Responses of Senate Ways and Means Chair Pia S. Cayetano To the questions of Sen. Ralph Recto on the CREATE bill

Sen. Pia: Basically, if you look at our bill, it does not have that kind of detail, it was really structured that way, Tier 1, 2, 3, you can almost say that is really the intention, to cover almost all kinds. In that sense, we are being very generous by having this wide range of businesses that an investor can choose from.

---

Sen. Pia: We are providing them with a market technically, so it makes sense that the initial offer is an income tax holiday that helps them get started. And then after that, they should be able to make money on their own.

---

Sen. Pia: Just to clarify, I don't disagree with his honor. If it's a choice between PEZA and BOI, yes our data shows those foreign investors are in PEZA. But our data also shows that for many years, we've had high foreign direct investment going up, and yet our investments or applications in PEZA were going down. Just to spread that into the record.

---

Sen. Pia: There are foreign investments that come in regardless of incentives. I am just making that observation based on the data that we have.

---

Sen. Pia: We have a huge population. So it's common sense that the opportunities for them would be certain kinds of jobs like manufacturing where labor is important.

---

Sen. Pia: I don't disagree with his honor. But there are other sectors that I would like to improve as well, not just manufacturing. But I don't disagree. Kulang naman talaga. So go ahead and improve on our manufacturing by inviting sectors. But definitely, other sectors as well.

---

Sen. Pia: I just need to make the records clear... For PEZA, the average per year is 60,300. And for BOI, the average per year is 152,000-200,000. So the figures his honor mentioned earlier are quite different from what I am mentioning... The latest for PEZA for 2018 is 90,000.

---

Sen. Pia: That's where I have a problem because no one can confirm with me that the 1.6M are currently employees there now. I do not know that for a fact... The data I have does not show me that... Because it started in 1995. So if his honor will add 1995 to 2020, and just keep adding that, I highly doubt that the employees in 1995, that same number is still there and are still employees in 2020. It does not capture that.

---

Sen. Pia: I appreciate his honor's information because he is very knowledgeable on this. I am just saying that I cannot verify that and the resource persons I have here cannot verify it as well. So I apologize, but this is precisely why the creation of the FIRB and its expanded powers are being requested under CREATE so that they can get that kind of information...

---

Sen. Pia: It hasn't happened. As his honor knows, what we do is put into place a system such that they would be forced to submit. Because part of their obligation in receiving those incentives would be to submit. So on that basis, it's very clear to them, to the investors and applicants, that their application could be cancelled, suspended, if they don't submit.

---

Sen. Pia: I've always said you take the CREATE bill as a totality. That includes the decrease of the corporate income tax from 30 to 25 and then you look at the incentives, wherein obviously, there would be some sectors that would have eventually a reduced rate, but there would also be some that would get more. So we cannot take it individually...

---

Sen. Pia: They get a good deal here because after the income tax holiday, they will now have a reduced corporate income tax, which they do not get under the existing law.

---

Sen. Pia: [All IPAs] will be covered by a standard menu... This is the proposal under CREATE, that it be a standard offering... That is precisely why under CREATE, we are creating a more standardized menu... I am just spreading it into the record that this is what we currently have in the CREATE draft.

---

Sen. Pia: Currently, BOI does not offer a GIE. And under CREATE, it will now be offering a gross income tax of 10 percent, which is in addition. So it is more enticing in that sense. His honor may be of the view that it is not enticing enough, but it is enticing in the sense that they went straight to CIT before and now, they have a special CIT rate.

---

Sen. Pia: The GIE of 10 percent is in lieu of all other taxes. And I believe his honor knows that that is quite a big come on for investors. Because previously, there is no in lieu of all other taxes. And now, BOI which would not have had that would be able to offer that as well with this period of a GIE of 10 percent for 3-6 years, plus the in lieu of all other taxes.

---

Sen. Pia: They will not be paying the regular domestic rate of 30 percent or 25 as it is when we pass CREATE, because we are now saying it's GIE of 10 percent, which includes in lieu of all others. So the 10 percent GIE itself is lower than the regular CIT; plus the in lieu of adds to that.

---

Sen. Pia: Under CREATE, the objective here is to be able to rationalize and determine which industries we want to incentivize. To be able to do that, FIRB has to do a cost-benefit analysis, such that those who continue to contribute and are very much worthy of the incentives that we put in will continue to receive incentives...

---

Sen. Pia: What we are talking about is rationalizing incentives and understanding what are the foregone revenues... Kung pababaan lang, of course we know. Make the incentives more attractive, of course paramihan. But we also want to see what we get in return... What we are trying to do is to rationalize such that we know that what we give away, we are ensured that we get back something. That's all. And I understand it is not an easy job...

---

Sen. Pia: I would be very open to listen to his honor's recommendation. The difficulty I have is forever and grandfathering... We can compare and if we believe that the offering we are making is still not attractive, I am open. I have always said that. But what I am standing by is what it currently is. Some of it is a matter of opinion, the others are a matter of fact... Rest assured, I am doing my best to absorb the comments...

---

Sen. Pia: At the end of the day, if his honor could present any amendment... to show what figures his honor thinks would be better, I am always open so we can review it and come up with something...

---

Sen. Pia: We are veering away from that forever. So if there is a period, then you get those advantages for that period. For me... if you want to sweeten the pie, at the very least, it should be for a very definite time frame. And I believe that even those who are not supportive of the changes that are being proposed all agree at some point that for new investors, we should really be target-based, time-bound, performance-based, etc.

---

Sen. Pia: We have a provision for a one-stop shop. I specifically carved that out to ensure that all IPAs would establish a one-stop shop, not just PEZA. All.

To put the discussion in perspective, whether you are an MSME, or whether a large corporation, the example we discussed on the floor... about if those who would be producing coconut by-products, including the cocowater, would be incentivized. I gave an example that I know of this huge firm supplying to the number 1 company in Brazil. They don't even have incentives. So the point is, it's not a terrible thing to be paying regular taxes. The general rule is you pay taxes, and then there are exemptions depending on need, on our desire to attract them.

So again, I am open to recommendations... But I am just saying, these should still be time-bound and target-based.

---

Sen. Pia: The objective here is, given our FIRB is constantly working with BOI on updating the SIPP. So after 12 years that that business continues to be a business that is providing jobs, needed in our economy whether they are value-added or whatever, with minor additional investments, and i would think after 12 years, you would be updating your system in any case, maybe some renovations, they would be accepted again. They can apply again and it could be approved again. It is not automatic, but it is meant to be approved for so long as they continue to invest in that business and are providing jobs, and it is still in the SIPP.

---

Sen. Pia: We are conscious also of the delegation of power and the objective here really is to allow them some leeway when they are crafting the SIPP. So in the SIPP, it would be specific. But again, I am open to other suggestions of the body on clarifying this.

---

Sen. Pia: There are a lot of industries that would be labor-based, if training would be introduced, which we fully support because with our studies on Futures Thinking, constant training is very important, they will benefit from this.

They benefit if they have a big labor force. But remember, the enhanced deduction is given for research, domestic input, domestic input will benefit the domestic industry, regardless of how big your labor is. So there are different...

I am just correcting the impression being given that only the garments industry will benefit from enhanced deductions. Enhanced deduction can be benefited by many companies because of the offering on research, domestic input, even for power, so andaming pwedeng makinabang dito. Definitely not just the garment industry and not just those with a lot of employees.

---

Sen. Pia: An applicant only deals with the IPA and the IPA would be the one to process it and submit the recommendation. So this should not be a complicated process because the IPAs will still continue to do and it is really as if FIRB just has final approval. And the reason for this is simply because they want to know what's going on, they want to be able to have regular data coming in or a say to ensure that the standards are being followed. Because there is no one checking on what these IPAs are doing right now... For all the concerns we have raised on the floor as to what is happening, how come we have not improved, the GIE that has been there for forever, despite it being there forever, the IPAs are still complaining that we have not been getting enough investments. So clearly, there are other factors that are important and that is why FIRB wants to have a very clear picture of what's going on on a regular basis.

---

Sen. Pia: The application will only be given to the particular IPA. It's just that, it is correct to say that there is another layer, because the IPA must also be accountable... Again, I am very open to other suggestions that will be able to help promote this accountability that we are after. But for now, the bill is looking into the accountability through the FIRB... Once the IPA submits it to the FIRB, if it is not acted upon in 40 days, then it is automatically approved. So that would also address that concern that it might linger there and take a long time.

---

Sen. Pia: As of July 20, 15.4 percent of firms have closed permanently and 40 percent have closed temporarily while 44 percent have remained opened, based on an estimate in July.