Philippines cuts corporate tax, adds perks to win investment
By Andreo Calonzo and Ditas Lopez
(Bloomberg) — Philippine President Ferdinand Marcos Jr. on Monday (11 Nov) signed a law that lowers corporate income taxes and boosts incentives for businesses, in a bid to spur more investment into one of Asia’s fastest-growing economies.
The Corporate Recovery and Tax Incentives for Enterprises to Maximise Opportunities for Reinvigorating the Economy, or CREATE MORE Act, reduces the corporate income tax rate for businesses registered with investment agencies to 20 per cent from 25 per cent. It also grants a 100 per cent additional deduction on power expenses of these enterprises and extends the maximum duration of tax incentives by another 10 years to 27 years.
“We have taken a decisive step towards our vision of a globally competitive and investment-led Philippine economy,” Marcos said. “Despite our potential, we recognise the challenging road that still lies ahead.”
Implementing the new law will lead to revenue losses totalling 5.9 billion pesos (US$101 million) from 2025 to 2028, according to Marcos’ communications office.
While the measure could result in a lower tax take, it brings the nation’s corporate income tax rate closer to those of its neighbours in Southeast Asia, according to Mike Ricafort, chief economist at Rizal Commercial Banking Corp. “It fine-tunes some loose ends and hopefully could make investors more decisive in investing in the country,” Ricafort said.
Prior to the new legislation, the Philippines had the highest corporate tax rate among Southeast Asia’s six major economies, according to a Senate study in August.
The push to attract more investments comes after the Philippine economy grew less than market expectations in the third quarter as a series of storms hit output. While the 5.2 per cent expansion outpaced other economies in the region, the Philippines needs to perform better in the current quarter to meet Marcos’ goal of at least 6 per cent growth for all of 2024.
The new law amends a measure enacted in 2021 to make the country’s tax incentives regime more globally competitive and predictable. It also streamlines the processing of value-added tax refund claims.
Other key provisions in the CREATE MORE Act include:
Simplifying local taxation by imposing a local tax on registered business enterprises in lieu of all other taxes, fees and charges
Allowing registered businesses to implement work-from-home arrangements for up to half of the workforce without jeopardising their eligibility for incentives
Raising the capital approval threshold of investment promotion agencies such as the Philippine Economic Zone Authority and Board of Investments to 15 billion pesos from 1 billion pesos previously; projects exceeding this amount will be reviewed by the Fiscal Incentives Review Board
With the latest measure plus interest rate cuts, “we probably can double FDI into the Philippines,” Finance Secretary Ralph Recto said in a mobile-phone message. Net foreign direct investment inflows reached US$6.1 billion in January-August, up 3.9 per cent from a year ago, according to the latest central bank data on Monday.
Recto allayed concerns that the new tax law could impact the government’s revenue.
“These are all prospective. So we don’t lose revenues we are collecting today,” he said. “Hopefully, CREATE MORE will attract more investments and create jobs. By doing so, we will collect additional revenues.”
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