Status and features of CITIRA/CREATE bill
Senen Quizon, Tax Principal, Navarro Amper & Co. (Deloitte Philippines)
02 December 2020
CITIRA/CREATE Bill
Status update and features
© 2020 Navarro Amper & Co.
1
CITIRA/CREATE bill
Legislative Status
HOUSE OF REPRESENTATIVES
•
10 September 2019 - House of Representatives approved House Bill No. 4157
SENATE OF THE PHILIPPINES
•
•
•
•
19
15
12
26
February 2020 – Sponsorship speech delivered by Sen. Pia Cayetano
September 2020 – Filed substituted bill (Committee Report No. 50 - SB 1357)
October 2020 – Interpellation closed and commenced period of amendments
November 2020 – Closed period of amendments, and approved on second and third reading
© 2020 Navarro Amper & Co.
CITIRA/CREATE bill
Legislative Status
WHAT TO EXPECT
BICAMERAL CONFERENCE COMMITTEE (?)
1. Bicameral conference committee shall be called to reconcile the difference in the Senate and House versions.
2. Approval ratification of the conference report by both Houses.
3. Enrolled bill will be printed, signed by the Speaker of the House and the Senate President, and send to the
President for signature.
4. President has 30 days from receipt to sign the bill. If the President does not sign a bill within 30 days from
receipt in his office, the bill becomes a law. A bill may also become a law without the President’s signature if
Congress overrides a presidential veto by two-thirds vote.
Senate designated Senators PIA S. CAYETANO, RALPH G. RECTO and FRANKLIN M. DRILON as conferees to the
Bicameral Conference Committee on the disagreeing provisions.
© 2020 Navarro Amper & Co.
2
Corporate income tax
and other tax reforms
© 2020 Navarro Amper & Co.
Corporate income tax reforms
Reduction in corporate income tax
• HB 4157 – staggered reduction by 1% every year, until it reached 20% in 2029
• CR NO. 50 - SB 1357 (Original Proposal) - Outright drop to 25% beginning July 2020, followed by 1%
point reduction beginning January 2023 until it becomes 20% CIT rate beginning January 2027
CITIRA (HB 4157)
35%
30%
25%
CREATE (SB 1357)
Total Assets
Not over P100,000,000
Taxable Income
Tax Rate
P5,000,000 and below
20%
Above P5,000,000
25%
20%
15%
10%
5%
Over P100,000,000
25%
0%
NOTE: The value of the land where the property plant and
equipment are situated shall not be included in the
determination of total assets.
© 2020 Navarro Amper & Co.
3
CITIRA/CREATE: Other salient features
Tax Reform Measure
House Bill No. 4157
Minimum Corporate Income Tax
(MCIT)
Tax on resident foreign corporations
(RFC) and nonresident foreign
corporations (NRFC)
None
Senate Version
Effective 01 July 2020 until 30 June 2023, the
MCIT shall be reduced from 2% to 1%
Staggered reduction by 1% every
year from 30% until it reached
20% in 2029
RFC – Effective 01 July 2020, subject to 25%
tax on net taxable income
NRFC – Effective 01 July 2020, subject to 25%
tax on gross income
None
Beginning 01 July 2020 until 30 June 2023, the
tax shall be reduced from 10% to 1%.
Tax on proprietary educational
institutions
Tax on Regional Operating
Headquarters
After two years from the
effectivity of CREATE, subject to
regular CIT
Tax on offshore banking units
Subjects OBUs to regular
corporate income tax (10%
preferential tax rate will be
removed)
10% shall continue up to 31 December 2021.
Subject to regular corporate income starting
from 01 January 2022. However, they may avail
of tax incentives under CREATE.
Same
© 2020 Navarro Amper & Co.
CITIRA/CREATE: Other salient features
Tax Reform Measure
Taxation of foreign sourced-dividends
House Bill No. 4157
None
Senate Version
Exempt from tax provided it is reinvested in
the business operations of domestic
corporation; limited to funding working
capital/infra project/investment in domestic
subsidiaries/dividend payments; and
domestic corporation holds directly at least
20% of the outstanding shares of the foreign
corporation and held shareholdings for a
minimum of two years from time of dividend
distribution.
Interest income derived by resident
foreign corporations from foreign
currency deposits
Increases the rate from 7.5% to
15%
Same
Gains on the sale of shares of
unlisted shares of stock by a resident
and nonresident foreign corporation
Replaces the two-tiered rates of
5% and 10% tax on the sale,
transfer, or exchange of shares of
stock by resident and nonresident
foreign corporations with a fixed
rate of 15%.
Same
Exemption from branch profit
remittance tax of PEZA enterprises
Subjects branch profit remittances
of PEZA enterprises to 15% tax
Same
© 2020 Navarro Amper & Co.
4
CITIRA/CREATE: Other salient features
Tax Reform Measure
House Bill No. 4157
Senate Version
Optional standard deduction
Limits the 40% OSD to individuals
and corporations classified as
MSME. OSD shall uniformly be
based on gross income.
None
Tax exemption of transactions under
Section 40(C)(2)
Adds in the definition of
reorganization considered not
subject to tax recapitalization and
reincorporation.
Same
Added: No prior BIR confirmation of tax ruling
shall be required to avail of exemption.
General Anti Avoidance Rules (GAAR)
Introduces GAAR under Section 50
None
Liquidating dividends
Liquidating dividends should be
considered as taxable income or as
deductible loss, as the case may be
None
© 2020 Navarro Amper & Co.
CITIRA/CREATE: Other salient features
Tax Reform Measure
House Bill No. 4157
Senate Version
Exemption from VAT of sale,
importation, printing or publication of
books and any newspaper, magazine,
review and bulletin
None
Includes journal and educational reading
materials covered by UNESCO Agreement and
importation of educational and cultural
materials including digital or electronic format.
VAT on sale or importation of
prescription drugs and medicines for
cancer, mental illness, tuberculosis,
and kidney diseases
None
VAT exemption beginning January 01, 2021
VAT on sale of real properties not
primarily held for sale to customers
or held for lease in the ordinary
course of business or real property
utilized for low-cost and socialized
housing.
Increases VAT exemption threshold:
3% percentage tax
Effective 01 July 2020 until 30 June 2023, the
rate shall be 1%.
Residential lot from P1.5M to P2.5M
House and Lot and other residential dwellings
from P2.5M to P4.2 M
© 2020 Navarro Amper & Co.
5
Making the right choice
8% or regular IT (P3M) under 3% PT
Regular Income Tax
8% Tax on Gross
Gross sales/receipts – P 3,000,000
Less:
(250,000)
Taxable sales/receipts - 2,750,000
Multiply: 8% tax
Tax due *
-
8%
220,000
* Tax due is in lieu of income tax
and percentage tax.
Effective tax rate –
(P220,000/P3M x 100%)
7.33%
Itemized Deductions
Gross sales/receipts – P 3,000,000
Less: Cost & Itemized
Deductions (80% of
gross sales/receipts) - (2,400,000)
Taxable sales/receipts –P
Income tax due
(P30,000 plus 25% of
Over P400,000) -
P
600,000
80,000
Percentage tax (PT)
(3% x P3M)
-
90,000
Total tax due
(PT + IT)
-
P 170,000
Effective tax rate –
(P170,000/P3M x 100%)
5.7%
Optional Standard Deduction
Gross sales/receipts – P 3,000,000
Less: 40% OSD
- (1,200,000)
Taxable sales/receipts – 1,800,000
Income tax (IT) due
(P130,000
Plus 30% of over
P800,000)
- P
430,000
Percentage tax (PT)
(3% x P3M)
-
90,000
Total tax due
(PT + IT)
-
P 520,000
Effective tax rate
(P520,000/P3M x 100%) – 17.33%
Making the right choice
8% or regular IT (P3M) under 1% PT
Regular Income Tax
8% Tax on Gross
Gross sales/receipts – P 3,000,000
Less:
(250,000)
Taxable sales/receipts - 2,750,000
Multiply: 8% tax
Tax due *
-
8%
220,000
* Tax due is in lieu of income tax
and percentage tax.
Effective tax rate –
(P220,000/P3M x 100%)
7.33%
Itemized Deductions
Gross sales/receipts – P 3,000,000
Less: Cost & Itemized
Deductions (80% of
gross sales/receipts) - (2,400,000)
Taxable sales/receipts –P
Income tax due
(P30,000 plus 25% of
Over P400,000) -
P
Gross sales/receipts – P 3,000,000
Less: 40% OSD
- (1,200,000)
Taxable sales/receipts – 1,800,000
600,000
Income tax (IT) due
(P130,000
Plus 30% of over
P800,000)
- P
80,000
Percentage tax (PT)
(3% x P3M)
-
30,000
Total tax due
(PT + IT)
-
P 460,000
Percentage tax (PT)
(1% x P3M)
-
30,000
Total tax due
(PT + IT)
-
P 120,000
Effective tax rate –
(P140,000/P3M x 100%)
Optional Standard Deduction
4.0%
430,000
Effective tax rate
(P460,000/P3M x 100%) – 17.33%
6
CITIRA/CREATE: Other salient features
Tax Reform Measure
Sale or importation of the following:
1. Capital equipment, its spare parts and raw
materials necessary for the production of personal
protective equipment components such as coveralls,
gown, surgical cap, surgical mask, N-95 mask, scrub
suits, goggles, and face shield, double or surgical
gloves, dedicated shoes, and shoe covers, for COVID19
House Bill No. 4157
None
Senate Version
VAT exemption starting 01 January
2021 to 31 December 31, 2023
2. All drugs vaccines and medical devices specifically
prescribed and directly used for the treatment of
COVID 19 registered with and approved by the FDA;
and
3. Drugs for the treatment of COVID 19 approved by
the FDA for use in clinical trials, including raw
materials directly necessary for the production of such
drugs.
© 2020 Navarro Amper & Co.
Transition period on tax
incentives
© 2020 Navarro Amper & Co.
7
Transitory rules for tax incentives
Registered business enterprises under income tax holiday (ITH)
HOUSE BILL NO. 4157
Continued availment of ITH for the
remaining period of ITH or period of
five years, whichever comes first.
SENATE VERSION
Continued availment of ITH until the
remaining period ends. If the firm has
not availed of the ITH yet, they may use
the ITH for the period specified by their
registration.
© 2020 Navarro Amper & Co.
Transitory rules for tax incentives
Existing registered business enterprises under 5% GIT
LATEST SENATE VERSION
House Bill No. 4157
Number of years
under GIT
Sunset
More than 10 years
2 years
5 to 10 years
3 years
Less than 5 years
5 years
10 years transition period
(Regardless of number of
years under 5% GIT)
Option to avail of incentives under SIPP:
Qualified existing enterprises may avail of incentives
under SIPP upon surrendering of their certificate of
registration.
•
After expiration of the transitory period, the
export enterprises registered prior to the
effectivity of the CREATE shall have the option to
reapply and avail of the tax incentives under
CREATE.
© 2020 Navarro Amper & Co.
8
Tax incentives under
CITIRA/CREATE
© 2020 Navarro Amper & Co.
Strategic Investment Priority Plan
(House Bill No. 4157 vs. Senate version)
SIPP CONTENT
House Bill No. 4157
Senate Bill No. 1357
1. Priority Projects/Activities under Philippine
Development Plan
• Substantial amount of investments
√
√
• Considerable generation of employment
√
√
• Adoption of adequate environmental
protection systems
√
√
• Addressing missing gaps in value chain
√
√
• Promotion of market competitiveness
√
√
• Export of at least 70% of products/services
from its registered activities
√
X
• Considerable amount of net exports
X
√
© 2020 Navarro Amper & Co.
9
Strategic Investment Priority Plan
(House Bill No. 4157 vs. Senate version)
SIPP CONTENT
House Bill No. 4157
Senate Version
2. Agribusiness activities in less developed areas or
those recovering from armed conflict and major
disaster
√
X
3. Determine services and activities that can spur
regional or global operations in the country
√
√
4. Include existing registered projects or activities
that shall relocate from Metro Manila to other
areas of the country.
√
X
5. Terms and conditions on the grant of enhanced
deductions including appropriate level of
percentage of deductions
X
√
© 2020 Navarro Amper & Co.
Senate version: Category of tax incentives
Category of tax incentives = location + industry tiers
LESS DEVELOPED
AREAS
AREAS OUTSIDE OF AND
CONTIGUOUS OR ADJACENT
TO NCR AND METROPOLITAN
AREAS
AREAS OUTSIDE OF
NATIONAL CAPITAL REGION
NCR AND OTHER
(NCR) AND OUTSIDE OF
METROPOLITAN AREAS THAT METROPOLITAN AREAS
ARE NOT LESS DEVELOPED
© 2020 Navarro Amper & Co.
10
Senate version: Category of tax incentives
Industry
TIER 2 shall include activities that produce supplies,
parts and components that are not locally produced
or manufactured but are critical to industrial
development and import-substituting activities
operating under highly-contestable markets.
TIER 1 shall include agriculture, fishing,
forestry, agribusiness activities and energy,
ecozone and Freeport zone development;
manufacturing of medical supplies,
devices and equipment, and construction
of healthcare facilities and infrastructure,
including manufacturing and service
industries that are emerging resulting
from innovation, upgrading or addressing
gaps in the supply and value chain, mass
housing, as well as infrastructure,
transportation, utilities and logistics that
are critical to the country’s
industrialization.
TIER 3 shall include research and
development, generation of new
knowledge and intellectual property
registered and/or licensed in the
Philippines highly technical
manufacturing and services activities
that indispensably requires the
employment of knowledge, modern
science, engineering, and research in
the process of production of goods,
resulting in demonstrably significant
value added and high-paying jobs.
© 2020 Navarro Amper & Co.
Senate version
Category and maximum availment period
Location + industry tiers
Location/ Industry Tiers
TIER I
TIER II
TIER III
NCR and other Metropolitan
areas
A (14)
B1 (15)
B2 (16)
Areas outside of and
contiguous or adjacent to NCR
and Metropolitan areas
B1 (15)
B2 (16)
C (17)
Areas outside of NCR and
outside of Metropolitan areas,
and all other areas not less
developed
B2 (16)
C (17)
C (17)
Less developed areas
C (17)
C (17)
C (17)
• Figures in parenthesis ( ) are the maximum number of years of availment of tax incentives.
© 2020 Navarro Amper & Co.
11
ROLE OF FISCAL INCENTIVES REVIEW BOARD (FIRB)
Fiscal Incentives Review Board (FIRB) – To approve or disapprove
the grant of tax incentives to the extent of the registered project or
activity upon the recommendation of the investment promotion
agencies (IPA).
Delegated authority
For investment capital of P1Billion and below, the approval or
disapproval of tax incentives shall be delegated by the FIRB to the
IPAs.
© 2020 Navarro Amper & Co.
House Bill No. 4157:
Tax incentives for qualified enterprises
SET A
(ITH + Reduced CIT)
• Income tax holiday (ITH) for a period of 3 to 6 years
NCR – up to 3 years
Laguna, Batangas, Cavite, Rizal – up to 4 years
All other areas – up to 6 years
•
Reduced CIT: 18% (2019) to be gradually lowered to
13% (2030) on taxable income after expiration of ITH
for 2 to 4 years
NCR – up to 2 years
Laguna, Batangas, Cavite, Rizal – up to 3 years
All other areas – up to 4 years
PLUS 3 years for:
o Investing in agribusiness
o Relocating from NCR or adjacent areas
o Areas recovering from armed conflict/major
disaster
SET B
(ITH + Enhanced Deductions)
• ITH for a period of 3 to 6 years
• Enhanced deductions for 2 to 4 years
NCR – up to 2 years
Laguna, Batangas, Cavite, Rizal – up to 3 years
All other areas – up to 4 years
o Depreciation allowance: 10% for buildings and 20% for
machineries and equipment
o 50% additional deduction on labor expense
o 100% additional deduction on research and development
o 100% additional deduction on trainings
o 100% additional deduction on infrastructure development
o 50% additional deduction for reinvestment allowance to
manufacturing enterprises
o Carry over of losses for 5 consecutive taxable year on losses
incurred for the first 3 years of operation
o 50% additional deduction on domestic input expense
© 2020 Navarro Amper & Co.
12
House Bill No. 4157:
Tax incentives for qualified enterprises
SET C
Enhanced Deductions (For industry-specific basis)
• Enhanced deductions for 2 to 4 years
o Depreciation allowance: 10% for buildings and 20% for
machineries and equipment
o 50% additional deduction on labor expense
o 100% additional deduction on research and
development
o 100% additional deduction on trainings
o 100% additional deduction on infrastructure
development
o 50% additional deduction for reinvestment allowance
to manufacturing enterprises
o Carry over of losses for 5 consecutive taxable year on
losses incurred for the first 3 years of operation
o 50% additional deduction on domestic input expense
CUSTOMS AND VAT EXEMPTION
• Customs duty exemption on imported capital equipment
and spare parts on equipment which are used directly and
exclusively on registered activity
• VAT exemptions on importations, including source
documents, and VAT zero-rating on domestic purchases of
capital equipment, and raw materials used in the
manufacturing and processing of products for registered
enterprises whose exports meet the 90% threshold
• Refund of VAT paid on importations of capital equipment
and raw materials of export registered enterprises with do
not meet the 90% export sales threshold
AVAILABLE TO ALL REGISTERED ENTERPRISES
© 2020 Navarro Amper & Co.
Senate version
Tax incentives for qualified enterprises
Export Oriented Activities or Projects
1. Income tax holiday (4-7 years)
2. 5% tax based on gross income or Enhanced
deductions under RCIT (10 years)
3. Duty exemption on importation of capital equipment,
raw materials, spare parts or accessories.
4. VAT exemption on importation and VAT zero-rating on
local purchases of goods and services directly and
exclusively used in the registered project or activity
by registered business enterprises located inside an
economic zone or Freeport.
Export enterprises as those registered under IPA
engaging in manufacturing, assembling or processing
activity and IT/BPO services resulting in direct
exportation of at least 70% of its total production or
output or sales of its product that will form part of the
final export product or services.
Domestic Oriented Activities or Projects
1. ITH (4 to 7 years)
2. Regular CIT under enhanced deductions (10 years)
• Depreciation allowance: additional 10% for buildings and
20% for machineries and equipment
• 50% additional deduction on labor expense
• 100% additional deduction on research and development
• 100% additional deduction on trainings
• 50% additional deduction for reinvestment allowance
• Carry over of losses for 5 consecutive taxable years on losses
incurred for the first 3 years of operation
• 50% additional deduction on domestic input expense
• 50% deduction on power expense
3. Duty exemption on importation of capital equipment, raw
materials, spare parts or accessories.
4. VAT exemption on importation and VAT zero-rating on local
purchases of goods and services directly and exclusively used
in the registered project or activity by registered business
enterprises located inside an ecozone or Freeport.
© 2020 Navarro Amper & Co.
13
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as
“Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL
member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte
organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should
consult a qualified professional adviser.
No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related
entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its
member firms, and their related entities, are legally separate and independent entities.
© 2020. For information, contact Deloitte Touche Tohmatsu Limited.
14