FINANCE Secretary Carlos Dominguez III has assured micro, small and medium enterprises (MSMEs) that the Duterte administration’s plan for the economy to recover from the coronavirus-induced global crisis covers an array of programs meant to help them get back on their feet.
Dominguez said two bills pending in the Congress—one on immediately slashing the corporate income tax (CIT) rate and another designed to free the banking system from bad loans and other non-performing assets (NPAs)—will benefit big firms as well as MSMEs hit by the pandemic.
The proposed Corporate Recovery and Tax Incentives for Enterprises Act (Create) will lower the CIT from the current 30 percent to 25 percent, which means tax breaks for 99 percent of business enterprises, which are the MSMEs, Dominguez said.
“The small and medium enterprises in this country have never had a tax break. It’s the big ones that go and register with Peza (Philippine Economic Zone Authority) that are given tax incentives,” Dominguez said during a recent briefing by the Development Budget Coordination Committee (DBCC) before the House appropriations committee.
Dominguez said the passage of Create, which will align the corporate tax rate with the Asean average, will make the Philippines the only government to provide tax breaks to MSMEs.
Under the current system, about 3,000 big companies enjoy incentives that let them pay discounted tax rates of between 6.0 and 13 percent of net income only, while small enterprises that make up 99 percent of local businesses and employ majority of Filipino workers pay the regular CIT of 30 percent, which is the highest in the region.
Another pending legislative measure—the Financial Institutions Strategic Transfer (Fist) bill will allow banks to dispose of their NPAs through newly-formed asset management companies similar to the special purpose vehicles (SPVs) created in the 2000s in response to the 1997 Asian financial crisis.
Dominguez said that clearing the books of banks of roughly P1 trillion of bad loans and other NPAs will, in turn, enable them to lend another P3.5 trillion to private businesses, most of them MSMEs.
“Without the Fist bill, the economy is going to be worse off and the worst hit is going to be the small and medium enterprises,” Dominguez said. “Allowing banks to clear their books allows them, actually, to have more money for the small and medium enterprises.”
On top of these two pending bills, Dominguez said the Monetary Board (MB), for the first time ever, allowed loans to MSMEs to be used by banks as compliance with their reserve requirements.
Preliminary data from the Bangko Sentral ng Pilipinas (BSP) show that as of July 23, around 97 banks have disbursed loans to MSMEs, which increased the reserve requirement balance from MSME loans to an average of P84.2 billion.
This was more than seven times the P9.9-billion average daily balance of MSME loans used by 55 banks as alternative compliance with the reserve requirement as of end-April, the BSP said. (PR)