Let's Talk Tax

Business registration in the new normal

Since the World Health Organization classified COVID-19 as a pandemic on March 11, “the new normal” became the go-to term for describing the new reality. Throughout history, we survived calamities because of our ability to adapt to changing times. With our mobility limited by social distancing protocols, we see a sudden business shift from physical stores to online platforms. Aspiring entrepreneurs taking advantage of new-normal opportunities might ask, “Can I start a new business during the pandemic?”

Coincidentally, Republic Act (RA) No. 11032, also known as the Ease of Doing Business and Efficient Government Delivery Act of 2018 (EDB Law), was approved on May 28, 2018. RA No. 11032 amends RA No. 9485 or the Anti-Red Tape Act of 2007. The EDB Law is third in the current administration’s 10-point socioeconomic agenda. Since RA No. 11032 was enacted, our country’s ranking in the World Bank Doing Business report has risen from 124th in 2018 to 95th place in 2019. Now that we are in a state of a public health emergency, ease of doing business will be beneficial for new and aspiring entrepreneurs.

One of the EDB Law’s salient features is the shortened timeline for transactions with the government. Under the law, simple transactions should take no longer than three working days. Complex transactions should take no longer than seven working days, and highly technical applications should take no more than 20 days. It is important to note that the Anti-Red Tape Authority (ARTA) recently approved Memorandum Circular (MC) No. 2020-03-A, which provides a suspension to the mandated processing times of 3-7-20 working days in areas placed under enhanced community quarantine.

While it is too early to say that government bureaucracy is a thing of the past, we can see improvements and initiatives to ease the conduct of business. This is especially true now that the Bureau of Internal Revenue (BIR), in Revenue Memorandum Circular (RMC) 60-2020, has reminded business owners and online sellers to ensure that their businesses are registered or that their registrations are updated with the BIR. Under RMC No. 60-2020, non-registered business owners have until July 31 to register or update their records. Failure to register by that date will result in penalties for late registration.

Such a pronouncement from the BIR startled new business owners and online sellers, particularly those who are unregistered or unaware of business registration processes. Fortunately, new business owners can register online with the appropriate government agencies.

SOLE PROPRIETORSHIPS
Sole proprietors can register their business name online through the Department of Trade and Industry’s (DTI’s) Business Name Registration System in compliance with Administrative Order No. 18-07, which implements RA No. 3883, or the Business Name Law. Registration fees vary depending on the territorial scope of the business.

CORPORATIONS AND PARTNERSHIPS
Corporations and partnerships can initially register by creating an account with the Securities and Exchange Commission’s (SEC’s) Company Registration System (CRS). A valid e-mail address is required. In the CRS, a person can register and upload the necessary documents for SEC review and approval. In compliance with the EDB Law, the SEC issued MC No. 16 -2020, which provides alternative ways to authenticate the Articles of Incorporation (AoI) when registering new domestic corporations.

Under MC No. 16-2020, the new corporation has two options. One, it can submit its AoI with a Certificate of Authentication signed by all incorporators on the SEC-prescribed form. Through this mode, both the AoI and the Certificate of Authentication do not have to be notarized or consularized. Two, the incorporators can authenticate traditionally by acknowledging the AoI before a notary public.

REGISTRATION WITH THE BIR
After registering with the DTI or the SEC, the next process is registering with the tax authority, the BIR. In RMC No. 57-2020, the BIR revised the checklist of documentary requirements for registering with the Bureau. One of the significant changes is the removal of the mayor’s permit as a mandatory requirement.

The Tax Code, as amended, requires every person subject to any internal revenue tax to register with the BIR Revenue District Office before the commencement of business. Aside from being made liable for deficiency taxes and penalties, taxpayers who fail to register with the BIR are subject to fines of between P5,000 and P20,000, and imprisonment of between six months and two years.

REGISTRATION WITH THE LOCAL GOVERNMENT
While a mayor’s permit is no longer a requirement for BIR registration, it does not mean that registering with the local government unit (LGU) is unnecessary. The Constitution grants LGUs, subject to the guidelines and limitations set by Congress, the right to create their own source of revenue and to levy taxes, fees, and charges.

Although registering with the LGU may still involve manually filing with the city or municipal hall, the EDB Law has promising changes.

One of the EDB law’s features on local government business registration is the establishment of a Business One-stop Shop (BOSS) — Negosyo Center. It is a single location, website, or convergence point for national government agencies, LGUs, and the private sector to promote ease of doing business and to ensure access to government services within a jurisdiction. Within three years of the effectivity of the EDB Law, all cities and municipalities must automate their business permitting and licensing system or set up an electronic BOSS to facilitate a more efficient business registration process.

Under the EDB Law, the new business owner no longer needs to go to the barangay hall, since barangay clearances and permits for doing business shall be applied to, issued by, and collected at the city or municipality. The fees collected for barangay clearance and permits are remitted to the respective barangays.

The Ease of Doing Business Act of 2018 is an important piece of legislation, especially now that we are in the middle of a pandemic. While it is within the State’s power to compel citizens to register their businesses to contribute to nation-building by paying taxes, the State has a concomitant obligation to promote integrity, accountability, proper management of public affairs in government services, and the prevention of graft and corruption in government.

Can I start a new business during a pandemic? The answer is a definite yes — provided that you register.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Lorenzo V. Matibag is an associate of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

 

As published in BusinessWorld, dated 07 July 2020