The government is putting in place a slew of financial technology (fintech) tools that will enable micro, small and medium enterprises (MSMEs) to tap the e-commerce market and a wide horizon of other business opportunities, in keeping with the Duterte administration’s goal of economic inclusion, according to Finance Secretary Carlos Dominguez III.
Dominguez said that on top of increasing the use of digital technologies to empower MSMEs, the government, through state banks, have also implemented programs meant to promote the sustainability and competitiveness of small businesses all over the country.
MSMEs are also among the key beneficiaries of the Tax Reform for Acceleration and Inclusion Act (TRAIN) as they have benefited from tax breaks worth billions of pesos in the first six months of this law’s implementation in the form of a higher value-added tax (VAT) threshold that exempts them from paying this tax, Dominguez added.
“I urge our MSMEs to be innovative, to explore opportunities opened by the new ways of doing business and to be bold in opening new ventures. I assure you that government is supporting you. We will support small businesses in every way possible. We know the crucial role MSMEs play in forging a better future for our people, and we will partner with you and we will help you in this task,” said Dominguez at the 26thMetro Manila Business Conference held recently at the Hotel Okada Manila in Paranaque City.
Dominguez pointed out that MSMEs, which comprise 99.6 percent of all business enterprises in the country, are vital in building “a dynamic and inclusive economy for our people.”
“They employ the bulk of our labor force. They link big manufacturers to their consumer base. They compose the supply chain that, when enabled, will support the industrialization of our economy,” Dominguez said.
The fintech tools that the government is now developing to help MSMEs include peer-to-peer lending, equity crowdfunding, merchant and e-commerce finance and invoice finance, Dominguez said.
“The financial world is being revolutionized by new technologies. We are responding promptly to make the advantages offered by fintech accessible to our enterprises,” Dominguez said.
Moreover, President Duterte has also signed into law the Ease of Doing Business Act of 2018, which aims to reduce red tape significantly and make government more responsive to the needs of our entrepreneurs, Dominguez said.
This new law, he said, will be complemented by several programs encouraging the use of digital technology in all government procedures, including in the Bureau of Internal Revenue (BIR), which is now working double-time on streamlining processes for the documentary requirements on renewing business permits.
A TradeNet system that automates licensing, permit, clearance and certification procedures for all regulatory agencies has likewise been established, he said, and is now being fine-tuned to enable the full interconnection of 76 trade regulatory government agencies across 18 government departments.
This system will also serve as the Philippines’ link to the ASEAN Single Window (ASW).
“This is all happening now and the Bureau of Customs will be the first to go live this month,” Dominguez said.
The government is also ready to run PHPAY, which is a digital payment gateway that will enable taxpayers and other state clients to remit fees and other charges electronically, Dominguez said.
According to Dominguez, PHPAY “will dramatically cut transactions costs across the board” and more importantly, “cut corruption associated with primitive payments systems.”
The Philippine Business Data Bank (PBDB), meanwhile, will soon be on the testing stage to ensure that it serves its purpose efficiently of being the single repository of business registration information in the country, he said.
To provide funding support to MSMEs, Dominguez said the Land Bank of the Philippines extended P89.8 billion in loans to small businesses in 2017, while the Development Bank of the Philippines (DBP) has lent P13 billion as of June this year and also offers financial advisory services to MSMEs for free.
“The DBP will likewise open additional Lending Centers to be closer to its clients, partnering with microfinance institutions and cooperatives to support small businesses,” he said.
Dominguez said the Duterte administration will continue to support the growth of MSMEs by pushing the passage into law of the second package of its tax reform program, which aims to lower the corporate income tax (CIT) rate and modernize investment incentives.
TRAIN, the first tax reform package, has already provided billions of pesos in tax breaks to MSMEs as shown by the drop in VAT collections in the BIRs’ regional offices, resulting from the increase in the VAT threshold from P1.9 million to P3 million.
Despite the decrease in VAT collections, total revenue collection grew 20 percent in the first half of 2018 compared to the same period last year, Dominguez said.
Package 2 of the tax reform program aims to also benefit MSMEs, which pay the regular corporate income tax rate of 30 percent, in contrast to a selected few which pay only between 6 and 13 percent because they were able to get incentives from various investment promotion agencies.
“This is very unfair, as corporations under the regular regime are contributing just as much as, if not more than, those which are under the special regime,” Dominguez said.
The Duterte administration, he said, will push for the modernization of investment incentives to correct the flaws in the country’s corporate tax system under which 14 IPAs and 315 laws outside the tax code grant tax perks to selected businesses.
“We will propose tax code amendments that will improve compliance, harmonize the governance of incentives through the Fiscal Incentives Review Board or FIRB, and repeal some exemptions” given through 123 special laws and consolidate these in one omnibus incentive law, Dominguez said.
The Duterte administration will also urge the Congress to expand the Tax Incentives Management and Transparency Act (TIMTA) to ensure the transparency and accountability of incentives, he said.
Dominguez said the government has proposed to the Congress to keep the income tax holiday and other income-based incentives, while replacing the 5-percent gross income earned (GIE) tax in lieu of all taxes with a 15 percent tax on net taxable income to narrow the gap between those under the standard rate and incentive recipients.
“In the end, only incentives that are performance-based, targeted, time-bound, and transparent will remain. With this reform, we hope to create a fairer and more transparent environment for MSMEs,” Dominguez said.