Gov’t readies tax relief for SMEs

The Department of Finance (DOF) is seeking legislation so that the government can absorb the losses of small businesses due to the COVID-19 pandemic through tax relief for a longer five-year period.

“We will propose to Congress an extended net operating loss carryover (Nolco) of five years for net losses that will be incurred in 2020. This means that a small business’ losses this year may be deducted from their income for up to the next five years for tax purposes,” Finance Secretary Carlos G. Dominguez III said in a statement Monday.

“The purpose of extending Nolco is to give them more time to recoup their losses arising from the implementation of the enhanced community quarantine (ECQ) and other measures to contain the spread of COVID-19,” Dominguez added.

Under the Tax Code, Nolco covered only three taxable years such that an amendment must be approved by Congress to stretch the relief by two more years.

Dominguez noted that under the Tax Code, “net operating losses, which had not been previously offset as a deduction, shall be carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.”

As most small entrepreneurs had to temporarily close shop or deploy skeleton workforce due to the ECQ and other movement restrictions affecting their operations, Dominguez said that the DOF’s estimates showed they would lose about P465.3 billion in revenues this year.

“Small businesses operating in malls and other retail outlets would incur losses of about P461 billion while those that have remained open but on skeleton force capacity will lose around P4.3 billion,” Dominguez said.

Once Congress agrees to the longer Nolco period, Dominguez said that the government could absorb P139.6 billion in foregone tax revenues during the period 2021 to 2025.

“The enhanced Nolco for small enterprises to cover losses in 2020 is similar to the tax relief measures being adopted in the United States and China to provide relief to their respective business sectors,” Dominguez added. INQ