Gov’t seen to lose P200B under micro enterprises measure

The Department of Finance (DOF) warned that the government would lose as much as P200 billion a year, if the controversial Barangay Micro Business Enterprises (BMBE) Act is implemented in its present form.

Amid intense lobbying from industries, the DOF has been trying unsuccessfully to craft the implementing rules and regulations (IRR) that would plug the major loopholes in the new law.

According to the DOF, however, BMBE in its present form would take out half of the revenues that government gets from corporate and individual income taxes.

Finance Undersecretary Grace Tan told reporters that initial estimates indicated the cascading impact of the BMBE on government revenues due to the various exemptions that the new law would apply on enterprises capitalized at P3 million and below.

"If you looked at the profile of business enterprises in this country, the bulk of them are capitalized at P3 million and below," Tan said. "If they are exempted from paying taxes, we wont have much left," she added.

Tan said the DOF was at a loss on how to implement the new law on barangay enterprises, warning that it will exempt so many businesses that only big corporations will end up paying corporate income taxes.

Tan said the DOF was looking for ways to limit the applicability of the law to barangay-based micro enterprises that generate employment and income.

Tan explained that under the law, business enterprises that have total capitalization of up to P3 million, including loans but excluding land value, would be exempted from income and local taxes as well as the minimum wage law for a period of five years.

Tan said that the DOF and the Bureau of Internal Revenue (BIR) was having problems with definitions and valuation since the law provided a blanket exemption for enterprises regardless of the nature of business.

"A consultancy firm with a small capital but earning millions of pesos, for example, would be exempted from paying taxes and they are not covered by the minimum wage law," Tan pointed out. "If we go by the literal words of the law, we would get into a lot of trouble."

With the provisions of the law as they are, Tan said the exempted enterprises could range from small barangay-based basket-weaving enterprise to fast-food franchises and multi-million dollar-earning IT consultancy firms as long as they were capitalized at P3 million and below.

"If you are a business with assets below P3 million but you’re earning P100 million, you wont have to pay taxes," Tan said. "Even actors and actresses could register as a barangay enterprise and be exempt from taxes," she said.