Create likely to raise GDP by up to 1%
The newly signed Corporate Recovery and Tax Incentives for Enterprises or Create Act is likely to boost the country’s gross domestic product (GDP) by up to 1 percent of per year, according to an analyst.
In a comment released over the weekend, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said the Create Act “is groomed as the country’s biggest stimulus measure that would help improve economic recovery prospects and would help boost GDP growth by about 0.5 to 1 percent per year…”
He added the law will somewhat cushion the drag on the economy of the tighter quarantine restrictions implemented since last week.
The recent surge in the daily coronavirus disease 2019 infections since the middle of March prompted the national government to place the National Capital Region and the adjacent provinces of Bulacan, Cavite, Laguna and Rizal under a one-week enhanced community quarantine from March 29 to April 4, and extend it until April 11, 2020.
Ricafort also said the law’s positive economic impact includes multiplier effects such as corporate income tax rates; greater certainty on investment incentives; increased local and foreign investments; and more business activities, among others.
Create Act seeks to immediately cut the country’s corporate income tax (CIT) rate from 30 percent to 20 percent for local businesses with a net taxable income of P5 million and below and total assets (excluding land) of up to P100 million.
Other businesses will see their CIT lowered to 25 percent. The law also modernizes fiscal incentives by making them performance-based, targeted, time-bound and transparent.
The RCBC economist added Create would help in attrition measures, at least save jobs, especially for hard-hit businesses; spur more investments, particularly for businesses with deeper pockets; create more employment; and stimulate other economic activities.
“Lower corporate income taxes to help attract more local and foreign investments, especially foreign direct investments; as the country’s corporate income tax rates are reduced and become better aligned with other Asean/Asian countries (average of about 22 percent for Southeast Asian countries),” he said.
Asean is the Association of Southeast Asian Nations.
The law also provides greater certainty on investment incentives to make foreign investors more decisive to invest in the country, Ricafort added.
“Foregone/reduced tax revenue collections would also result to wider budget deficits, with effects similar to deficit spending, though could be offset by any resulting increase in business/economic activities that also entail more tax revenue collections and higher tax base for the country,” he further said.