The Department of Finance (DOF) said actual losses may be much higher as current estimates are based on outdated data from the Small and Medium Enterprise Development Council (SMED).
"We are using data all the way from 1996 which is the only data available to us,"said Finance Undersecretary Ma. Gracia P. Tan. "If we had the most recent information, I am sure the revenue loss would be significantly bigger."
The DOF has estimated that the government would lose half of its revenues from the BMBE law unless it is amended to plug the loopholes. The actual amount, however, have never been quantified.
According to Tan, the DOF is making a distinction between actual losses and outright losses because its estimate could not factor in critical information that is not readily available.
"This is an attempt to estimate the revenue impact of the income tax exemption of BMBEs," said DOF research and information chief Ma. Lourdes Recente in a report.
Based on 1996 data, Recente said micro-enterprises with gross incomes of P1.5 and below account for 5.8 percent of total individual income taxes from purely business sources.
"We then applied this ratio to 2003 tax collections of P10.69 billion also from business income sources," Recente explained. "We attempted to estimate the maximum revenue impact and assume that all with assets of P3 billion and below will register and avail of the income tax exemption."
The initial estimate, however, could not factor in the individual business income earners and corporations who are in the borderline with more than P3-billion assets but will and can re-configure their asset base.
Recente said the estimate also does not include businesses that may spin off some of their operations and create micro-enterprises to do these.
Recente said the government also has no estimate of underground businesses that would be encouraged to register as BMBEs and businesses that will create as many micro-enterprises under different dummy owners.
The DOF said these are possible tax avoidance schemes that have not been factored in but will ultimately have an impact on the government’s revenue base once the BMBE law is implemented.