CREATE Act (Formerly TRABAHO/TRAIN Law Package 2)

What to Know About the CREATE Act (formerly known as the proposed TRABAHO/TRAIN Law)?

1. Decrease corporate income tax
2. Regulate fiscal incentives
3. Attract better and high-quality opportunities

Since the first package of the previous administration’s Comprehensive Tax Reform Program (CTRP) was passed into law. The Tax Reform for Acceleration and Inclusion (TRAIN) Law was signed into Republic Act No. 10963 on December 19, 2017. These changes in tax laws prompted a lot of people to use a tax calculator in the Philippines to keep their records straight and accurate. 

This proposed TRABAHO Act/TRAIN Law Package 2 was later revised and evolved into CREATE Act which currently governs corporate income taxation and fiscal incentives in the Philippines. Corporate Recovery and Tax Incentives for Enterprises Act or Republic Act No. 11534 was passed into law on March 26, 2021 and was also signed by the former president Rodrigo Roa Duterte.

Now that it has taken effect, these changes are currently being implemented. Let’s take a look.

 

Decrease Corporate Income Tax

Businesses are the main beneficiaries of the CREATE Act, which reduces the corporate income tax (CIT). As the name suggests, corporate income tax is a direct tax imposed on the income of corporations or legal entities.

The Philippines used to have a 30% CIT, highest in Southeast Asia. With a large gap, compared to Singapore’s lowest CIT at 17%. CREATE Act reduced the country’s CIT rate to 25% for Regular corporate income tax rate and 20% for corporations with; Net taxable income not more than PHP 5 million, total assets not over PHP 100 million (excluding land). These are the efforts made to at least keep pace with neighboring and international countries.

Among the many features of the CREATE Act, this has drawn the least debate since it reduces the tax burden to corporations, paying less in taxes. 

 

Regulate Fiscal Incentives

One of the most controversial features of this act is the regulation of fiscal incentives. Perks are allowed to entities to reduce their tax dues. Although mostly beneficial, the problem with these incentives is that it gives special treatment to few corporations.

As per the estimates of the Department of Finance (DOF), P301-billion worth of taxes were foregone in the year 2015. Only the 1% of businesses registered with the BIR in the same year accounted for these hefty incentives.

Figuratively, giving these incentives to all corporations might bring economic trade-offs, including less government funding for projects that improve livelihoods.

Many are objecting this specific feature of the bill because they believe that the government is abolishing these incentives. But the truth is that it only aims to regulate them, setting stricter requirements. Once the changes have gone through, only good corporations can gain these well-deserved rewards.

 

Attract Better and High-Quality Opportunities

The CREATE Act was signed into law to attract better and high-quality opportunities. It focuses on attracting foreign investors and creating more jobs for the people.

Since the act reduced the corporate income tax rate, it will make the Philippines an attractive spot for business, to be more appealing to foreign investors given that less capital is needed to create businesses. They’d also be able to allocate more funds to ensure their employees are happy and satisfied, something that is often neglected in the world of business.

As for the regulation of fiscal incentives, it will push corporations to work for the betterment of all and not just for their own profit. If they follow through, they will receive perks that will save them more money!

 

Key Takeaway

The Comprehensive Tax Reform Program (CTRP) aims to create a “simpler, fairer, and more efficient tax system (that) supports investment, job creation, and inclusive growth.” What was originally proposed as TRAIN Package 2 or the TRABAHO Act has since been enacted as the CREATE Act, which now governs corporate income taxation and fiscal incentives in the Philippines.

In the end, these tax changes may be a little difficult to comprehend and may make filing taxes harder. Thankfully, you can use tools such as a tax calculator in the Philippines to make the process easier.