By Bernadette D. Nicolas & Jovee Marie N. Dela Cruz
SMALL businesses are estimated to suffer P465.3 billion in financial losses this year as they were forced to temporarily close or operate on a skeletal force as the country struggles to contain the spread of the coronavirus disease 2019 (Covid-19).
Based on estimates by the Department of Finance (DOF), small businesses operating in malls and other retail outlets would incur losses of about P461 billion, while those that have remained open but on skeletal force will lose around P4.3 billion.
Thus, the DOF is asking Congress to pass legislation that will extend an enhanced net operating loss carry-over (Nolco) for small businesses for a period of five years, with the government absorbing as much as P139.6 billion in the form of foregone tax payments to help these enterprises to recoup their losses.
Finance Secretary Carlos G. Dominguez III said stretching Nolco by two more years would require congressional approval, something that the House Ways and Means chairman committed to endorse. Under the National Internal Revenue Code (NIRC), Nolco is applicable to up to three taxable years only.
“We will propose to Congress an extended Nolco of five years for net losses that will be incurred in 2020. This means that a small business’s losses this year may be deducted from their income for up to the next five years for tax purposes. The purpose of extending Nolco is to give them more time to recoup their losses arising from implementation of the enhanced community quarantine (ECQ) and other measures to contain the spread of Covid-19,” Dominguez said in a statement.
“The longer Nolco period will have the effect of lowering the tax payments between 2021 and 2025 of affected small businesses by a combined estimated total of P139.6 billion,” he added.
Salceda’s vow
House Economic Stimulus Cluster cochairman Joey Sarte Salceda on Monday said the House of Representatives will include the proposal of the Department of Finance extending the enhanced Nolco for small business for a period of five years.
“It’s one of the tools we will include—a scalpel in the operating room for economic recovery. We will include it in the proposed Economic Stimulus Act,” said Salceda, also the Ways and Means panel chief.
The DOF-proposed legislation extending Nolco for small businesses from the current three years to five, will see government absorbing as much as P139.6 billion in the form of foregone tax payments to help these enterprises recoup their losses.
House Majority Leader Martin Romualdez of Leyte said the House of Representatives will hold an online session when it resumes on May 4 to tackle the proposed Economic Stimulus Act.
Romualdez said Speaker Alan Peter Cayetano wants the House to continue holding productive virtual sessions like what Congress did during the special session on March 23 when it passed the Bayanihan to Heal As One Act.
NIRC provision
Based on the existing provisions of the NIRC, net operating losses, which had not been previously offset as a deduction, shall be carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.
The country’s finance chief said the proposed enhanced Nolco for small enterprises to cover losses in 2020 is similar to the tax relief measures being adopted in the United States and China to provide relief to their respective business sectors.
Dominguez has also tackled this proposal briefly in a recent virtual meeting of the economic stimulus cluster of the House of Representatives Defeat Covid-19 Committee, with Cayetano and Romualdez.
The enhanced Nolco proposal by DOF is part of the government’s three-pronged rescue program to help small businesses and their workers survive the economic repercussions of the pandemic.
Wage subsidy
The government earlier launched the Small Business Wage Subsidy program to provide around 3.4 million workers in the formal sector with a combined P51 billion in salary subsidies for two months.
The wage subsidies range from P5,000 to P8,000 per month per employee for two months, depending on the minimum wage levels in the regions where the workers are employed.
Of the 3.4 million employees, 2.6 million will be given first priority as an incentive for their compliance of registering their businesses with the Bureau of Internal Revenue and the Social Security System.
The remaining 800,000 employees who are not on the alpha list of the BIR will be given second priority.
Another measure is to provide credit guarantees for up to P120 billion worth of loans to small businesses most affected by the sudden stop of economic activity resulting from the enhanced community quarantine and other containment measures.
“The credit guarantee program will provide small businesses easier access to bank financing, which tends to contract during crisis periods,” Dominguez said.
He said the guarantees extended by the government will help improve the cash position of small businesses to enable them to pay for fixed costs such as wages, rental, amortizations and interest payments.
The government has so far formulated a four-pillar socioeconomic strategy to defeat Covid-19 with a combined value of P1.49 trillion or around 8 percent of the country’s GDP.
The strategy involves budgetary, fiscal and monetary measures.
The components of the four-pillar strategy are: the emergency support for poor and low-income households, small businesses and their employees, and other vulnerable groups; the marshalling of medical resources to combat Covid-19 and ensuring the safety of health frontliners; fiscal and monetary actions to finance emergency initiatives and keep the economy afloat; and an economic recovery plan to create jobs and sustain growth.
Image credits: Nonie Reyes