Interview: Protacio T Tacandong
To what extent will the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill facilitate economic recovery from the Covid-19 pandemic?
PROTACIO T TACANDONG: It originally intended to provide incentives to qualified investors who contribute to job generation; however, subsequent amendments provided businesses relief. Notably, the bill will help micro-, small and medium-sized enterprises, which comprise a substantial portion of the economy. Under the version passed by the Senate in November 2020, corporate income tax (CIT) will be reduced from 30% to 25% effective July 1, 2020. For domestic corporations with total assets not exceeding P100m ($2m) – excluding the land on which the business entity’s office, plant and equipment are situated – and total net taxable income below P5m ($99,400), the CIT will be immediately reduced to 20%. The CREATE bill provides other measures of relief, such as lowering the minimum CIT rate from 2% to 1%, repealing the provision on the improperly accumulated earnings tax and dropping the percentage tax from 3% to 1%. Additionally, medicines, vaccines and medical equipment specifically prescribed for the treatment of Covid-19 will be exempt from value-added tax (VAT).
How do you assess the effectiveness of digital Bureau of Internal Revenue (BIR) platforms in enabling taxpayers to meet regulatory requirements?
TACANDONG: Social-distancing protocols led to an uptick in the use of the Electronic Filing and Payment System, through which taxpayers can file their tax returns online, as well as that of online payment gateways. The BIR also allowed companies to file their audited financial statements through the Electronic Filing of Audited Financial Statements System.
In compliance with the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, the BIR streamlined some of its procedures and processes. It can be expected that additional online platforms will be launched to simplify registration. Online processes not only quicken the turnaround of government approvals, but also meet social-distancing measures.
In what ways will digitalisation pose a challenge to taxation, and what progress has been made in terms of tax regulations for digital transactions?
TACANDONG: The rise of the digital economy and advancements in technology pose a challenge to tax authorities’ ability to consistently apply the situs of income rules. House Bill No. 6765, or the Digital Economy Taxation Act, was filed during the pandemic to address this problem. The law would impose a 12% VAT on digital transactions such as advertising, subscription-based services and those rendered electronically, as well as e-commerce transactions. The bill also requires suppliers of digital services, network orchestrators and e-commerce platforms to establish a resident agent or a representative office in the Philippines. It is similar to laws in other countries and effectively places the tax obligation on the online platform. While this bill was pending before the legislature as of early December 2020, the government released advisories and circulars reminding businesses engaged in digital transactions to register with the BIR.
What are the implications for taxpayers of the government’s decision to finance much of the Covid-19 response and recovery through new debt?
TACANDONG: Provided that the additional debt accrued to finance the pandemic response is managed effectively, taxpayers will directly benefit from social services and infrastructure development, namely health facilities and testing centres. This should encourage consumer spending and kick-start the economy. However, in the medium term, such debt may cause the government to forego projects not directly related to the pandemic, even if they are equally important. In the long term, however, an improved credit rating will be beneficial in securing financing from external sources.