Towards a fairer and more investment-inducing CREATE

© Provided by BusinessWorld THE government’s CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) recovery program, now a pending bill in Congress, proposes to reduce the corporate income tax (CIT) from 30% to 25% or a loss of an aggregate P625 billion in fiscal revenue in five years. This […]

© Provided by BusinessWorld

THE government’s CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) recovery program, now a pending bill in Congress, proposes to reduce the corporate income tax (CIT) from 30% to 25% or a loss of an aggregate P625 billion in fiscal revenue in five years. This amount of pre-condoned CIT will only grow into the trillions in the future as the economy recovers and grows. This bonanza for business is granted to private registered corporations in the hope that they will then turn and invest the tax savings in jobs and income-creating projects to hasten the recovery. Unfortunately, as economic experience in past economic crises tells us, during an economic free fall, risk-averse business will place much of this bonanza in riskless government treasuries and central bank deposits, thus, defeating the avowed purpose. This profligate generosity to the rich in currently constituted CREATE contrasts with the resistance of the Department of Finance (DoF) to a true debt condonation for agrarian reform beneficiaries (ARBs) which has a large scale-up potential for productivity and investment in the farm sector (the condonation in Bayanihan II is only band aid). This unfairness is a moral stinker!

If we must have CREATE, we have to at least make it fairer and more investment-inducing by: a.) widening the bonanza net to include the condonation of the principal of ARB debt which amounts to P58 billion; and b.) make the bonanza for the top 1,500 corporations conditional on some socially beneficial, market sustainable, and quickly implementable investment to move the economy to a more efficient, more Mother Earth-friendly, and more resilient next normal. My friend and fellow op ed writer Filomeno “Men” Sta. Ana also suggested some form of investment conditionality (BusinessWorld Online, July 5, 2020).

The aim of b.) above is to increase the overall supply of power which has so long bedeviled our power quality and improve its resilience, while reducing our dependence on imported fossil fuel and our carbon footprint to boot. We should deploy CREATE to incentivize the adoption of rooftop solar photovoltaic (PV) generation by large private corporations. At present there are hectares upon hectares of idle rooftops already owned by large businesses. Besides keeping solar radiation and heat out of our work areas, these rooftops could be repurposed to host solar PV installations. They can become urban solar farms engendering a new revenue stream! All the evidence to date point to the market increasingly favoring solar PV power generation over fossil-based generation, even over other renewables. The cost of solar PV-generated power has achieved — and even surpassed — parity with fossil-fueled power generation in many solar radiation-rich jurisdictions, especially for large consumers who mind the levelized cost of electricity. The attraction of solar PV generation in 2020 no longer rests on good corporate citizenship alone but even more seriously on an attractive bottom-line proposition.

Being located on rooftops, rooftop solar PV installations have unique cost advantages: they will avoid the opportunity cost of alternative use of farm areas associated with large-scale land-based solar and wind farms; they avoid costly transmission losses and associated fees; they avoid miscellaneous charges such as the universal charge; they avoid NIMBY issues and many costly environmental regulatory and permitting hurdles. They are modular — you can build up capacity as needed. Being distributed and, especially when paired with local storage, means resilience and power can flow even when the grid is down. The rooftop solar PV market in the Philippines is now very competitive with many solar installers. An added bonus, we locally produce solar panel modules in Laguna, Philippines. Solar PV investment is as close to being shovel-ready as one can imagine. Construction can start tomorrow and workers are hired. The chief hurdle to rooftop solar PV installations is no longer economics but a mindset comfortable with the social ecology of the 19th century fossil-driven centralized power technology and suspicious of the new.

How can CREATE help to usher in a new power revolution? Append a one-line eligibility requirement for the 25% CIT: a corporation in the top 1,500 will pay 30% CIT until it has installed a rooftop solar PV generation capacity the equivalent to at least x% (say, 20%) of its daytime power use backed up by a corresponding battery or other environment-friendly power storage (say, liquid metal storage already available in the market in lieu of back-up gas or oil fired generators). For those firms without substantial idle rooftops, equivalent modalities to satisfy the socially beneficial and market-sustainable investment requirements may be found. They may, for example, rent idle rooftops from other firms who have them in excess or even from households and schools. Such rooftop solar PV rent contracts now exist in the country. For example, Solar Philippines rents the rooftop of SM North parking building and supplies power to its host. Or they can put up independent energy storage companies serving the grid, or an independent rooftop rental company. Grid-scale energy storage have the feature of avoided cost: Negros Island during the day has now surplus power from abundant solar and biofuel (bagasse-based) generation but the limited inter-island submarine cable capacity means this can’t be exported; thus, these precious capacities are instead curtailed and wasted. Having grid-scale energy storage will avoid the cost of curtailment and avoid using coal-fired power at night. Having met the CIT reduction condition, these firms now qualify to pay the lower 25% CIT.

This will open up a new investment avenue for large and new businesses and provide a new growth spark for the recovering Philippine economy. The 5% tax differential will serve as a contingent tax on idle rooftops, which tax liability disappears as soon as the condition of solar PV installation and storage is met.

Private businesses will not invest to raise production in an economy of shrunken demand. But they can, and should, invest today to reduce the cost of producing output in preparation for the competitive marathon in full recovery. While this can be done in other ways, installing rooftop solar PV generation and storage ensures an investment that is socially beneficial, market-guided and of short gestation. The private sector has for decades complained but left to the government to resolve the poor quality and high cost of power in the country. Now is the time to step up and be part of the solution. What could be more comforting for private corporations in this age of stakeholder responsibility than marrying the love for Mother Earth and the bottom-line in rooftop solar PV farms? With, we hope, a little nudge from CREATE!


Raul V. Fabella is an Honorary Professor of the Asian Institute of Management (AIM), a member of the National Academy of Science and Technology (NAST) and a retired professor of the University of the Philippines. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.


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