TAX HOLIDAYS & AMNESTY LGUs’ business continuity plan

AMID THE COVID-19 pandemic, some local government units (LGUs) are implementing emergency tax relief to support companies, especially small businesses, employees and self-employed individuals. As the economic and social impact of this health crisis increases at an alarming rate, public and private sectors must develop short-term and long-term solutions to mitigate the risks and continue to create effective steps without compromising people’s health and the economy at large.

Local chief executives and their constituents must cooperate and adopt best practices to manage the impact of the coronavirus. Instantaneous measures are critical, but LGUs must consider this an opportunity to fix distorted tax policies and help taxpayers prepare for the new normal in the coming months through a strategic economic recovery plan.

In the city of Manila, real property was slashed by 20 percent after Mayor Isko Moreno-Domagoso signed Ordinance No. 8567 in the 3rd quarter of 2019. “There is a need to adopt a more progressive and equitable revenue system to help our taxpayers from the detrimental effects of economic downturn,” the ordinance read. “This may be achieved through a further reduction in the ceiling on the corresponding increase in the tax levy from 60 percent by 20 percent based on the incremental values of real properties under Ordinance No. 8330 (2014 General Revision of Real Property Assessments),” it added. The implementing rules and guidelines were created by the City Treasurer’s Office and the Department of Assessment. The ordinance took effect January this year.

The mayor also signed an ordinance which grants “general amnesty on all delinquent business taxes, real property taxes, regulatory fees and other service charges.” He believes lower tax rates will increase the tax efficiency in the country’s capital.

During the last quarter of 2019, the city government has waived about P71.5 million in real estate and business taxes after it implemented an amnesty program for around 14,000 taxpayers. Data from the city treasurer’s office showed that from Sept. 2 to Oct. 17, a total of P144,907,474 was collected through the amnesty program. A total of 4,003 real property taxpayers applied for amnesty, resulting in the collection of P103,802,552 after the city government waived P49,011,423. The city treasurer’s office said that 900 taxpayers also availed themselves of the amnesty for business taxes. They paid P22,624,493 after the city waived P12,751,550. A total of 9,327 individuals applied for amnesty in the payment of other taxes, fees and charges. The city government collected P18,480,428 after it waived P9,756,383. Residents have been complaining since city officials approved a 300-percent hike in property taxes in 2013 to pay off the city’s P5.5-billion debt. Last year, the city council passed an ordinance granting amnesty to those who failed to pay business or real property taxes, regulatory fees and other business charges. This allowed taxpayers a fair chance to recover from penalties, surcharges and interests. The tax amnesty program ended December last year.

In his State of the City Address (SOCA) last July 2, he said the city’s coffers grew by P693 million in his first year as mayor compared to the previous administration’s revenue collections from July 2018 to May 2019. His year-old administration reportedly collected P12.441 billion from July 2019 to May 2020 despite the implementation of a tax amnesty and the economic impact of the COVID-19 crisis, data from the City Treasurer’s Office showed.

The mayor accredited the city’s higher tax collections to the “Go! Manila” mobile application and website, a digital platform where residents can pay their taxes, certificates, and assessment fees, among others, without physically going to Manila City Hall. He said higher revenue collections will create more jobs and businesses. He also stressed that the city government took advantage of this adversity to serve the city better in a very innovative way by adapting to modern technologies.

Meanwhile in Angeles City, Mayor Carmelo “Pogi” Lazatin, Jr. urged the City Council to pass an ordinance granting tax relief to all establishments who accorded free lodging services to frontliners amid COVID-19 crisis. In a proposal made by Lazatin to Vice Mayor Vicky Vega-Cabigting, the tax relief will be in a form of tax credit, worth of P100,000, to all hotels, motels, dormitories, and other similar establishments who offered free temporary housing to all frontliners.

It can be recalled that Lazatin wrote a letter to Hotels and Restaurants Association of Pampanga (HARP) to allow the city government to use their members’ hotels as temporary dormitory and quarantine area for frontliners assisting in combatting the COVID-19 pandemic.

According to the 2018 List of Establishments from the Philippine Statistics Authority, there are 1.003 million business enterprises operating in the country and almost all of them (99.52%) are micro, small, and medium enterprises (MSMEs). The government should prioritize MSMEs when it comes to social protection or assistance, considering that they employ 63.19% of the country’s total workforce.

During these community quarantines, small businesses have zero or no income, but they still have to pay for salaries, rent, phone bills, internet, and other fixed costs. With the grace period granted by the Bayanihan to Heal as One Act, payments have been deferred, but where will they get cash to pay their accumulated bills after the lockdown? By now, small businesses have incurred debts and losses.

According to Mon Abrea, co-chair of the Ease of Doing Business Task Force on Paying Taxes and the brainchild of the TaxWhizPH mobile app, it is timely and reasonable to grant general tax amnesty and tax holiday from business taxes. He revealed of the more than 1,000 tax evasion cases filed by the Bureau of Internal Revenue (BIR), more than 90% remain pending at the Department of Justice. Even the delinquency tax amnesty is barely making any impact as most taxpayers are protesting the assessment of BIR examiners. Considering what’s happening on the ground, the low tax collections from audit, and the new normal after the ECQ, it’s the best time to implement a general tax amnesty.

This tax holiday from business taxes due to both national and local governments should eventually transition into a flat tax for self-employed and professionals (SEPs). This will further encourage registration and compliance among the least compliant taxpayers in the country. Allowing SEPs or individual taxpayers who are not employed or incorporated and not part of the large taxpayers to pay a flat 8% tax in lieu of all taxes will not only simplify taxation for small businesses but also increase voluntary compliance without any need for an audit or investigation.

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