New tax relief for small businesses

On May 2, 2020, I published an open letter to all legislators and sent a copy to both the Senate and the House of Representatives. Basically, the message is urging our legislators to end injustice by legislating tax policy reforms to help all businesses adjust to the new normal.

It underscored the fact that 99.52% of businesses in the country are micro, small and medium enterprises (MSMEs) which employ 63.19% of total workforce. While we laud the government’s efforts to help MSMEs, here’s a list of proposed tax relief measures which can help address cash flow or liquidity issues of a lot of small businesses while encouraging the large taxpayers pay taxes with lower rates:

1. Implement a general tax amnesty to broaden the tax base and collect without the need for an audit;

2. Lower the corporate income tax from 30% to 20%;

3. Implement a tax holiday from business taxes which will eventually transition to a flat tax for self-employed and professionals (SEPs);

4. Provide wage or payroll subsidy which will benefit both employers and employees especially those who incurred significant losses and debts due to the pandemic;

5. No audit program (proposed to the Bureau of Internal Revenue).

GENERAL TAX AMNESTY
Still pending in Congress is the general tax amnesty which was initially vetoed by the President due to the absence of the provision lifting the bank secrecy law on tax fraud cases. The same provision remains its major hurdle as legislators may not be keen in lifting the bank secrecy as it may backfire on them when they get audited in the future. Although the tax amnesty on delinquency has been extended until June 20, 2021, a general tax amnesty will help collect more taxes from taxpayers without the audit and investigation.

INCOME TAX CUT
After reading the 170-page Senate Bill No. 1357 or Corporate Recovery and Tax Incentives for Enterprise Act (CREATE), it felt like our legislators listened and considered our proposals seriously with the lowering of corporate income tax from 30% to 25% effective July 1, 2020 and just 20% for those with P5 million net taxable income (with total assets less than P100 million excluding land). This is indeed a welcome development and a good Christmas gift to all our small businesses.

However, I hope with the approval of the CREATE bill, the oversight committee of both Houses will revisit the TRAIN law to align the tax relief extended to individuals owing to the fact that small businesses are mostly self-employed or sole proprietors registered with the Department of Trade and Industry and Bureau of Internal Revenue (BIR) as individual taxpayers. The Barangay Micro Business Enterprise law may also need to be reviewed to address possible tax leaks by using annual gross revenues or net taxable income as the basis instead of total assets to rationalize income tax exemption.

TAX HOLIDAY
The self-employed and professionals may not be getting any tax holidays but proprietary educational institutions and hospitals which are non-profit will get the biggest tax break from 10% to 1% in income tax beginning July 1, 2020 until June 30, 2023, provided their gross income from unrelated trade, business or other activity does not exceed 50% of their total gross income.

PAYROLL SUBSIDY
Whether you earned a small profit or incurred losses this year, the 13th month pay is a mandatory benefit of all employees due on or before Dec. 24. Definitely, it should not be deferred despite the financial position of the company as most employees rely on it to celebrate Christmas with their families. The question is, where will the money come from if employers don’t have the available cash to release the 13th month pay? That’s why a payroll subsidy is needed either in the form of a tax-free loan or a partial subsidy to help small businesses release it without delay.

NO AUDIT PROGRAM
The BIR has issued Revenue Regulation 21-2020 on the implementation of a Voluntary Assessment and Payment Program (VAPP) for the taxable year 2018. This is very similar to our proposed “No Audit Program” as the VAPP allows taxpayers to voluntarily pay their unpaid taxes so they will no longer be subject to an audit for the taxable year 2018. The deadline to avail of this has been extended until June 30, 2021. Clarifications were also made in RMC 111-2020.

But the greatest tax relief was initiated by the BIR. It is the ongoing digital transformation of the tax administration which resulted in 86% tax payments made through online platforms, i.e., P1.241 trillion of P1.45 trillion between January and September, tax returns filed online hit 16.45 million or 94% of the total in the nine months. Some of the projects or programs introduced or completed during the quarantine period:

1. Internal Revenue Integrated System in April;

2. Electronic Audited Financial System in June;

3. E-appointment facility in October;

4. Online Application for Tax Clearance for Bidding Purposes in November;

And on Dec. 21, 2020, an online program called BIR IN ACTION Live was launched to highlight the programs, accomplishments, new policies, and regulations of the BIR, and to answer tax questions from netizens or taxpayers who can watch it via the Facebook Page of the Bureau of Internal Revenue Philippines every Monday at 3 p.m. The show was simulcast live on FYE Channel via Kumu and TaxWhizPH YouTube Channel.

You may also download TaxWhizPH mobile app for free to ask tax questions and use a tax calculator to help you pay your taxes correctly and on time. Visit www.taxwhiz.ph for more information and www.acg.ph for tax assistance so you can stay out of trouble with the BIR.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

Raymond A. Abrea is a member of the MAP Ease of Doing Business Committee, co-Chair of the Paying Taxes – EODB Task Force, Chair and Senior Tax Advisor of the Asian Consulting Group (ACG), the founder of the TaxWhizPH mobile app and the Center for Strategic Reforms of the Philippines (CSR Philippines), which is the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business.

mon@acg.ph

map@map.org.ph