THE Department of Finance (DoF) is proposing the extension of the net operating loss carry-over (NOLCO) by two years for small firms which are facing nearly P500 billion in losses as a result of strict lockdown measures.

In a statement on Monday, Finance Secretary Carlos G. Dominguez III said extending the NOLCO to five years from the current three-year period would require approval by Congress, as it is provided for under the National Internal Revenue Code (NIRC).

“We will propose to Congress an extended 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,” Mr. Dominguez was quoted as saying.

The Finance chief said that extending the tax deductibility of losses incurred in 2020 will allow small businesses to “recoup” losses they suffered during the Luzon-wide enhanced community quarantine (ECQ), which started in mid-March.

DoF estimates showed small companies may suffer around P465.3 billion in financial losses due to strict protocols of the ECQ, which forced many to temporarily halt operations or employ a skeletal force.

Small businesses that operate in shopping malls and other outlets are expected to post P461 billion in losses, while those who have remained open but at reduced capacity will record P4.3 billion in losses.

“The longer NOLCO period will have the effect of lowering the tax payments between 2021 and 2025 of affected small businesses by a combined estimated total of P139.6 billion,” Mr. Dominguez said.

Under the NIRC, net operating losses of businesses that have not been previously offset as a deduction could be carried over as a deduction from their gross revenues over the next three taxable years immediately following the year of such loss.

Sought for comment, Albay Representative and House Economic Stimulus Cluster Co-Chairman Jose Maria Clemente S. Salceda said they will include the NOLCO extension provision under the proposed Economic Stimulus Act bill.

“It’s one of the tools we will include — a scalpel in the operating room for economic recovery,” Mr. Salceda said in a Viber message.

He estimated that the impact of the coronavirus pandemic on asset quality of businesses could reach P3 trillion.

Meanwhile, the government also assured that it will provide credit guarantees for small businesses affected by economic fallout from the pandemic. This will cover up to P120 billion worth of loans, according to the DoF.

“The credit guarantee program will provide small businesses easier access to bank financing, which tends to contract during crisis periods,” Mr. Dominguez said, adding that these could help small firms improve their cash position and settle other expenses. — Beatrice M. Laforga

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