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Philippine President Rodrigo Duterte. Image Credit: AP

Philippine President Rodrigo Duterte on Friday signed a law that reduces the corporate income tax from 30%, the highest among Southeast Asian nations, part of government efforts to help pandemic-hit businesses recover.

Called the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the law decreases the income tax rates for big firms to 25%, and for micro, small and medium enterprises to 20%, by 2029.

The law also streamlines incentives to investors to plug leakages worth over 300 billion pesos ($6.2 billion) resulting from tax holidays and other perks, and allows duty-free importation of COVID-19 vaccines.

"Crucial portions of the CREATE Act were intended to be emergency tax relief for struggling enterprises, but we must not lose sight of this reform's long-term objectives," Duterte said in a statement to the House of Representatives.

With the reform, businesses are expected to enjoy over 600 billion pesos in tax relief over the next five years, he said.

Last month Congressman Joey Salceda, chairman of the panel that worked on the final version of the bill, said the measure would remove investor uncertainty over the country's fiscal regime, thus "opening the floodgates to investment".

Salceda also expected the measure to help create 1.8 million jobs over the next ten years.

Despite being one of Asia's fastest-growing economies before the pandemic, the Philippines has been a laggard in the region in attracting foreign direct investment because of foreign ownership restrictions, high power costs and poor infrastructure.