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REVENUE MEMORANDUM CIRCULAR NO. 89-2021 issued on July 19, 2021 circularizes Republic Act (RA) No. 11534 titled “An Act Reforming the Corporate Income Tax and Incentives System, Amending for the Purpose Sections 20, 22, 25, 27, 28, 29, 34, 40, 57, 109, 116, 204 and 290 of the National Internal Revenue Code of 1997, as Amended, and Creating Therein New Title XIII, and for Other Purposes”, otherwise known as “Corporate Recovery and Tax Incentives for Enterprises Act” or “CREATE”.
           The salient features of the CREATE Act are the following:
            a. Effective July 1, 2020, corporate Income Tax rate is reduced from 30% to 20% for 
                domestic corporations with net taxable income not exceeding ₱ 5 Million and with
                total assets not exceeding ₱ 100 Million. All other domestic corporations and
                resident foreign corporations will be subject to 25% Income Tax.
            b. Effective January 1, 2021, Income Tax rate for non-resident foreign corporation is
                reduced from 30% to 25%.
            c. Minimum Corporate Income Tax (MCIT) rate is reduced from 2% to 1% effective
                July 1, 2020 to June 30, 2023.
            d. Percentage Tax is reduced from 3% to 1 % effective July 1, 2020 to June 30, 2023.
            e. Rate of proprietary educational institutions and hospital is reduced from 10% to 1%
                effective July 1, 2020 to June 30, 2023.
            f. Imposition of Improperly Accumulated Earnings Tax (IAET) is repealed.
            g. Definition of “reorganization”, for purposes of applying the tax free exchange
                provision under Section 40(C)(2), is expanded. Prior BIR ruling or confirmation
                shall not be required for purposes of availing the tax exemption of the exchange.
            h. Qualified export enterprises shall be entitled to 4 to 7 years Income Tax Holiday
                (ITH) to be followed by 10 years 5% Special Corporate Income Tax (SCIT) or
                Enhanced Deductions.
             i. Qualified domestic market enterprises shall be entitled to 4 to 7 years Income Tax
                Holiday (ITH) to be followed by 5 years Enhanced Deductions. 
             j. Registered enterprises are exempt from customs duty on importation of capital
                equipment, raw materials, spare parts, or accessories directly and exclusively used
                in the registered project or activity.
             k. VAT exemption on importation and VAT zero-rating on local purchases shall only
                 apply to goods and services directly and exclusively used in the registered project
                 or activity by a Registered Business Enterprise (RBE).
              l. For investments prior to effectivity of CREATE – RBEs granted only an ITH shall
                continue with the availment of the ITH for the remaining period of the ITH while
                RBEs granted an ITH + 5% Gross Income Tax (GIT) or currently enjoying 5% GIT         
                 shall be allowed to avail of the 5% GIT for 10 years.
             The following items under RA No. 11534 were vetoed by President Rodrigo R. Duterte:
              a. Increasing VAT-exempt threshold on sale of residential lot from ₱ 1.5 Million to
                 ₱ 2.5 Million and house and lot from ₱ 2.5 Million to ₱ 4.2 Million. – The tax
                 exemption is highly distorting and prone to abuse.
              b. 90-day period for the processing of general tax refunds – May cause damage or
                 more delays to the prejudice of taxpayers. Legislature, DOF and BIR to come up
                 with mechanism to streamline the processing of tax refunds in a separate bill.
              c. Definition of “investment capital” to exclude land and working capital – May lead
                  to an underestimation of investment promotion performance.
              d. Redundant incentives for domestic corporations – The Special Corporate Income
                  Tax (SCIT) for domestic enterprise, which is in lieu of all local and national taxes, 
                   is redundant, unnecessary, and weakens the fiscal incentives system.
              e. Allowing existing registered activities to apply for further extensions of new
                  incentives for the same activity
              f. Limitations on the power of the Fiscal Incentives Review Board (FIRB) – The
                  oversight functions of the FlRB will ensure the proper grant and monitoring of
                  tax incentives. These powers must remain plenary over those of the Investment
                  Promotion Agencies.
              g. Specific industries mentioned under activity tiers – The CREATE Act must be kept
                  flexible to be able to keep up with the changing times.
              h. Provision granting the President the power to exempt any Investment Promotion
                  Agency (IPA) from the reform – Could become a highly political tool.
              i. Automatic approval of applications for incentives – The FIRB or the IPA should
                 be allowed to carefully review the application for tax incentives since these are
                 privileges granted by the State.