Low-tax regime proposed for social enterprises

Posted on April 14, 2015

PRIVATE SECTOR groups are backing a proposal that will create a separate tax regime under which social enterprises will enjoy lower tax rates.

In a media roundtable yesterday, Alexander B. Cabrera, chairman and senior partner of audit firm Isla Lipana & Co/ PwC Philippines said the planned proposal seeks to set a fixed tax payment for businesses classified under the social enterprise (SE) sector.

“We’re pushing to come up with a proposal that will set a separate taxation regime for the SEs’ in cooperation with Senator Paolo Benigno A. Aquino IV,” he told reporters on Monday.

Although the group has yet to firm up the content of the legislation together with the Management Association of the Philippines -- which Mr. Cabrera said is likewise supportive of the plan -- the group, among others, is looking at a “below 5% tax rate or a fixed amount yet to be determined” for social enterprises.

“Right now, in the consolidated incentives bill, there’s a proposal to reduce income tax rate to 15% and then of course, there’s a 5% special taxes for those special regimes. That gives you an idea that we’re looking at 5%; it can’t be more than what big corporations can afford to pay. If you want to make big corporations pay 5%, then small businesses must pay much less,” he said.

“But, then, we’re more into setting a fixed amount. Because, for example if you say 3% of revenue, they won’t declare their revenue, if you say 3% of gross income, then they don’t declare their gross income, so it’s not fair, even to the government. So if you want to teach small companies compliance, make a rule that will help them comply,” he added.

“For example, let’s set a P50,000 tax payment for social enterprises, then, that’s it,” Mr. Cabrera further said.

The Isla Lipana official said social enterprises refer to social mission-driven organizations that conduct economic activities to elevate the conditions of the poor, basic and marginalized sectors of the society. At least 50% of their total expenditures must also directly accrue to the fulfillment of their specific social missions.

Sought for comment yesterday, Mr. Aquino said a similar proposal has hurdled the first step of the legislative process and may secure second-reading approval from the Senate at the latest by June.

“The PRESENT bill,” passed committee already and hoping it will be up for debate in May and June,” the senator said in a text message.

Senate Bill No. 2210, to be known as the “Poverty Reduction through Social Entrepreneurship (PRESENT) Act” -- the substitute bill of Senate Bill 1026 filed by Mr. Aquino on July 22, 2013 -- seeks to establish PRESENT as a flagship program to progressively improve the position of poor, marginalized sectors.

Unlike the proposal of Mr. Cabrera though, the Senate Bill does not have any tax provision.

“Social enterprises are taxed based on existing regulations,” the office of Mr. Aquino said when asked for clarification.

Meanwhile, in the House of Representatives, several lawmakers are also seeking to provide tax perks for social enterprises.

Under House Bill No. 1331 filed by Coop-National Confederation of Cooperatives party-list Reps. Cresente C. Paez and Anthony M. Bravo, and Ifugao Rep. Teddy Brawner Baguilat, Jr., tax exemptions and tax breaks would be provided for social enterprises and social investors.

In a related development, Isla Lipana & Co., the Philippine member firm of the PwC global network, together with the Benita & Catalino Yap Foundation recently presented awards to Filipino social entrepreneurs in a bid to recognize and support their efforts.

Mr. Cabrera said winners of the Developmental Social Enterprise Awards (DSEA) last month would be provided business consultancy and seminars, including assistance for SEs in scaling up their operations.

Many social entrepreneurs are located in Mindanao, he said, adding: “We’re educating them how to do business, helping them with good governance, compliance with government requirements, taxation and we also provide them basic auditing, recording lessons.”

Mr. Cabrera noted that although government support will be of great help to pushing the country’s social enterprise sector further, the program is private-sector driven.

“Legislation will help but this is a private sector driven thing; we work on things that we have control of, we work around existing laws,” he added.
Most of the participants of the DSEA, he further said, came from the agriculture sector with products including coffee, muscovado sugar, seaweeds, and organic products, among others. -- Imee Charlee C. Delavin