Gina quit her job and used her back pay to start a small business. Armed with sewing skills, she crafted bags, wallets, cellphone cases, hair clips and other products from one main material – fabric. Without a physical store, Gina joins bazaars and art fairs to sell her craft. She wants every peso plowed back into the business to allow her to grow and scale up. Otherwise, the business due to competition can easily die a natural death, sooner than desired.
Still unsettled about her operational and financial struggles, she knew she was forgetting something, until a visit from someone reminded her how reality bites. A BIR examiner was conducting Tax MAPing operations and asked about her registration, books, official receipts and tax returns. She dreaded the padlock that could close not only her business but her chances to have a more comfortable life.
She is not alone in this predicament. Indeed, many entrepreneurs’ wish is to be left alone in the meantime, even as they blow a promise to the comforting breeze that they will start complying as soon as they can afford to do so. You see, compliance rules are written blindly, and they apply to big businesses and small ones alike.
Is there a law that can protect small entrepreneurs or help them at infancy phase?
The Barangay Micro Business Enterprise Law (BMBE), passed in 2002, grants exemption from income tax of businesses with capital of not more than P3 million. If this law is to be updated, the P3 million in today’s money would easily be about P5 million, which can give one a really decent fund. Sadly, few are aware of this law and even fewer have been successful in getting their BMBE certification.
As expressed even in social media, the frustration over BMBE registration is that there are just too many processes with the DTI, the local government, and the BIR to get a certification to get exempted. Many simply give up and do business in a way they can and muster the usual “bahala na.”
The recently passed Go Negosyo Law takes a shot at the problem by, among others, simplifying registration processes for micro/small businesses. But the law is not self-executory. A micro business council (consisting of multisectoral representatives) needs to be set up, Go Negosyo Centers under the DTI need to be organized, and the rules need to be drawn. A quick turnaround time cannot really be expected sooner than hoped.
So is it status quo for the meantime, in terms of help or protection for small businesses?
Surprisingly, the answer has gone unnoticed, and it is in the original BMBE law itself. The law was written with a fail-safe device which anticipates that government may not turn around that quickly. Section 4 of the BMBE Law states that “The Municipal or City Treasurer evaluates the application and should be processed within 15 working days upon submission; otherwise, the BMBE is deemed registered.” Deemed registered in law is as good as a Certificate of Registration.
So here are the ultimate tips:
1. Apply for registration with the local treasurer/mayor (of the place where your business is) using the official form, have your application stamped ‘received’ and wait for 15 days. Without the need of follow up, you will be deemed registered. So keep your duly received application form as that is legally the equivalent of your certificate as BMBE.
2. The BMBE registration does not exempt you from registration with the BIR. So register books of accounts as well, and maintain registered invoices and official receipts. Note that the BMBE registration exempts businesses from income tax, but not business taxes.
3. File a VAT or percentage tax return. Remember that the VAT exemption threshold is P2 million. If your sales for the year is lower than P2 million, you will only pay a quarterly percentage tax of three percent. Say, your sales for a year is P2 million, you will pay P5,000 per month in percentage tax. If the VAT threshold is to be updated, this P2 million can now easily be a P3 million threshold.
More relief is in sight for small businesses as proposed legislations, which include tax reprieves for this group, are now in the works. But the story will not change. Even small players may be bound generically with rules that apply to big players. An ounce of compliance can be worth a ton’s weight of a comfortable mattress.
This year, our firm, Isla Lipana & Co./PwC Philippines and the Benita & Catalino Yap Foundation (BCYF), a mover on research in Corporate Social Responsibility, launched the first Developmental social enterprise Awards (DSEA) that seeks to recognize developing social enterprises. This initiative hopes that these businesses will be inspired to continue their business mission in helping society. The success of these enterprises helps the country’s inclusive growth. To know more about the DSE Awards, visit www.dseawards.com
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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the tax committee of the Management Association of the Philippines (MAP). Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.