8.

Provision granting the President the power to Copy of the digest and full text of the said Revenue
exempt any Investment Promotion Agency (IPA) from Regulations are posted in the BIR Website
the reform – Could become a highly political tool. (www.bir.gov.ph) under the CREATE section.
9. Automatic approval of applications for incentives –
The FIRB or the IPA should be allowed to carefully
review the application for tax incentives since these
are privileges granted by the State.
Corporate
Revenue Regulations Recovery
Following the passage into law of the CREATE Act, the
BIR has issued four (4) Revenue Regulations (RRs) on AND Tax
April 8, 2021 to implement the tax provisions of the law.
Said regulations are the following: Incentives FOR
» RR No. 2-2021 - amends certain provisions of RR No. Scan the QR code to view Enterprises
Act
2-98, as amended, to implement the amendments the PDF file of the flyer or access
www.bir.gov.ph
introduced by RA No. 11534 (CREATE Act) to the NIRC
of 1997, as amended, relative to the Final Tax on For queries/clarifications on the CREATE Act
certain passive income and its implementing Revenue Regulations,
you may e-mail
» RR No. 3-2021 - prescribes the Rules and create@bir.gov.ph
Regulations to implement Section 3 of RA No. 11534
(CREATE Act), amending Section 20 of the NIRC of
1997, as amended SAMA-SAMA SA HAMON NG PANAHAON: (PER REPUBLIC ACT NO. 11534)
BUWIS KO, PARA SA PILIPINO.
» RR No. 4-2021 - implements the provisions on
REPUBLIC OF THE PHILIPPINES
Value-Added Tax (VAT) and Percentage Tax under RA
BUREAU of INTERNAL REVENUE
No. 11534 (CREATE Act), which further amended the
birgovph +birgovphl
NIRC of 1997, as amended, as implemented by RR
No. 16-2005, as amended
» RR No. 5-2021 - implements the new Income Tax
rates on the regular income of corporations, on
certain passive incomes, including additional
allowable deductions from gross income of persons
engaged in business or practice of profession
pursuant to RA No. 11534 (CREATE Act), which further
amended the NIRC of 1997
Background
On March 26, 2021, President Rodrigo R. Duterte
signed into law Republic Act No. 11534, otherwise
known as the “Corporate Recovery and Tax Incentives
for Enterprises” or CREATE Act.
The CREATE Act is the second package of the
Comprehensive Tax Reform Program that reduces
Income Tax rates from 30% to 25% for corporate
taxpayers in general, and to 20% for other corporate
taxpayers, subject to certain qualifications, effective
July 1, 2020.
The Act also provides other tax relief measures that will
help businesses recover from the effects of the
COVID-19 pandemic as well as measures that will
rationalize the grant of fiscal incentives to targeted
investors.
The CREATE Act took effect on April 11, 2021, fifteen
(15) days after its complete publication on March 26,
2021 in the Official Gazette or in a newspaper of
general circulation.
Salient Features of CREATE Act
1. Effective July 1, 2020, corporate Income Tax rate is
reduced from 30% to 20% for domestic corporations
with net taxable income not exceeding ₱ 5 Million
and with total assets not exceeding ₱ 100 Million. All
other domestic corporations and resident foreign
corporations will be subject to 25% Income Tax.
2. Effective January 1, 2021, Income Tax rate for
non-resident foreign corporation is reduced from
30% to 25%.
3. Minimum Corporate Income Tax (MCIT) rate is
reduced from 2% to 1% effective July 1, 2020 to June
30, 2023.
4. Percentage Tax is reduced from 3% to 1 % effective
July 1, 2020 to June 30, 2023
5. Rate of proprietary educational institutions and
hospital is reduced from 10% to 1% effective July 1,
2020 to June 30, 2023
6. Imposition of Improperly Accumulated Earnings Tax
(IAET) is repealed
7. Definition of “reorganization”, for purposes of
applying the tax free exchange provision under
Section 40(C)(2), is expanded. Prior BIR ruling or
confirmation shall not be required for purposes of
availing the tax exemption of the exchange.
8. Qualified export enterprises shall be entitled to 4 to
7 years Income Tax Holiday (ITH) to be followed by
10 years 5% Special Corporate Income Tax (SCIT)
OR Enhanced Deductions.
9. Qualified domestic market enterprises shall be
entitled to 4 to 7 years ITH to be followed by 5 years
Enhanced Deductions.
10. Registered enterprises are exempt from customs
duty on importation of capital equipment, raw
materials, spare parts, or accessories directly and
exclusively used in the registered project or activity.
11. VAT exemption on importation and VAT zero-rating
on local purchases shall only apply to goods and
services directly and exclusively used in the
registered project or activity by a Registered
Business Enterprise (RBE).
12. For investments prior to effectivity of CREATE -
RBEs granted only an ITH shall continue with the
availment of the ITH for the remaining period of the
ITH while RBEs granted an ITH + 5% Gross Income
Tax (GIT) or currently enjoying 5% GIT shall be
allowed to avail of the 5% GIT for 10 years.
Items Vetoed by President Duterte
1. Increasing VAT-exempt threshold on sale of
residential lot from ₱ 1.5 Million to ₱ 2.5 Million and
house and lot from ₱ 2.5 Million to ₱ 4.2 Million. –
The tax exemption is highly distorting and prone to
abuse.
2. 90-day period for the processing of general tax
refunds – May cause damage or more delays to the
prejudice of taxpayers. Legislature, DOF and BIR to
come up with mechanism to streamline the
processing of tax refunds in a separate bill.
3. Definition of “investment capital” to exclude land and
working capital – May lead to an underestimation of
investment promotion performance.
4. Redundant incentives for domestic corporations –
The Special Corporate Income Tax (SCIT) for
domestic enterprise, which is in lieu of all local and
national taxes, is redundant, unnecessary, and
weakens the fiscal incentives system.
5. Allowing existing registered activities to apply for
further extensions of new incentives for the same
activity
6. Limitations on the power of the Fiscal Incentives
Review Board (FIRB) – The oversight functions of the
FlRB will ensure the proper grant and monitoring of
tax incentives. These powers must remain plenary
over those of the Investment Promotion Agencies.
7. Specific industries mentioned under activity tiers
– The CREATE Act must be kept flexible to be
able to keep up with the
changing times.