Lower tax on micro enterprises bucked

MANILA, Philippines - Fiscal authorities are lukewarm to the proposed reduction of the income tax rate on micro-enterprise development institutions consisting mainly of non-government organizations (NGOs).

The Department of Finance (DOF) said it is not advisable to put in place various tax regimes to suit different sector or activities since this would set a bad precedent for other entities.

A ranking DOF official told legislators that the favorable tax treatment would also cause administration or monitoring activities for the Bureau of Internal Revenue (BIR).

“The DOF does not recommend various tax regimes in place to suit different sectors or activities, since this would not be a good tax policy,” the official said.

The official added that other micro-finance entities, rural banks, thrift banks, as well as credit cooperatives would also clamor for the same tax treatment in violation of the tax principle of equity.

The official was referring to the proposed “Micro-Enterprise Development Institution Act” on the creation and accreditation of micro-enterprise development institutions.

The bill intends to slap a tax of two percent of gross income on all micro-enterprise development institutions in lieu of all national and local taxes that would be remitted to the National Government.

The Microfinance Council of the Philippines Inc. (MCPI) has been pushing for the need to pass a bill that would slap a lower income tax rate on micro-enterprise development institutions.

MCPI president Ruben de Lara has urged the House ways and means committee to pass the bill, stressing the urgent need to enact the proposal especially after the onslaught of tropical storm “Ondoy” and typhoon “Pepeng.”

The proposal calls for the establishment of a non-stock and non-profit micro-enterprise development institutions that should have a fund balance of P20 million.

The micro-enterprise development institutions could undertake poverty eradication activities but could not undertake deposit taking activities, engage in insurance business, and carry out management activities without securing the necessary licenses.

Tax proceeds would form part of the disbursable portion of the Peoples Development Trust Fund established under Republic Act 8425 or the Social Reform and Poverty Alleviation Act.

Furthermore, donations to the micro-enterprise development institutions shall be fully deductible from the gross income of the donor subject to the conditions of the National Internal Revenue Code (NIRC).

The group said about P12 million in additional tax revenues would be realized by the National Government once the income tax rate slapped on micro-enterprises is reduced to two percent of gross income.