Tax breaks for small businesses

(First of a series)

Amid the COVID-19 pandemic, countries around the world are implementing various emergency tax relief to support companies, especially small businesses and their employees.

As the business and social impact of this health crisis increases, government and business leaders have a crucial role to play in developing both short-term and long-term solutions to mitigate the risks and continue to create values without compromising people’s health and the economy at large.

Now more than ever, world leaders and citizens must work together, cooperate and adopt best practices to manage the impact of the coronavirus. Immediate action is critical, but governments must consider this as an opportunity to fix distorted tax policies and help companies and their employees prepare for the new normal in the coming months through a more focused and strategic economic recovery plan.

Here are some of the economic tax relief plans consolidated by the Tax Foundation, which the Philippine government can consider in preparing its economic recovery plan:

• Australia introduced a wage subsidy scheme through which employers would be able to receive a $1,500-payment per retained worker every two weeks;

• Austria is reducing income and corporate tax prepayments, deferring tax payments, allowing taxes to be paid in installments, reducing or providing relief from late tax payments, and suspending tax audits;

• China has reduced its value-added tax from 3 percent to 1 percent for the cash accounting program for small businesses until the end of May.

In the Philippines, the Department of Finance is preparing an economic bounce-back plan, which is part of the P1.17 trillion worth of fiscal, budgetary and monetary measures. Part of this is the P50.8-billion small business wage subsidy program for 3.4 million workers of small businesses. The subsidy will range from P5,000 to P8,000 per beneficiary. Under this program, small businesses are defined as those not belonging to the top 2,745 large taxpayers of the Bureau of Internal Revenue (BIR).

Even prior to enhanced community quarantine (ECQ) extension, the Department of Trade and Industry, together with other government agencies, has already extended assistance to micro, small and medium-sized enterprises (MSMEs), to wit:

1. A minimum 30-day grace period on residential and commercial rents falling due within the ECQ period, without incurring interests, penalties, fees and other charges;

2. Unhampered movement of cargo and transit of personnel of business establishments allowed to operate during the ECQ of Luzon;

3. Setting up by the Small Business Corp. of the P1-billion enterprise rehabilitation financing facility under the Pondo sa Pagbabago at Pag-asenso (COVID-19-ERF) to support micro and small businesses affected by the economic impact of the coronavirus in the country. Microenterprises with asset size of not more than P3 million may borrow P10,000 to P200,000 while small enterprises with asset size of not more than P10 million may borrow a higher loan amount but will not exceed P500,000 at an interest rate of 0.5 percent;

4. The Livelihood Seeding Program–Negosyo sa Barangay amounting to P203 million was established to provide a package of livelihood kits and business advisory assistance and services, amounting to at least P5,000 up to P8,000 to MSMEs;

Surprisingly, the most proactive and considerate in extending assistance to businesses is the BIR. After extending all the deadlines falling due within the ECQ period, it has exempted all donations for COVID-19 and suspended all audit and investigations. However, taxpayers are reminded to keep themselves updated of the latest issuance to avoid confusion.

While we laud the government’s efforts in helping our MSMEs, here’s a bucket list of tax relief that can really address the cash flow or liquidity issues of a lot of small businesses while helping the government collect taxes from large taxpayers and those who can afford:

1. general tax amnesty

2. lowering of corporate income tax from 30 percent to 25 percent

3. tax credit or rebate for employees

4. tax holiday for MSMEs

5. no audit program for large taxpayers

And what can businesses

do during the lockdown to prepare for tax audit and investigation once the suspension is lifted? INQ(To be continued)This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines, or MAP. The author is a member of the MAP tax committee and founding president of the Asian Consulting Group (ACG) and the Center for Strategic Reforms of the Philippines (CSR Philippines).