Transcript of Sen. Pia Cayetano's responses to the interpellation of Sen. Sonny Angara on the CREATE Bill

Sen. Angara commends Sen. Pia for moving the tax measure forward

Sen. Pia: Mr. President, if I could just respond with an analogy. It's like a relay. I just happen to be the last man, not because I am stronger than anyone else. It's just by matter of timing, I am the one who happens to be the chair at this time after it's gone through a lot.

As I said, I want to repeat this, I took offense when the letter of some business groups were... their statements said that it is whimsical and capricious. Because as his honor said, TRABAHO, and then CITIRA, and now CREATE. So they may not like the outcome, pero let's not call it whimsical and capricious kasi we're all taking time studying this here.

So thank you for that, Mr. President. And we are prepared to do our best to respond to the questions.

Sen. Angara

Sen. Pia: Mr. President, it is considered a tax measure. Mr. President, it is subject to line veto.

Sen. Angara

Sen. Pia: Thank you for that, Mr. President. Because I appreciate it coming from you. Because like I said, I am just a vessel here that you guys are using to dump or to pin your hopes on with your various ideas. But the buck does not stop with me. I try to simplify it by accepting what I know is acceptable to DOF, and believe me, I have done some maneuverings to work on languages for it to be acceptable. Pero kapag hindi talaga katanggap-tanggap sa kanila, then I chose not to include it yet because it might give you false hopes, and for those who know me, that's one thing I don't do, I don't give false hopes.

So, but you know, hope flows eternal so we can try. Pero tama ang sinabi ni Chair Sonny diyan.

Sen. Angara

Sen. Pia: My answer might be indirect but I think it will suffice. It was proposed by Sen. Recto and therefore, it was accepted.

Sen. Angara

Sen. Pia: I mean for me, when DOF agrees with Sen. Recto, no more questions. I simplify my life. But if his honor would like to spread that into the record, I would be happy to check the files and get back to you what the basis is for that.

Sen. Angara

Sen. Pia: Well, the politically correct answer to that is they are accountable to the Filipino people. Having said that, their decision is considered... To a large extent, his honor's observation is correct. But their accountability is by way of submitting a regular report to the Office of the President and to Congress. And I'd like to add, I guess also publishing those reports, to the extent that they are not confidential because that is precisely the powers that they asked for, that they would be recipients of all the data that to this date they are not able to obtain from the various IPAs. That would enable them to make the decisions that they have to make.

So in that sense, we give them the power and they have to make the report to show that they have come up with those good decisions.

Sen. Angara

Sen. Pia: It's an annual reporting. But we do have an oversight committee so due to that, we can always call on them...

Sen. Angara

Sen. Pia: May I weigh in on that? Because that's why I appreciate these interpellations because it also reminds me of facts that I may have forgotten or it highlights it.

My response to that is, yes, it makes it appear obviously that the boards of the IPAs would be composed of knowledgeable people. So we want to really ensure that we make the best use of them.

So let's note that they actually make the recommendations to the FIRB. So their knowledge and experience are still going to be used. Because the applicants will still go through them and they will make the appropriate recommendation to the FIRB.

Sen. Angara

Sen. Pia: They are guided by the SIPP and this law.

Sen. Angara

Sen. Pia: Yes, written by, approved by the FIRB and then it becomes that document that they refer to.

Sen. Angara

Sen. Pia: A little history, one of my first practices was assisting clients in the law firm I was connected with, lobbying for their projects in BOI. And at that time, there was the IPP. That's the dream, to be sure your business is in the IPP. So that exists, that is basically going to be the predecessor of the SIPP.

Sen. Angara

Sen. Pia: For now, it's BOI, and thus my memory, my walk down memory lane, going to BOI. But under CREATE, it will be in coordination with FIRB.

Sen. Angara

Sen. Pia: Yes, that's the objective. Every 3 years. So hindi pabago-bago but there's a timeline and then they review again.

Sen. Angara

Sen. Pia: Ideally, it's every 3 years. But as pointed out by Sen. Ralph yesterday, there is a line that says, may be amended as necessary.

Sen. Angara

Sen. Pia: To be clear, because I want to be consistent with my responses, when the Senate President Pro Tempore brought that up, is it 3 years or is it as necessary, meaning any time, and I responded that I am open to amending it to delete "any time" if that is not the objective.

But upon clarification with the DOF team, it is really meant to be 3 years but there is that provision, because if there is that opportunity that we have to take advantage of, then in exceptional circumstances, they can amend it. But it's really not meant to be amended until every 3 years or revised or revisited.

Sen. Drilon interjects

Sen. Pia: Thank you for pointing that out. I did respond to the gentleman's question when he asked who is the FIRB accountable to. I said to the President and then to Congress. They make reports also to both bodies. So thank you for further clarifying that, Senate Minority Leader

Sen. Angara

Sen. Pia: It will be a consultative process with all the stakeholders, including the IPAs and even the different sectors.

Sen. Angara

Sen. Pia: This is also a product of the experience and the observations of where we currently are today. There has been much difficulty in gathering the information and in getting the responses to determine if the investors have been on target with what they had proposed would be the outcomes of their businesses. All of this has been neglected because... If they are reporting at all, it would be to the individual IPAs. And the standards of each IPA are different, some may have some level of accountability, some may not. And so really the idea is for FIRB to be able to monitor and evaluate the performance, objectives, and targets to ensure efficiency and transparency, to establish an incentive reporting system, and so on and so forth.

I guess one way to explain this would be similar to the Government Commission for GOCCs, the GCG. The intention is to oversee the GOCCs, and in the case of the FIRB, it's to oversee the IPAs and their administration so that the objectives we have are met.

Sen. Angara

Sen. Pia: First there is the board, and under CREATE, the board members will be DOF, DTI, DBM, NEDA, and the Office of the President. That's the board of FIRB. And then there is the technical committee under them...

Sen. Angara

Sen. Pia: I asked that same question because I was concerned, as I mentioned yesterday during the interpellation of the Senate President Pro Tempore, on the power to delegate.

And so we specifically included in the latest version that for purposes of delegation, the following standards will be considered: the level or location of the investment, the type of activity, and the fiscal risk.

We deemed that that is sufficient standards or limitation of those powers. The reason it is not more detailed is precisely because we need to give them that level of flexibility to make those decisions. What may be good today as we pass that law may not be the case two years from now when we fully recover from the COVID situation, or when the global situation, including US or China, takes a turn in whatever direction. Thus, there are no further details on that. But of course, I am very open to suggestions from his honor and whoever else among our colleagues.

Sen. Angara

Sen. Pia: I am assuming that the idea there is that we stick to the SIPP. But, what his honor is saying, why wouldn't you even allow them to consider it? What if there is a brilliant idea out there that we have to consider, right? So I totally understand, if it is okay with his honor, we will note that. His honor is welcome to suggest an amendment, but I will also note that because there is something to point here.

Sen. Angara

Sen. Pia: I don't know the actual number but we are asking BOI. I am assuming it's BOI and PEZA, which would have a big number. Perhaps BCDA may also...

I am told that it's 3,000 applications in a year for all IPAs.

Sen. Angara

Sen. Pia: Would his honor like to go on? I'm still asking them to look for it because I also want to know the answer.

Sen. Angara

Sen. Pia: That question was asked numerous times. In fact, I believe in the early days, that really was one of the... yun ang pinanghahawakan ng mga IPA na, "Bakit namin ibibigay sa inyo. Magba-bottleneck lang ito." It's a valid concern because here we are, and our goal is ease of doing business. But we have provisions that give FIRB the authority to delegate this to either the technical committee or the IPA itself.

And again, based on those standards for delegation that I mentioned, they can determine at some point when they will do this. So again, it could be based on the location, if there is a hotspot and there are just so many applicants there, they may choose to do it based on that particular location for a limited period. It could be based on the amount, and so on and so forth.

Sen. Angara

Sen. Pia: Yes. The timeline adopted by FIRB is consistent with the ease of doing requirement. Complete.

Sen. Angara

Sen. Pia: In other words, his honor is asking, let's say it was received on September 1, and they choose to delegate it, they only delegate it on October 1, something like that?

Sen. Angara

Sen. Pia: If you ask me, because I feel that when I am asked whether on the floor or off the floor, what are the hindrances of doing business. And it is a study that is by the World Bank, World Economic Forum, it's also the ease of doing business.

So if you ask me, I would say you count that from the time that any authorized official received that application. But now, going back, do you count it from the time that the IPA received it and endorsed it? That's a very valid question. I don't know the answer to it. But maybe together, we can make suggestions.

Sen. Angara

Sen. Pia: My team here is saying it does. What else will I say? But my question is, you said it includes the time it is referred to the technical committee, but...

Sen. Angara

Sen. Pia: No in fact, I am even asking if we should include the time that it is referred to the IPA. If they can clear that in 5 days and give it to the FIRB, and the FIRB has a system in place and in 48 hours, they clear it to the technical or give it back to the ano... The deciding committee, whether it's the IPA or the technical would still have 30 days, it's just my thought.

Sen. Angara

Sen. Pia: Right now, in the bill, it says 40 days from the submission of the IPA recommendation to the FIRB.

So based on this, the current report that we have, it will only be counted once it is received by the FIRB.

Sen. Angara

Sen. Pia: Basta nasa FIRB, whether it is the security guard who received it...

Sen. Angara

Sen. Pia: I guess that's safe enough because then it will be incumbent upon the IPA na bilisan din naman nila because that is their potential client.

Sen. Angara

Sen. Pia: And to add to that, the bill says it is deemed approved, if not acted upon in 40 days.

Sen. Angara

Sen. Pia: Popular is a very subjective word. I would say BCDA and SBMA just because I like to bike there. And then I would say PEZA because my father brought me there when I was in college.

But I do know it is a choice destination for certain sectors. It appears to be the choice for certain sectors.

Sen. Angara

Sen. Pia: I am happy that you answered that question because it gives me an opportunity to show that I did a little bit of work on this.

I share the same concern, again because of the background I have, the years that I practiced law also. And I know that one-stop is also valid. And available nga po yan diyan sa PEZA. So in the final version that we have now, I made it a point that the one-stop is included in all. So even in the IPAs that don't offer one-stop, I want that to be included. It should be our come-on to all investors.

Sen. Angara

Sen. Pia: The way our CREATE bill is worded, if you recall, there is income tax holiday, and under income tax holiday, as it is today, walang in lieu of doon, income tax holiday lang yun. But when you are in the portion of the GIE, and under CREATE it will be 10%, that is the one in lieu of all taxes.

So in the example that you gave, wala nang pwedeng itax na iba, the local governments cannot do that. As long as that is the option that they availed of. That's the first option, the ITH and SCIT. Because just to put on record, the other option is the enhanced deduction. Hindi kasama yun dun. If you choose the first, the ITH, plus GIE, when you are in that GIE, based on the gross earning, 10%, that's when the one-stop in lieu of all taxes kicks in.

Sen. Angara

Sen. Pia: ITH is 2-4 years and SCIT is 3-6 years.

Sen. Angara

Sen. Pia: There can be an extension not longer than 12 years. It's actually a 4-year extension, not to exceed 12 years. After that, you can reapply again. There is no prohibition to reapply. It just depends on the SIPP. For so long as your business is captured by the SIPP, then you can apply and then they will evaluate you. If the FIRB does their job well, that shouldn't take a long process. Because they should have the data, it should be easy for them to make that evaluation.

Sen. Angara

Sen. Pia: First of all, the grant is actually limited to whatever combination of ITH and SCIT, so let's say 8 years. If you perform well, obviously a lot of companies would like to continue getting their incentives, then you will be evaluated before that period, and you can have that automatic extension. It's not a long process.

And I thank the gentleman for asking because there seems to be a lot of misunderstanding like they'll suddenly be cut off. There is no opportunity to avail of these incentives. No, there is that extension period and then there is an entire renewal. It's just that we cannot obviously make that commitment for a longer period. Otherwise, we are back to that concept of forever, which is not right.

Sen. Angara

Sen. Pia: Let me point out that in the event, for whatever reason, that if they do not qualify anymore for extension, let's just say they either perform badly or did not meet their target, or for whatever reason, the business they are in are no longer considered priority measures that require incentives, by that time, our CIT will be down to 22, 21, 20%. And by then also, who knows, who else in Congress would propose other measures that would support industries that need to be supported. It doesn't mean it ends there. There is always room for better programs. But we need to start somewhere.

Sen. Angara

Sen. Pia: Maybe we can put language in there, if his honor thinks... I seem to encounter that quite a bit, there's no clarity on that. So maybe we can improve our language on that.

Sen. Angara

Sen. Pia: Just to add to this, because I would imagine that there are even non colleagues of ours who will refer to our discussion. For those currently invested please note that there is that additional 4-9 years depending on where they qualify before they even have to apply for CREATE.

Practically, two decades that they will be enjoying. The first decade is still under the old incentive, whatever package they have. And then CREATE will kick in after 4-9 years. And like I said, if they get 12 years, we're talking about almost 2 decades before they even think of termination.

I wanted to emphasize this because I feel it's very reasonable. It is not whimsical and capricious.

Sen. Angara

Sen. Pia: On that note, I don't want to take the... it's not a singular effort on my part. The Secretary of NEDA is very... NEDA is the executive body that oversees the SDGs. So rightfully, our new Secretary is on board with it. The Secretary of Finance has always been supportive of my amendments on sustainable development goals. Thank you.

Sen. Angara

Sen. Pia: The response is yes. And the reason for that is since all the information and the data will already be lodged with FIRB.

Sen. Angara

Sen. Pia: The response I am getting to his honor's question is that this will be reviewed by the DOF, NEDA, DTI. But the response I gave off the record, which I am sharing now, but sila rin nga naman ang FIRB. So I understand the concern of the gentleman. I await for DOF to give me another answer.

Sen. Angara

Sen. Pia: Thank you for pointing that out. I wasn't involved in TIMTA. So as you know, you tend to notice the things that are close to you. So I appreciate that comment. And I am asking them to respond because for now, I do appreciate the concern raised by the gentleman from Aurora.

Sen. Angara

Sen. Pia: Under TIMTA, which goes to NEDA, as you said, it would act like an arbiter, but basically what they are saying is all of them are also in FIRB so that job can also be done there.

Sen. Angara

Sen. Pia: There's personal services at P105 million and MOOE at P43 million and CO at 14 million. So the total would be P162,912,000.

Sen. Angara

Sen. Pia: Not yet in the NEP.

Sen. Angara

Sen. Pia: It is actually an existing provision under EO 226, otherwise known as the BOI Law, Article 7. It empowers the board to propose or adopt this kind of measure. So it's really just a carryover. And similar to your question about Sen. Recto, if it's a carryover, that has not been really questioned, I just go along with it. So if his honor has strong feelings about it, I am very open.

Sen. Angara

Sen. Pia: The MSMEs are also encouraged to avail of incentives. And I'm like, but they would be so far from being able to...

Sen. Angara

Sen. Pia: It has not been exercised.

Sen. Angara

Sen. Pia: I would assume... It's just me... that it would be a bit of a shocker if may requirement na within x number of years... But let's wait to hear from BOI if this has ever come up as a hindrance to availing of the incentives.

Sen. Angara

Sen. Pia: The other thing that crosses my mind is if we will retain this in the interest of producing a better law and not just copying something that was written 20-30 years ago, maybe we should put some parameters, if we would even retain it.

Sen. Angara

Sen. Pia: That's a good question. I think that is exactly what the government has been trying to find, first of all. What indicators are out there, are available, what data is available for them to actually measure it.

And they've come up with some ideas. Number one would be job creation. Number two would be the capital investment that would enhance the whole industry that would promote research, that would trickle down to improving the standards of our labor in terms of their technical knowhow. I am just thinking at the top of my head. But those are exactly the measures that they want to be able to make, they want to ensure that they have these data available so that they can make some sound judgment after looking at these data. And the problem we have now is we do not have that data.

Sen. Angara

Sen. Pia: Let me give his honor a hypothetical situation that I envision. There is a technical term known as product space? which basically reviews what goes into that... envision a geographical space... what goes into that. What kind of labor do you have there, capital equipment, value added comes out of there. And so the idea is, when you know what this space comprises of and you have clear data that you are following, ideally it should be able to show you that when you have these businesses that are linked together from the supply that goes into the production, the trained labor, then these kinds of spaces end up to be more productive...

Then data shows that these kinds of spaces are really more productive. And that is what CREATE attempts to do by having tiers 1,2,3 defined. Within each tier, everything supports each other. So then you can see in the long term that all these industries are growing together.

Sen. Angara

Sen. Pia: Yes, the bill provides for enhanced deductions and domestic input. So that really is the main way of addressing that because to be able to avail of that deduction, then the input has to be local. So that's one. And then obviously, it would still be the labor expense, but that can be applied with whether or not you use a domestic input. But related to that is also the training expense. But I would say the number one is the domestic input itself...

Sen. Villar interjects

Sen. Pia: Thank you for that, ma'am. That's a very good example. Actually, the question of his honor is do we have any industry with the complete supply chain...

Sen. Angara

Sen. Pia: What I'd like to add, and his honor gives me reason that we can still improve on this, his honor recommended, and I also have provisions already there on research and development being incentivized... Obviously, included in the tiers are agriculture. If it's technological advancements that is all the way to tier 3.

The point I am driving at is maybe we can improve the language such that research and development on local products or processes... I am not too certain if our research and development specifies that. Maybe we can improve on that.

Sen. Angara

Sen. Pia: Because the only way you do that is you give them incentives and what incentives will it be? Enhanced deductions. And so I am saying that by focusing the investment itself, the research itself can also be on the use of local products. Then that is another enhanced deduction. So I am trying to improve on the existing language based on what his honor is planting on my head.

Sen. Angara

Sen. Pia: Number one, there is also enhanced deduction for research. Research can be part of the deductions and then the training that their labor would undergo would actually be part of the enhanced deduction. That is actually 200%. And then, if they can use local input, that is another 150%. So it depends on which way they attack it: local input 150%, just by the training that needs to be required 200%. If it's labor intensive, the labor itself is 150%. But I think the research also, because once we incentives research, we can create that hub where people really want to come here, make use of the young talents we have, the scientists and all that, it's not that hard. I feel like if you create that environment, it will come. So research is also a deductible.

Sen. Angara

Sen. Pia: That would be in the SIPP.

Sen. Angara

Sen. Pia: The objective is for SIPP to be very specific. So maybe what we can do is we can already ask them, I don't know if the IPP has something similar. But maybe we can ask them to show us something so we can see that. Because the objective is for that part to already be clear. So investors can look at it and they know what to target. And it shouldn't be a moving target.

Sen. Tolentino interjects

Sen. Angara

Sen. Pia: As I said, the SIPP will provide for that in detail. I mentioned perhaps we can ask the BOI and the team, FIRB, to give us an idea of that...

Sen. Angara

Sen. Pia: I want to weigh in on this whole issue that started with the privilege speech of Sen. Tolentino on the rules and regulations. A law like this would really require rules and regulations. Hindi naman ito superfluous. But I do appreciate again the comments being raised now because that should guide the implementing agencies on what we want. So by all means, to use the slang, bring it on so that they can be appropriately guided.

Sen. Angara

Sen. Pia: In the budget hearing, which I chair as his honor's vice chair of the Committee on Finance, UP reported that they have outranked Oxford, Harvard, Cambridge and the like in the citations on medical studies. And of course it warms my heart, because I will live long enough to see not just UP, but more universities ranking in this manner. My point is we are barely known in the world for our research.

Again, the point I am bringing up is at some point, I heard people expressing shock, to just put it in Filipino, bakit ang Thailand nagdedevelop sila ng vaccine for COVID? And my answer is nothing short of, Thailand has been investing in healthcare, in pharma, in research, in vaccination, for decades. And we have not.

Many years ago, I attempted to increase the budget of RITM and hindi pinapansin. Nobody even knew what RITM was. And now, RITM is in everybody's vocabulary...

Sen. Angara

Sen. Pia: Anyway, my point is simply, I see where his honor is getting at. Shouldn't we be excited and supportive of any kind of research as long as it is somehow relevant? I guess the question I can pose to the agencies or DOF because the main draft came from them, is as long as we determine that the research is somehow relevant to life or to Filipinos, shouldn't we allow it to be a deduction?

Sen. Angara

Sen. Pia: His honor's observation seems to be accurate and so I think I will propose that if it is within the product space, adjacent product space, and then as to be determined by the FIRB... His honor I am sure is familiar. You hear of research that has nothing to do with the intended research of the scientist, and then suddenly, for lack of another example, the best cure for dandruff was supposed to be alcoholic drink... It spilled on the scientist and cured his dandruff...

Sen. Angara

Sen. Pia: I am mesmerized by the ideas of the good sponsor...

Sen. Angara

Sen. Pia: Those are thoughts that I could not quite put together. Because like his honor, we don't have time to really just focus on this. But those are very similar to ideas that I have, how do you really encourage this deeper level of research, higher end type of products that make use of very skills that need to be acquired.

The answer is I would be very...

Sen. Angara

Sen. Pia: What I am thinking of is how do we encourage these creative laboratories. One thing that comes to mind is a year ago... after visiting WHO with Asec. Lambino, I proceeded to London where I was able to visit a few creative labs. And I call them creative labs because these were futures thinking labs... experiential futures lab. And so, our typical idea of a lab is chemicals, a pharma looking lab. But these were actually creative people in the arts. And they made use of their talent in the arts to influence political decisions. They would actually be hired as researchers or as consultants to convince a decision-maker... on the importance of going 100% clean energy in their transportation. And they proved it to him experientially. Aside from creating 3D visuals of what sustainable transportation looks like, the king concluded by saying he cannot imagine his son not having the experience of driving his own sports car...

When the king said that, they were ready for that response and they actually brought with them something that looks like an oxygen tank, and when they opened it they let the king and all his ministers smell the pollution of 20 years from now, and that changed the decision.

I am just trying to create that vision... One thing I think is a good example is to really make use of our SUCs... Maybe his honor can feel free to give us recommendations on how we can incentivize...

Sen. Angara

Sen. Pia: I also was a practitioner of Intellectual Property for a few years that I practiced law, and I do believe on the side, what I do to destress at night is I watch Shark Tank... It's a show when they have these established billionaires who then have a short interview with an entrepreneur who tries to sell their ideas to them.

One of the questions they always ask the entrepreneurs is, "Do you have any patents on your products?" I used that example to show that is how they value it, the importance of having intellectual property protecting you. It's not just also protecting you. For business purposes, it helps the investors because they know they can pour in money and they will get returns because you have a limited amount of time that only you can exploit the use of that patent.

But on the other hand, just like the ranking, it's also good on paper that you have that. I don't know where his honor is going with this. But it's something good and maybe we can also toss it to the Chair of Higher Education to put it together.

Sen. Angara

Sen. Pia: I have been grappling with that... Every time we review another version of this bill, I am like, how do you further encourage research, how do you get to the next level? So anything along that line, I'd be happy to work with the staff. Please give us your proposals.

Sen. Villanueva interjects

Sen. Angara

Sen. Pia: My team is pointing out to me that his honor read into the record the somewhat limited definition of research and development. Because it only says, only apply to research and development directly related to the registered project or activity of the entity. However, we defined development in the bill and it says, "research and development refers to experimental or other related projects or activities that are conducted for the purpose of generating new knowledge including new knowledge in the form of new or improved materials, products, devices, processes, or services."

However, I conclude now that if I were to put the two together, I would still say that that limits it to related to the registered products. So I still feel that his honor's point is well taken because it doesn't go outside of the registered product.

Sen. Angara

Sen. Pia: I feel it's worth taking a second look to ensure we write out the bill to ensure that it covers as broad a spectrum of research as we can possibly accept.

Sen. Angara

Sen. Pia: You cannot just pull one out and not start preparing for the environment for the whole space to develop.

Sen. Angara

Sen. Pia: Parang hilaw naman if we cannot even visualize what we really want, what is our vision for that, if we are just thinking may pumasok na ibang research and we are not even anticipating how we can prepare that whole environment for that related businesses, related research, including the SUCs. parang sobrang hilaw.

Sen. Angara

Sen. Pia: I am fully supportive of that and in any way that his honor wants to proceed with this, if staff to staff work will suffice, whatever amendments we can include, I would be very happy to accept...