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Line of Sight
Tax Reform for MSMEs
06 Dec 2016The Philippine Chamber of Commerce and Industry (PCCI) in cooperation with the USAID is currently conducting roadshows to inform taxpayers and solicit comments and suggestions that may be considered in the proposed tax reforms. These events are co-hosted by the Department of Finance (DOF) from whom the proposed tax reform packages originated.
Emphasis is given to the situation of the micro, small and medium enterprise (MSME) sector which comprises majority of the country’s income earners. An MSME in the Philippines is any business activity or enterprise engaged in industry, agri-business and/or services that has an asset size (excluding land) of up to PhP100 million with less than 200 employees. Statistics from the Department of Trade and Industry (DTI) show that 99.6 percent of local business enterprises are MSMEs, which include sari-sari stores, groceries and convenience stores. However, most MSMEs are discouraged from paying taxes due to the complicated tax system. To address this issue, tax reform advocates recommend the simplification of our tax system. Upon consultation, MSMEs identified some areas that may be simplified to encourage their tax compliance:
- Business registration. Streamline the registration process and requirements. At present, post- registration includes applications to print receipts, registration of books, securing permits to use Cash Register Machines (CRM), Point of Sale (POS) Machines and registration of Computerized accounting systems (CAS). Combining some of these procedures may alleviate the burden of MSMEs to register.
Additionally, consider the removal of the registration fee of PhP500.00 that taxpayers are required to pay every year. The filing of tax returns is sufficient enough to inform the BIR that such taxpayer is still registered and existing.
- Tax forms and filing requirements. Taxpayers are required to file at least 23 kinds of tax returns every year; these include monthly, quarterly, and annual returns. Alphalists (annualized withholding taxes), summary lists, and other supporting schedules and documents are also required to be filed. Annual ITR forms consist of 12 pages for individuals and eight pages for companies. Payroll-related payments particularly take up plenty of man-hours. Compliance requirements should be simplified for MSMEs to reduce the cost and time of doing business.
- Tax payment methods. Simplify the payment procedure especially for MSMEs which have limited ways to pay. Aside from tax payment through authorized agent banks (AAB), online and the use of credit/debit/prepaid card and G-cash, consider accepting payments via bayad centers and malls as alternative venues for paying taxes. Provide computer stations in BIR district offices that taxpayers can use especially in those remote areas where internet access is limited.
- Tax Regime. Most MSMEs are single proprietorship and are taxed using the graduated rates based on their income brackets under the Tax Code. This means that their tax rate increases as the taxable amount increases. In the pending bill entitled “The Small Business Tax Reform Act” of Senator Bam Aquino, a flat single tax rate on small businesses was proposed to simplify tax computation and encourage voluntary payment. The same bill exempts small businesses from paying income tax for the first three years of operations to allow them to thrive first before they could pay taxes.
The proposed increase in the VAT threshold that would exempt MSMEs with a total annual sales of PhP3 million and below from paying VAT will likewise excuse them from the difficulties in complying with the complicated VAT regulations.
- Information dissemination. Aside from using the BIR website, increase taxpayer awareness by providing more ways to circulate BIR issuances such as television and radio broadcasts, social media postings, pamphlets, etc.
A taxpayer kit may also be provided upon registration with guidelines on tax compliance and tax filing deadlines to educate MSMEs.
- BIR assistance. Similar to the Large Taxpayer Assistance Division of the BIR, a separate BIR division for MSMEs may be created to assist in tax compliance and specialize in resolving issues relevant to MSMEs.
Simplifying our current tax system can ease the plight of MSMEs and enable their businesses to flourish and later on translate to an increased tax collection from their voluntary compliance.
The author is a tax manager at the Cebu and Davao Branches of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
As published in Mindanao Times, dated 6 December 2016
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