Keep special tax rate for micro-entrepreneurs – Gatchalian
Published Mar 2, 2020 12:00 am
By Hannah Torregoza
Senator Sherwin Gatchalian on Monday said he prefers that the current special tax rate for micro-entrepreneurs under the Passive Income and Financial Intermediary Taxation Act (PIFITA) be sustained so that poor families can still avail themselves of low-interest loans for their small businesses.
Sen. Sherwin T. Gatchalian
(Senate of the Philippines / MANILA BULLETIN) Gatchalian stated this as he expressed his opposition to the proposed repeal of the 2-percent special tax rate for microfinance non-government organizations (NGOs) under the PIFITA, the fourth tranche of the Department of Finance’s (DOF) comprehensive tax reform program. The senator said microfinance NGOs have been instrumental in providing low-interest, no collateral loans to poor vendors and other micro-businesses. He warned that any additional tax burden may eventually be passed on to poor families and this may push them to resort back to the “five-six” lending of loan sharks. Presently, the savings from the 2 percent preferential tax rate lets microfinance NGOs to continue to provide financial and community services to their clients or program members. “My fear is that if we impose a higher tax on this group, this is in effect a pass-on cost and this will affect 6.5 million micro-entrepreneurs around the country,” Gatchalian said. If this plan pushes through, Gatchalian predicts there would be a massive disenfranchisement of these micro-entrepreneurs. “More so, they will be pushed to the informal sector, which is the ‘five-six’ lending methodology. Some of them will just go to loan sharks. We don’t want that to happen,” the lawmaker pointed out. “What we want is to promote entrepreneurship all the way down to the grassroots level, provide legitimate financing for them and help these micro-entrepreneurs to somehow grow into medium size,” Gatchalian explained. Citing the experience of Valenzuela City, where he used to be the local chief executive, Gatchalian said the city provides funds to microfinance organizations which, in turn, lends money to small entrepreneurs. According to him, the payment rate is around 95 to 98 percent if borrowers take loans from microfinance operators instead of the borrowers getting it directly from the government. A study released by the Department of Trade and Industry (DTI) show there are a total of 1,003,111 business enterprises operating in the country as of 2018. Of these, 99.52 percent are MSMEs and 0.48 percent are large enterprises. Micro-enterprises constitute 88.45 percent of total MSME establishments, followed by small enterprises at 10.58 percent and medium enterprises at 0.49 percent. Gatchalian noted Congress has barely two weeks before it goes on a break and the said tax bill is still being deliberated on at the Senate committee level. Against this backdrop, the 18th Congress is working to ensure all remaining tax reform packages would be approved in order to meet the DOF’s year-end target.
Sen. Sherwin T. Gatchalian(Senate of the Philippines / MANILA BULLETIN) Gatchalian stated this as he expressed his opposition to the proposed repeal of the 2-percent special tax rate for microfinance non-government organizations (NGOs) under the PIFITA, the fourth tranche of the Department of Finance’s (DOF) comprehensive tax reform program. The senator said microfinance NGOs have been instrumental in providing low-interest, no collateral loans to poor vendors and other micro-businesses. He warned that any additional tax burden may eventually be passed on to poor families and this may push them to resort back to the “five-six” lending of loan sharks. Presently, the savings from the 2 percent preferential tax rate lets microfinance NGOs to continue to provide financial and community services to their clients or program members. “My fear is that if we impose a higher tax on this group, this is in effect a pass-on cost and this will affect 6.5 million micro-entrepreneurs around the country,” Gatchalian said. If this plan pushes through, Gatchalian predicts there would be a massive disenfranchisement of these micro-entrepreneurs. “More so, they will be pushed to the informal sector, which is the ‘five-six’ lending methodology. Some of them will just go to loan sharks. We don’t want that to happen,” the lawmaker pointed out. “What we want is to promote entrepreneurship all the way down to the grassroots level, provide legitimate financing for them and help these micro-entrepreneurs to somehow grow into medium size,” Gatchalian explained. Citing the experience of Valenzuela City, where he used to be the local chief executive, Gatchalian said the city provides funds to microfinance organizations which, in turn, lends money to small entrepreneurs. According to him, the payment rate is around 95 to 98 percent if borrowers take loans from microfinance operators instead of the borrowers getting it directly from the government. A study released by the Department of Trade and Industry (DTI) show there are a total of 1,003,111 business enterprises operating in the country as of 2018. Of these, 99.52 percent are MSMEs and 0.48 percent are large enterprises. Micro-enterprises constitute 88.45 percent of total MSME establishments, followed by small enterprises at 10.58 percent and medium enterprises at 0.49 percent. Gatchalian noted Congress has barely two weeks before it goes on a break and the said tax bill is still being deliberated on at the Senate committee level. Against this backdrop, the 18th Congress is working to ensure all remaining tax reform packages would be approved in order to meet the DOF’s year-end target.