Small businesses to lose P465 billion amid pandemic

MANILA, Philippines — Small businesses may incur P465.3 billion in financial losses as a result of the coronavirus disease 2019 or COVID-19 pandemic, according to the Department of Finance (DOF).

According to the DOF, the implementation of the enhanced community quarantine forced small businesses to either temporarily close shop or operate partially with a skeleton workforce, which may result in financial losses amounting to P465.3 billion. 

The DOF said about P461 billion of the estimated losses would come from small businesses operating in malls and other retail outlets, while P4.3 billion would come from establishments that remained partially operational.

To help small businesses recuperate from their losses, Finance Secretary Carlos Dominguez said the government would ask Congress to provide tax relief by extending the net operating loss carry-over (NOLCO) from three years to five years.

Dominguez said this measure would require Congressional approval as it would involve amendments in the National Internal Revenue Code. 

“We will propose to Congress an extended NOLCO of five years for net losses that will be incurred in 2020. This means that a small business’ losses this year may be deducted from their income for up to the next five years for tax purposes. The purpose of extending NOLCO is to give them more time to recoup their losses arising from implementation of the enhanced community quarantine and other measures to contain the spread of COVID-19,” Dominguez said. 

The finance chief said this measure would require the government to shoulder losses amounting to P139.6 billion in the form of foregone tax revenues.

“The longer NOLCO period will have the effect of lowering the tax payments between 2021 and 2025 of affected small businesses by a combined estimated total of P139.6 billion,” he said.

Dominguez said the extended NOLCO for small enterprises is similar to the tax relief measures being adopted by the US and China to provide relief to their business sectors.

Under the National Internal Revenue Code, the net operating loss of a business may be carried over as a deduction from the gross income for the next three years immediately following the year the loss was incurred.

The DOF said the enhanced NOLCO proposal is part of the three-pronged rescue program the government is preparing to help small businesses and their workers survive the economic repercussions of the pandemic.

Earlier, the government launched the P51 billion small business wage subsidy (SBWS) program, which will provide 3.4 million workers in small businesses with cash aid for two months.

The wage subsidies range from P5,000 to P8,000 per month per employee, depending on the minimum wage level in the region where the workers are employed. 

The government is also planning to provide credit guarantees for up to P120 billion worth of loans to small businesses affected by the contagion and the enhanced community quarantine.

“The credit guarantee program will provide small businesses easier access to bank financing, which tends to contract during crisis periods,” Dominguez said. 

Dominguez said the guarantees extended by the government would help improve the cash position of small businesses to enable them to pay for fixed costs, such as wages, rental, amortizations and interest payments.