TAX relief is necessary to help small businesses recover from the economic pain as most of them have incurred debts and losses due to temporary closures amid the Covid-19 crisis.
Tax expert Raymond Abrea, president of Asian Consulting Group, said social protection should be directed to micro, small and medium entrepreneurs (MSMEs) who employ most of the country’s workforce.
“The government must consider this as an opportunity to fix distorted tax policies and help companies and their employees prepare for the new normal in the coming months through a more focused and strategic economic recovery plan,” he said.
Abrea, a tax reform advocate, said tax breaks are needed by small entrepreneurs even as their payments are deferred due to the enchanted community quarantine (ECQ).
“During this ECQ, small businesses have zero or no income, but they still have to pay for salaries, rent, phone bills, internet and other fixed costs. Payments may have been deferred but still after the lockdown, where will they get cash to pay their accumulated bills?” he said.
The Department of Finance (DOF) is mulling an economic bounce-back plan which is part of the government’s P1.17 trillion worth of fiscal, budgetary and monetary measures.
Part of this is the DOF’s P50 billion small business wage subsidy (SBWS) program for the 3.4 million workers of small enterprises.
The government has also mandated the 30-day grace period on residential and commercial rents falling due within the ECQ period without incurring interests and penalties.
Small Business Corp. is also lending a P1 billion loan facility to aid affected MSMEs when they operate again.
But while these measures are needed, Abrea noted tax breaks should also be implemented to help MSMEs with their cash flow stability.
General tax amnesty
“Considering what’s happening on the ground, the low tax collections from audit and the new normal after ECQ, it’s the best time to implement a general tax amnesty,” the tax analyst said.
Instead of a 10-year period in lowering the corporate income tax rate from 30 percent to 20 percent, “the government may consider now an immediate reduction” to 25 percent and 20 percent for large and small taxpayers, respectively.
Rather than prioritizing only those registered taxpayers for the government aid, Abrea instead suggested that businesses in the informal economy should also be urged to comply with tax policies so they can avail of the state benefits.
“Provide a one-time amnesty to waive all or penalties for them to register or update their contributions by deducting it from their supposed wage subsidy,” he said.
Closing the gap in government records should be the goal, he said.
Based on the data from the Department of Labor and Employment, the country’s labor force stood at more than 40 million. The Social Security System has almost 30 million registered employees while only about 17 million taxpayers are registered by the Bureau of Internal Revenue.
“This gap unduly discriminated employees from benefits and now assistance from government as only 3.4 million are prioritized to receive under the SBWS,” he said.