Proposed deferral of MSME registration

In a recent TV interview, incoming Trade Secretary Alfredo Pascual bared his plan to propose the temporary waiver of business registration requirements for micro, small and medium-sized enterprises (MSMEs).

He said a big portion of the country’s population gets income from MSMEs and so they should be assisted to be able to recover from the adverse effects of the pandemic.

The exemption from registration would be good only for the first few years and has to be complied with only after they have taken off the ground and are already profitable.

No doubt, the proposal would encourage the establishment of small businesses without incurring additional costs to the government, which is saddled with more than P12 trillion in national debt.

At present, starting a business, regardless of size, requires compliance with a myriad of registration requirements.

The initial requirement is to register with the Department of Trade and Industry (for sole proprietorships) or the Securities and Exchange Commission (for partnerships and corporations).

Once registered, the business has to secure, depending on the municipality or city where its principal office shall be located, the following permits or licenses: barangay and zoning clearances; occupancy, sanitary, environmental and fire permits; and community tax permit.

Getting these permits can be a pain in the neck or may require multiple trips unless the applicant opts to avail of the services of “fixers.”

Note that this is not a one-time requirement. Those certificates or clearances have to be renewed every year as a prerequisite for the issuance of the permit to operate the business.

After going through the local bureaucratic processes, the business has to register with the Bureau of Internal Revenue (BIR) office that has jurisdiction over the place where the business is located.

If the business plans to hire employees, it has to register them with the Social Security System, the Philippine Health Insurance Corp. and the Pag-Ibig Fund, and make the necessary arrangements for the prompt remittance of the corresponding premium payments.

That’s not all. In case the business to be engaged in is supervised by a government office, e.g., the Food and Drug Administration for the sale of food or medical products, registration with that office is also a must.

Going through the registration processes mentioned requires time, money and effort that could otherwise be applied to or used for the operation of the business.

To avoid going through the bureaucratic maze, many small businesses simply skip the registration processes and join the “underground economy” that operates under the government’s radar.

And by operating in the shadows, they are unable to apply for credit assistance from the government under existing laws that promote the development of MSMEs, or secure loans from banks and other financial institutions to sustain or grow their business.

Worse, they often become prey to unscrupulous government officials tasked with the enforcement of the registration requirements for businesses.

The proposed temporary waiver of registration requirements for MSMEs would require a paradigm shift in the outlook of the national and local government offices involved.

Would the BIR be amenable to forgoing the collection of taxes until such time that the businesses are in the black? And what would be the basis for determining that a business has become profitable to justify its compulsory registration for tax collection purposes?

With regard to local government units (LGUs), can they afford to lose the annual fees collected for the issuance of certificates and permits to those businesses?

The additional revenue share that LGUs would be entitled to under the Mandanas ruling may not be sufficient to make up for the loss of the fee payments.

A lot of brainstorming has to be done on the proposed assistance to small businesses through the provisional waiver of registration requirements to make it workable. INQ

For comments, please send your email to [email protected].