By Roderick L. Abad | Contributor
WITH the upcoming national elections in May, the proposal of a private-sector group to create a separate and lower tax regime for social enterprises (SEs) is seen to gain support in the next Congress.
“I’m not confident that the [proposed] tax reform is going to pass the legislative [body at present],” Isla Lipana & Co/PwC Philippines Chairman and senior partner Alexander B. Cabrera said.
The group is looking at a below 5-percent tax rate or a fixed amount, which is yet to be determined for SEs.
At the sidelines of the launch of Developmental Social Enterprise Awards 2016 in Intramuros, Manila, Cabrera told the BusinessMirror they are very confident that the tax incentive they are lobbying for support from lawmakers will gain ground in the 17th Congress. The proposal was one of the initiatives tackled during the Asia-Pacific Economic Cooperation Summit held in the country last year, focusing on the micro, small and medium enterprises (MSMEs).
“So, I think, it’s a critical piece of legislation that will greatly help in building the right ecosystem for MSMEs,” he said in Filipino.
Since last year, the group has been pushing this proposal, setting a different tax system for SEs. “The regime must cover micro and small business, even if they are not social enterprises. And, of course, SEs will be covered with that,” Cabrera said.
“We’re working with Sen. Paolo ‘Bam’ Benigno A. Aquino IV and still soliciting the data. But I think we have it in mind that even world organizations, such as the World Bank, already have this in their agenda, which we keep on providing inputs—a simple, singular tax for small and micro enterprises. What we’re really saying is that the government is not really subsidizing them. So just give them a break when they’re small by relieving them in paying taxes,” he said. SEs are socially driven organizations that conduct economic activities to help improve the conditions of the poor, basic and marginalized sectors of society.
At least half of their total expenditures must be directly allocated to the realization of their specific social missions.
“In general, an SE is a micro or small enterprise that deserves a separate tax regime. When the business is small, all that they want to do is to provide the money to go into operations. They don’t have money to pay for tax. When they get bigger, then they are going to comply [with the taxation system],” the executive said.
And how do these small businesses survive?
“By hiding underground; by not declaring [their financial status],” he said, while citing his estimates that around 60 percent of businesses in the Philippines operate thus.
“If the government is not collecting anything from them anyway, we might as well create a separate tax regime that can improve their governance so that they can have the viable financial statements that will make them qualify to borrow money from the banks,” he said. Apart from low taxation, Cabrera suggested a one-stop-shop registration for these enterprises, which is possible with the enactment of the Go Negosyo law.
“We now have over 120 [Go Negosyo] centers all around the Philippines, plus the Department of Trade and Industry. These Go Negosyo centers can be harnessed to be a one-stop shop for registration. So the structure is already in place. We only need to enhance it,” he said.