DOF to seek Congress OK of prolonged tax relief for small businesses

The Department of Finance (DOF) is seeking legislation, which could take years to finish, to allow the government to absorb losses of small businesses as a result of COVID-19 lockdowns through tax relief for a longer five-year period.

Finance Secretary Carlos G. Dominguez III, in a statement on Monday (April 27), said the DOF would proposed to Congress a longer net operating loss carry-over (Nolco) of five years for losses incurred in 2020, the height of the COVID-19 pandemic.

“This means that a small business’ losses this year may be deducted from their income for up the the next five years for tax purposes,” said Dominguez.

He said the purpose was to give small businesses more time to recoup losses incurred because of COVID-19 lockdowns.

Under the Tax Code, Nolco applies to only three taxable years. The amendment would add two years.

Dominguez said the Tax Code provided that net operating losses, which are not offset as tax deduction, would now be “carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.”

Dominguez said the DOF’s estimates place losses of small businesses, forced to close by the lockdowns, at P465.3 billion in 2020 alone.

Those operating with skeletal workforces, he said, were likely to suffer at least P4.3 billion in losses.

If Congress agreed to the longer Nolco period, Dominguez said the government was capable of absorbing up to P139.6 billion in forgone tax revenue from 2021 to 2025.

Dominguez said the Nolco coverage extension was similar to tax relief measures being enforced in the United States and China.

Edited by TSB