Tax breaks for small businesses
According to the 2018 List of Establishments from the Philippine Statistics Authority, there are 1.003 million business enterprises operating in the country and almost all of them (99.52 percent) are micro, small and medium enterprises (MSMEs). The government should thus prioritize MSMEs when it comes to social protection or assistance, considering that they employ 63.19 percent of the country’s total workforce.
During this enhanced community quarantine (ECQ), small businesses have zero or no income, but they still have to pay for salaries, rent, phone bills, internet and other fixed costs. With the grace period granted by Bayanihan Act, payments may have been deferred but still after the lockdown, where will they get cash to pay their accumulated bills?
By now, small businesses have incurred debts and losses with increasing risk of closing down if ECQ gets further extended.
Finance Secretary Carlos Dominguez III presented already to Congress the P1.49-trillion 4-pillar socioeconomic strategy against coronavirus disease (COVID-19). However, the integrated task force is still designing a bounce-back plan for a post-ECQ scenario.
With the special powers granted to President Duterte, here are some of the immediate actions which the government can do after May 15 with the help of private sector:
1. Allow companies to operate with a skeleton workforce with work-from-home options for select employees and strict compliance to basic protective measures including physical distancing and random rapid testing per building;
2. Mandate commercial and office space lessors to waive rental fees during the ECQ period and reduce rent by 50 percent in the next 3-6 months and/or payable for 6-12 months installment without interest and penalties;3. Mandate commercial banks to grant a six-month moratorium on MSME loans, including credit cards without finance charges and penalties;There is still no vaccine or treatment for COVID-19. Medical experts said symptoms of a coronavirus usually go away on their own, but the total lockdown will definitely kill micro and small businesses if the government will not prepare immediate and long-term economic tax relief plans.
Based on the initial responses of other countries and the Philippine government to help
MSMEs, here are some tax breaks for small businesses which can help address their cash flow or liquidity issues while collecting taxes from large taxpayers:
General tax amnesty
Of the more than 1,000 tax evasion cases filed by the Bureau of Internal Revenue (BIR), more than 90 percent remain pending at the Department of Justice.
In fact, less than 3 percent of the total tax collections are from audit and investigation including delinquent accounts. Even the delinquency tax amnesty is barely making any impact as most taxpayers are protesting the assessment of BIR examiners.
Considering what’s happening on the ground, the low tax collections from audit and the new normal after ECQ, it’s the best time to implement a general tax amnesty.
Lower corporate income tax
Instead of a 10-year period in lowering our corporate income tax from 30 percent to 20 percent, the government may consider now immediate reduction to 25 percent for the large taxpayers or top corporations and conglomerates using the itemized deductions but no less than the 5 percent income tax and value-added tax (VAT) threshold.
For the small businesses or those not classified as large taxpayers, a lower rate of 20 percent may apply but mandate use of optional standard deduction or an effective rate of 12 percent. Otherwise, they will have to use the 25 percent reduced rate.Tax credit/rebate
Rather than simply prioritizing those who are BIR and Social Security System (SSS) compliant, this can serve as an opportunity to encourage those in the informal sector, unregistered and noncompliant to register now and comply so they can avail themselves of the benefits from the government. Provide a one-time amnesty to waive all penalties for them to register or update their contributions by deducting it from their supposed wage subsidy.
The goal is to close the gap among the records of the government. The Department of labor and employment (Dole) reported more than 40 million labor force or employees, SSS has almost 30 million registered employees while only 17 million are registered with BIR. This gap unduly discriminated employees from benefits and now assistance from the government as only 3.4 million are prioritized to receive under the Small Business Wage Subsidy (SBWS) program.
The economic tax relief must cover all employees as tax credit or rebate if they have withholding tax, and also tax rebate for small business owners who released salary during the ECQ period.
Tax holiday for professionals
This tax holiday from business taxes due to both national and local governments should eventually transition into a flat tax for self employed and professionals (SEPs). This will further encourage registration and compliance among the least compliant taxpayers in the country.
Allowing SEPs or individual taxpayers who are neither employed or incorporated and not part of the large taxpayers to pay flat 8 percent tax in lieu of all taxes will not only simplify taxation for small businesses but also increase voluntary compliance without any need for audit or investigation. INQThis article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP. The author is a member of the MAP Tax Committee and is the Co-Chair of the Ease of Doing Business (EODB) Task Force on Paying Taxes
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