The Tax Reform for Acceleration and Inclusions Program 2 “TRAIN 2”: Is The Train Running Late, Again?

By: Frans Joseph F. Incomio*

            Embattled with the continuing threats of COVID-19, the Department of Finance (DOF) with the support of various executive departments such as the Department of Public Works and Highways, Bases Conversion and Development Authority, Department of Transportation and National Economic and Development Authority and Department of Budget and Management[1], through the Senate, has proposed a revamp of Package 2 of The Tax Reform For Acceleration And Inclusions Program (TRAIN 2) or House Bill No. 4157[2] also known as the Corporate Income Tax and Incentive Rationalization Act (CITIRA) to what is now called the Corporate Recovery and Tax Incentives for Enterprise (CREATE). Approved on 13 September 2019 for the 3rd and final reading with the House of Representatives (HOR), the CITIRA bill was filed with the Senate for interpellations this year. However, due to COVID-19, the DOF sought to change some provisions of the bill especially Section 7 of the House Bill No. 4157 (HB No. 4157)[3]. Recently, on 26 November 2020, the Senate approved for the third and final reading the newly revised CITIRA bill, now CREATE bill or Senate Bill No. 1357 (SB No. 1357)[4]. This means that once this version is adopted by HOR, only the signature of the President is required for it to become a law[5].

            Now that international pharmaceutical companies are expressing their success in discovering a vaccine for COVID-19[6], the Philippine Government has started relaxing its policy in terms of travel and operations to give both the businesses and employees a chance to recover from their losses. However, while a chance to reoperate will give businesses a chance to earn again, the income generated will never be the same as before COVID-19 struck. One of the ways to alleviate business losses and free up some capital of aching corporations is through the CREATE bill. This bill basically seeks to cut Corporate Income Tax Rate (CITR) by 5% immediately upon its passage while an even greater 10% deduction is given to those qualified corporations. This will benefit not only large corporations but also micro, small, and medium enterprise (MSMEs) as part of their capital set to pay taxes will be freed up for investments or contingency funds.


            The CITIRA bill sought to deduct 1% from current CITR from the time of its passage. It also provided for an annual drop of 1% from year 2020 to year 2029. This means that from the time the CITIRA bill is passed, the CITR will be 29%, and by year 2029, the CITR will be 20%. This differs greatly when compared to the CREATE bill, which sought for an outright drop of the CITR by 5%. In addition to this, the CREATE bill states a proviso which provides for an immediate deduction of 10% of the CITR for certain corporations, i.e., corporations having net taxable income not exceeding Five Million Pesos (PhP5,000,000.00) and with total assets not exceeding One Hundred Million (PhP100,000,000.00), excluding land on which the particular business entity’s office, plant, and equipment. Generally, corporations falling under this provision shall be taxed at 25% CITR while for those falling under the qualification will be taxed at 20% CITR[7]. Evidently, the CREATE bill gives a greater drop in the CITR once passed than the CITIRA bill but such corporate tax rates are fixed. There will be no further deduction in the CITR for the following years.

            Under the CREATE bill, the Fiscal Incentives Review Board (FIRB), is given expanded powers to create Strategic Investment Priority Plans. The FIRB can also recommend to the President the grant of appropriate non-fiscal support on highly desirable projects or specific industrial activities. Upon recommendation, the President may approve the incentives and the period within which it may be availed. Such flexibility is sought to provide a more flexible system of incentive that will adapt to the needs of the economy. In other words, the tax incentive scheme of the Philippines will not vary as incentives will be assessed on a case-to-case basis[8][9].

            Lastly, due to the clamor of various business sectors already enjoying some tax incentives, they are given an additional two (2)-year sunset period. Subject to certain qualifications, businesses that have been enjoying tax incentives for a number of years are given more time to enjoy the said tax incentive before they are subject to regular taxation. Under the CITIRA bill, the sunset period ranges from two (2) years minimum to seven (7) years maximum, while under the CREATE bill the sunset period is up to eight (8) years maximum[10]. This means that by the time the minimum period for the sunset ends, such companies enjoying the tax incentive will be subject to a regular CITR.


            Currently, the Philippines imposes the highest CITR on corporations as compared to neighboring Association of Southeast Asian Nation (ASEAN) countries. It seems that lowering the CITR is one of the ways to boost our economy as evidenced by Singapore which only imposes a 17% CITR. Singapore boasts of a Gross Domestic Product (GDP) Per Capita of 58,829.60 USD in 2019[11] as compared to the Philippines’ GDP per Capita which was recorded at 3,337.70 USD[12] only. Reducing the CITR immediately will certainly encourage international corporations to keep its operations in the Philippines and this may also result to higher investments by those international corporations seeking to set an office in the ASEAN region. The Philippines’ corporate tax rate will induce international corporations to do business in the country. This will not only result to higher income for the government, but this also means more jobs to qualified Filipinos.

            Due to the sudden impact of COVID-19, there should be a vigorous effort on the part of the government to seek ways to help businesses recuperate and prevent them from closing permanently. The DOF reported that while the forgone revenue due to the decrease in the CITR may reach up to PHP 600 billion[13] by the 5th year of the CREATE bill, this reduced revenue will result to revival of most MSMEs that are on the verge of closure. This means that amidst the pandemic, corporations will be able to continue to operate and provide employment. Additionally, freed up capital due to the immediate decrease in the tax rate means that MSMEs may use the capital to expand their operations or keep their business afloat.

            Aside from giving tax incentives, the DOF reported that the Philippines grants incentives to various business for the longest time compared to other ASEAN countries. This means that the Philippines has been giving up most of its revenue from medium to large scale businesses that are qualified for the tax incentive. While said corporations are given large tax incentives, MSMEs are subjected to the 30% CITR.  Thus, the CREATE Bill seeks to remove the incentive given to these corporations who have been enjoying the 5% tax on their Gross Income Earned and subject them to the new CITR.  The DOF reported that the Philippines has foregone PHP 441 Billion due to tax incentive granted to some 3,000 companies only.


            Upon the signing of incumbent president, Rodrigo Duterte III, of Republic Act No. 10963, the National Internal Revenue Code (NIRC) has been substantially amended especially the tax rates for individual earners[14]. However, due to the unexpected change in the business environment, the NIRC is again sought to be amended to keep the Philippines competitive among its neighboring nations and attractive to foreign investors. The CREATE bill seeks to provide immediate and direct impact to corporations in the country to address the losses during the past few months. It is the first-ever revenue-eroding tax reform package proposed by the DOF, but this is also the largest fiscal stimulus program in the history of the Philippines. The CREATE bill is a lifeline given to all corporations in the Philippines that will extend its effects to the working masses while simultaneously subjecting those corporations who have been enjoying tax incentives for years to the proper tax rates. This change will be the equalizer in terms of foregone revenue of the Philippines from the lower tax rate.

            As the threats of the pandemic persist even if businesses already started to resume operations, corporations in the Philippines still clamor for the approval of the CREATE bill.[15] True enough, the earlier the CREATE bill passes into law, the better room there will be for corporations to properly allocate its assets, since prompt relief is one of the rationales of TRAIN 2 from its inception[16]. Interestingly, SB No. 1357 contains a retroactive provision which states that once finally signed by the President and the corresponding publication has been made, the effectivity of some of CREATE bill’s provisions will retroact from 1 July 2020[17]. Perhaps due to this, the train may not be late after all.

*Graduated from DLSU – Taft with a degree in Accountancy in 2015, Frans worked as a tax consultant in one of the top accounting firms in the Philippines right after passing the CPA Boards in the same year. He is now in private practice—helping MSMEs in their accounting and tax matters.

[1]Department of Public Works and Highways et, al., BUILD, BUILD, BUILD’ JOINT STATEMENT OF SUPPORT FOR THE CORPORATE RECOVERY AND TAX INCENTIVES FOR ENTERPRISES ACT, Tax Reform Community Group, 25 August 2020,

[2] Committee Report No. 2 Re: HB No. 4157, 18th Congress, 1st Regular Session, (02 August 2019)

[3] Section 7 of HB No. 4157, 18th Congress, 1st Regular Session

[4] SB No. 1357, 18th Congress, 2nd Regular Session (26 November 2020)

[5] CONST. (1987)., Art VI, Sec. 27

[6] James Gallagher, Covid vaccine update: When will others be ready?, BBC NEWS, (02 December 2020),

[7] Section 6 of SB No. 1357, 18th Congress, 2nd Regular Session (26 November 2020)

[8] N.A., Package 2: Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, Department of Finance, (No date),

[9] Section 300, Chapter IV of SB No. 1357, 18th Congress, 2nd Regular Session (26 November 2020)

[10] Section 301, Chapter IV of SB No. 1357, 18th Congress, 2nd Regular Session (26 November 2020)

[11] N.A., Singapore GDP per capita, Trade Economics, (No Date), 

[12] N.A., Philippines GDP per capita, Trade Economics,

[13] Jovie Marie de la Cruz, Citira, now CREATE, cuts CIT to 25%; means P259 billion in revenue loss till 2022, Business Mirror, (13 May 2020)

[14] An Act Amending Sections 5, 6, 24, 25, 27, xxx, and Repealing Sections 35, 62 and 82; All under the Republic Act No. 8424, otherwise known as the National Internal Revenue Code of 1997, as amended, and for other purpose, Republic Act No. 10963, Sec. 5, (19 December 2017)

[15] James A. Loyola, PCCI, PSE join clamor to pass CITIRA bill, Manila Bulletin, (09 March 2020),

[16] N.A., Package 2 top 10 rationales, Tax Reform Community Group, (2 March 2020),

[17] SB No. 1357, 18th Congress, 2nd Regular Session (26 November 2020)

 Featured Photo by Pixabay from Pexels


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