The underground world

Last December, I remember seeing posts on social media urging Filipinos to buy handcrafted items or even edible goodies from their friends, neighbors, other people in their community, cooperatives and other small groups, as Christmas gifts.

The reason is obvious: this would give additional source of income for many families and help support microenterprises and other small businesses, many of which operate from home.

As early as 2002, we have Republic Act 9178 or the Baranggay Micro Business Enterprise Law (BMBEs) which gives microenterprises several benefits, including tax exemption and market assistance.

The law defines BMBEs as any business entity or enterprise as one engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services with total assets, exclusive of the land on which the particular business entity’s office, plant and equipment are situated, of not more than P3 million. Any person, natural or juridical, or cooperative, or association that meets this requirement may apply for registration as BMBE.

It is the Office of the Treasurer of each city or municipality which is tasked to register the BMBEs and to issue a certificate of authority to enable these enterprises to avail of the benefits under the law. Local government units are also encouraged to establish one-stop business registration centers for efficient registration and processing of permits and licenses of BMBES.

BMBEs once qualified and registered as such are exempt from income tax arising from the operations of the enterprise. As for local taxes, fees and charges, LGUs are encouraged either to reduce the amount imposed on BMBEs or to exempt them totally. These enterprises are also exempt from the coverage of the minimum wage law provided that all employees shall be entitled to the same benefits given to any regular employee such as social security and healthcare benefits.

In addition, a number of government lending institutions, including Development Bank of the Philippines, the Small Business Guarantee and Finance Corp., the People’s Credit and Finance Corp., and even the Government Service Insurance System and Social Security System were required under this law to set up special credit windows to serve the financing needs of registered BMBEs.

As for private banks, the BMBE law said that all loans granted to these enterprises shall be considered as part of alternative compliance to the Agri-Agra Law or to the Magna Carta for Small and Medium Enterprises. For purpose of compliance with these two latter laws, loans granted to BMBEs under RA 9178 shall be computed at twice the amount of the face value of the loans.

Meanwhile, to minimize the risk in lending to BMBEs, the SBGFC and Quedancor are tasked to set up a special guarantee window to provide the necessary credit guarantee to BMBEs engaged in agribusiness activities.

To assist in technology transfer, production and management training, and marketing assistance, a BMBE Development Fund was set up with an endowment of P300 million from PAGCOR. The Department of Trade and Industry was also asked to explore possible linkages or match ups between BMBEs and small, medium and large enterprises and to establish incentives for such.

Many microbusinesses and enterprises have been operating underground. According to the DTI, about a third of all the country’s establishments are micro, small and medium enterprises or MSMEs. And these microenterprises had provided 2.37 million jobs to Filipinos, making up 62.8 percent of the country’s workforce. And this was as of 2018. I don’t know, however, whether these figures include those which have remained underground.

Many small businesses are still part of the underground economy, also called the informal economy. When we say underground economy, we refer to those businesses, excluding illegal ones such as those engaged in drugs, smuggling and prostitution, whose transactions are hidden in a sense or which have been operating off the data grid to avoid paying taxes mainly. But there are those that are not so hidden but remain part of the underground. This include unregistered sari-sari stores, fishball and banana cue vendors, those repairing broken umbrellas and appliances, jeepney barkers, household help, and the like.

An article published in 2016 by Bloomberg Business listed the Philippines as 26th in the list of countries with the biggest “shadow economies.” It said that the Philippines has about 48.4 percent of GDP in the shadow economy. The World Bank also estimates that around 40 percent of the Philippine economy is beyond the economic radar, according to one article.

Unfortunately, many of these members of the underground economy are the same ones badly hit by the government-imposed quarantine due to COVID-19. And because they are unregistered and do not have the necessary licenses and permits, many of them are only entitled to receive under the social amelioration program but could not avail of other government assistance programs for business loans and other ayuda which require presenting proof that they are engaged in business.

For instance, the DTI, through its financial conduit SB Corp., has opened a P1-billion enterprise rehabilitation financing program for MSMEs called COVID-19 Assistance to Restart Enterprises or CARES. Under this program, micro and small enterprises operating for at least a year prior to March 16, 2020 with assets not exceeding P15 million are qualified for the loan assistance. But these microbusinesses in the application form are required to reveal financial information about their businesses. Unfortunately, many in the underground economy are financially illiterate and are of course still afraid to surface. They also do not have the documents to prove that they are in business.

These times should serve as a wake-up call for those that are still unregistered to start looking at formalizing their activities, learning bookkeeping, basic accounting and other entrepreneurial skills and registering to avail of the benefits under the MBME law and under government programs.

For those who want to learn new skills, they can also check out the website of TESDA to avail of free technical vocational education and training. Some LGUs are also in partnership with TESDA. After all, households will always need somebody to fix their busted plumbing or electrical wirings, have their houses repainted or repaired, have their appliances repaired. Car repairs and maintenance, tire vulcanizing, cooking, massage therapy – these are just some of the new skills that you may want to learn from TESDA and its accredited training providers.

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