DOF assures MSMEs of government support

The Department of Finance (DOF) assured that the government’s plan for the economy to recover from the coronavirus-induced global crisis covers an array of programs meant to help small businesses get back on their feet.

In a statement, Finance Secretary Carlos G. Dominguez III said that their two proposed measures now pending in Congress benefit big companies as well as micro, small and medium enterprises (MSMEs) hit by the pandemic.

Dominguez said the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), once passed into law, will immediately slash the country’s corporate income tax (CIT) rate, which currently the highest in Southeast Asia.

Meanwhile, the Financial Institutions Strategic Transfer (FIST) bill, Dominguez said is designed to free the banking system from bad loans and other non-performing assets (NPAs).

The CREATE measure proposes the lowering of CIT from 30 percent to 25 percent, delivering instant tax breaks for 99 percent of business enterprises, which are mostly MSMEs.

The small and medium enterprises in this country have never had a tax break. It’s the big ones that go and register with PEZA (Philippine Economic Zone Authority (that are given tax) incentives,” Dominguez said.

He said the passage of CREATE, which will align the corporate tax rate with the ASEAN average, will make the Philippines the only government to provide tax breaks to MSMEs.

The FIST bill, on the other hand, will allow banks to dispose of their NPAs through newly-formed asset management companies similar to the special purpose vehicles (SPVs) created in the 2000s in response to the 1997 Asian financial crisis.

Dominguez said that clearing the books of banks of roughly ₱1 trillion of bad loans and other NPAs will, in turn, enable them to lend another ₱3.5 trillion to private businesses, most of them MSMEs.

“Without the FIST bill, the economy is going to be worse off and the worst hit is going to be the small and medium enterprises,” Dominguez said. “Allowing banks to clear their books allows them, actually, to have more money for the small and medium enterprises.”

On top of these two pending bills, Dominguez said the Monetary Board, for the first time ever, allowed loans to MSMEs to be used by banks as compliance with their reserve requirements.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that as of July 23, around 97 banks have disbursed loans to MSMEs, which increased the reserve requirement balance from MSME loans to an average of ₱84.2 billion.

This was more than seven times the ₱9.9-billion average daily balance of MSME loans used by 55 banks as alternative compliance with the reserve requirement as of end-April, the BSP said.