President Marcos vetoed Section 8 of Republic Act No. 11976, or the Ease of Paying Taxes (EOPT) Act, which aimed to exempt micro-enterprises from deducting withholding taxes.
The exemption was rejected due to the potential significant fiscal risk and negative impact on tax administration efficiency.
The president highlighted that losing substantial revenue amid limited fiscal space would hinder government support for the country's economic growth.
The EOPT bill, passed by Congress last September, aims to modernize taxation, promote tax compliance, attract foreign investments, and enhance the country's competitiveness.
The law classifies an enterprise as micro if its gross sales are less than P3 million.
President Marcos stressed the need to support micro and small enterprises without weakening the government’s tax administration capacities.
He emphasized the importance of tax revenues for the effective implementation of fiscal policies.
Striking a balance between providing relief to taxpayers and maintaining administrative efficiency is crucial for establishing a resilient public financial management system.
Malacañang turns down tax relief for small businesses
At a glance
Malacañang has turned down provisions in the Ease of Paying Taxes (EOPT) law that aimed to exempt small businesses from deducting withholding taxes.
In a letter dated Jan. 5, 2024, addressed to the House of Representatives, President Marcos said he was “constrained to veto Section 8,” of Republic Act (RA) No. 11976, also known as the EOPT Act that sought to amend some provisions in the Tax Code.
Section 8 of RA No. 11976 deals with the exemption of micro-enterprises from the duty to withhold taxes specified in Section 57(b) of the Tax Code, or withholding of creditable tax at source.
Creditable withholding tax is the tax withheld from payments before the recipient gets the money, and it is then remitted by businesses to the Bureau of Internal Revenue.
The chief executive explained that if Section 8 were not vetoed, it would present a significant fiscal risk to the government and also diminish the efficiency of tax administration in the long term.
“Removing the withholding tax requirement for micro taxpayers will likely result in an understatement of tax obligations, negatively affecting the cash flow of the government,” President Marcos said.
To illustrate, Malacañang said that if 50 percent of micro taxpayers do not comply with RA No. 11976, the exemption would cost the government P40.4 billion in 2024, equivalent to 0.15 percent of the gross domestic product.
The total estimated foregone revenues from 2024 to 2028 amount to approximately P206.4 billion.
President Marcos further said that even with a modest non-compliance rate of 25 percent, the projected average annual revenue loss would still be P25.8 billion, totaling P103.2 billion from 2024 to 2028.
“The government cannot afford to lose such considerable revenue amid limited fiscal space at a time when the country needs government support to maintain its economic growth momentum,” the president said.
Congress passed the EOPT bill last September, with the goal of modernizing taxation, promoting high but simple tax compliance, as well as attracting foreign direct investments and enhance the country's competitiveness as an investment hub.
Under the law, an enterprise will be classified as micro if its gross sales are less than P3 million.
President Marcos, however, emphasized the need to fulfill the objective of the EOPT act to support micro and small enterprises without weakening the government’s tax administration capacities.
He stressed that tax revenues are crucial for the responsive, effective, and sustainable implementation of fiscal policies.
“We have to strike a balance between providing relief to taxpayers, on the one hand, and maintaining administrative efficiency through the integrity of our tax collection and monitoring mechanism, on the other,” President Marcos said.
“When we keep our reforms balanced and equitable, we ensure a resilient public financial management system that will facilitate stronger economic growth,” he concluded.
Under the 1987 Constitution, Section 27(2) of Article VI grants the President the authority to veto certain parts of a budget, tax, or trade bill without affecting the parts he approves. This includes items related to budget allocation, taxes, tariffs, and inappropriate provisions within the legislation.