The Finance Department asked Congress to give small businesses more time to recoup their losses amounting to over P460 billion under the enhanced community quarantine this year.
It proposed that Congress extend the tax deductibility of losses incurred by small businesses in 2020 to five years from the current three years.
Finance Secretary Carlos Dominguez III said in a statement under the proposed extension of the net operating loss carry-over for small businesses to five years, the government would absorb as much as P139.6 billion in the form of foregone tax payments.
Dominguez said stretching the NOLCO by two more years which under the National Internal Revenue Code should be up to three taxable years would require congressional approval.
“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’ 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 and other measures to contain the spread of COVID-19,” Dominguez said.
Dominguez said estimates showed that financial losses of small businesses would amount to P465.3 billion as a result of the ECQ and other containment measures that have forced them to temporarily close shop or to continue operating but with only a skeleton force.
“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 said.
Estimates by the department showed that small businesses operating in malls and other retail outlets would incur losses of about P461 billion while those that remained open but on skeleton force capacity would lose around P4.3 billion.
Dominguez said the 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.
Based on the existing provisions of the NIRC, net operating losses, which had not been previously offset as a deduction, should be carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.
Dominguez said the DOF’s enhanced NOLCO proposal is part of the three-pronged rescue program to help small businesses and their workers survive the economic repercussions of the COVID-19 pandemic.
Dominguez tackled this proposal briefly during a recent virtual meeting of the economic stimulus cluster of the House of Representatives’ Defeat Covid-19 Committee chaired by Speaker Alan Peter Cayetano and co-chaired by Majority Leader Ferdinand Martin Romualdez.
Dominguez said the first measure launched by the government under the Small Business Relief Program is the Small Business Wage Subsidy program, which will provide around 3.4 million workers in the formal sector with salary subsidies amounting to a combined P51 billion 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 are in the BIR alpha list and will be given first priority to incentivize compliance of registering businesses with the Bureau and with the Social Security System.
The remaining 800,000 employees are not in the alpha list, and 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 ECQ and other the containment measures.
“The credit guarantee program will provide small businesses easier access to bank financing, which tends to contract during crisis periods,” Dominguez said.
Dominguez said the guarantees extended by the government would help improve the cash position of small businesses to enable them to pay for fixed costs such as wages, rental, amortizations and interest payments.