By AYIN DREAM D. APLASCA
THEY say studying taxation law is “taxing.” It is more taxing when you pay your taxes. Nevertheless, we have the obligation to pay because tax is the lifeblood of the government.
In the case of National Power Corporation vs City of Cabanatuan, the Supreme Court states that: “Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.”
Paying taxes may be a burden to almost everyone. Hence, the government came up with a strategic plan to minimize taxes and help taxpayers benefit from this by generating higher profits.
I am referring to the new law which introduces reforms to the corporate income tax and incentive systems – Republic Act (RA) 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE).
The purpose of the implementation, based on Section 2 of the said law, is to attract investments which will result in productivity enhancement, employment generation, countrywide development, and a more inclusive economic growth, while at the same time maintaining fiscal prudence and stability.
One of the key features of the law is it cuts the corporate income tax rate from 30 percent to 25 percent. This is effective on July 1, 2020. It means that the law is retroactive.
This is applicable to corporations which have net taxable income of not exceeding P5 million and with total assets not exceeding P100 million. It does not include land on which the particular business entity’s office, plan, and equipment are situated during the taxable year for which the tax is imposed.
The law provides that the corporate income tax rate shall be applied on the amount computed by multiplying the number of months covered by the new rate within the fiscal year by the taxable income of the corporation for the period, divided by 12.
The minimum corporate income tax is not suspended but only reduced to two percent of the gross income as of the end of the taxable year and is imposed on the entitled taxable corporation beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. It means that it will start on July 1, 2020 and end on June 30, 2023.
In the said law, the provision on the availment of tax incentives by existing registered business enterprises was removed. Accordingly, it was vetoed by President Duterte since the extension of incentives for existing projects is unfair to ordinary taxpayers or enterprises which do not enjoy this incentive and further, only new activities and projects deserve fresh incentives.
Still, the income tax holiday is undisturbed. The five percent gross income tax can only be availed for the next 10 years after the income tax holiday. But when an enterprise is already enjoying the five percent regime, it can still avail itself of the income tax holiday for the next 10 years from the effectivity of the law.
Our economy has been hit hard by the pandemic. And the CREATE Law can be said as the recovery package of what was lost. It reduces the financial burden on foreign and domestic companies through various tax incentives.
The reform is the response of the government towards the needs of businesses in this challenging time. The reform in the national tax or revenue system addresses the need to maintain and attract investors even during the pandemic./PN
