Impact of the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)

On March 26, 2021, the President signed into law the “Corporate Recovery and Tax Incentives for Enterprises Act” or “CREATE”, which seeks to reduce the corporate income tax rates and to rationalize the current fiscal incentives by making it time-bound, targeted, and performance-based.  

The following are certain provisions of the law that had an impact on the Company’s financial statements. 

  • Reduced RCIT rate effective July 1, 2020 of 25% 
  • Reduced MCIT rate of 1% effective July 1, 2020 until June 30, 2023 

As mentioned above, the reduction in income tax under CREATE took effect on July 1, 2020. However, Philippine Interpretations Committee issued Questions and Answers No. 2020-07, in which it stated that the CREATE Law is considered to be not substantively enacted as of December 31, 2020; accordingly, the current and deferred taxes for financial reporting purposes as of December 31, 2020 are measured using the regular income tax rate in effect as of December 31, 2020, which is 30%. The difference was reflected as adjustment to the current income tax for the year ended December 31, 2021 in accordance with PAS 12, Income Taxes. 

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