E), (G), (H), and (K) - Limitations on the power of Fiscal Incentives Review Board (FIRB)
    • CREATE Law:
      • The functions of the FIRB shall be exercised in relation to the grant of tax incentives to registered projects or activities with total investment capital of more than P1,000,000,000.
    • Rationale of Veto:
      • The foremost function of the FIRB is to be the oversight and policy-making body in analyzing and crafting sustainable and fiscally sound incentive policies. Regardless of the amount of investment capital, the FIRB does not create another layer in the approval process; rather, it is responsible for checking whether the incentives granted by the IPAs conform to the overarching objective to maintain an incentive system that is performance-based, targeted, time-bound, and transparent.
  • Sec. 297 (B) - Automatic approval of applications for incentives
    • CREATE Law:
      • Provided, finally that the application for tax incentives shall be deemed approved if not acted upon within 20 days from the date of submission of the application and complete relevant supporting documents to the fiscal incentives review board or the IPA, as the case may be.
    • Rationale of Veto:
      • With the objective to develop and maintain a performance-based tax incentives system, it is crucial that investment promotion agencies be given the opportunity to carefully review the merits of the application. Any penalty or punishment arising from the delay or inaction by the IPA will be addressed under the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.
  • Sec. 301 - Provision granting the President the power to exempt any IPA from the reform 
    • CREATE Law:
      • The President may, upon the request of an IPA, exempt the latter from the coverage of the provisions of this Code with respect to the review and approval of applications for incentives, or modify the policy on thresholds for FIRB approvals, should any of the following conditions exist:

a.When an incentives system provided herein causes a significant demonstrable, and attributable damage to the performance of an IPA; 

b. When it is reasonably evident that the incentives granted are no longer adequate, necessary, or  appropriate;

c. When there is a need to modify incentive privileges in the light of technological, economic, and social changes; or

d. When there is a need to redesign the tax incentive schemes to obviate unemployment and avoid economic and social dislocation.

Provided, that the abovementioned request is approved by a majority vote of its governing board: 

Provided, further, that such request is supported by a cost-benefit analysis reviewed by the FIRB, and other quantitative and qualitative evidence demonstrating the IPA’s performance. Provided, finally, that the IPA shall abide by the incentives regime provided herein. 

    • Rationale of Veto:
      • To uphold the spirit of the law towards fair and rationalized fiscal incentives, the CREATE Law should not be an avenue to push any political agenda over economic reform.

Interestingly, the Action for Economic Reforms released a statement last February 3, 2021, highlighting the three items for veto. Out of the three suggested points, only the provision on exemption from taxes and duties for local petroleum refineries was not vetoed.

Nevertheless, as a whole, the CREATE Law’s benefits far outweigh the costs, with the reduction of income tax rate from 30% to 25% for large corporations and 20% for small and medium enterprises, and the rationalization of incentives at the forefront. As we wait for more detailed guidelines through the Implementing Rules and Regulations, it is clear that the CREATE Law, though far from perfect, has sparked hope for an improved economy and is set to open avenues for recovery and growth.

Kristel Avenido is a Tax Associate II of the Tax Advisory and Compliance Division, Davao Branch of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines with 23 Partners and more than 900 staff members. We’d like to hear from you! Tweet us: @GrantThorntonPH, like us on Facebook: P&A Grant Thornton, and email your comments to or For more information, visit our website:


As published in Mindanao Times, dated 23 April 2021