As of 2019, the Philippine Statistics Authority (PSA) has recorded a total of 1,000,506 businesses operating in the Philippines. Among these numbers, 995,745 (about 99.5 per cent) are Micro, Small, and Medium Enterprises (MSMEs) and 4,761 (about 0.5 per cent) are large enterprises.
MSMEs make up a huge chunk of the Philippine economy. The top five industry sectors in the country are (1) Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles (462,492); (2) Accommodation and Food Service Activities (144,024); (3) Manufacturing (115,387); (4) Other Service Activities (65,918); and (5) Financial and Insurance Activities (46,100).
So how is the country taking care of them? What programmes have been implemented for small-scale entrepreneurs? What were the challenges they faced? In a dialogue with Tatler, appointed head of National Economic and Development Authority (NEDA) Karl Chua said that the government has laid out several programs for the small business sector.
"[As of this writing] we passed several laws to help the MSME [sector]. Few of these include the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 (Republic Act 11032), Tax Reform for Acceleration and Inclusion or TRAIN law, and the CREATE Act (previously known as the Corporate Income Tax and Incentives Reform bill)," he said.
"These laws have been passed to lower the income taxes of our MSMEs," he added.
Under the TRAIN law, the tax threshold for MSMEs was raised from PHP1.5 million to PHP3 million. This means that businesses with gross sales below these amounts can choose to pay a flat rate of just eight per cent instead of paying the regular income tax.
For example, a small novelty shop that earns at least PHP500,000 in gross sales annually would have to pay PHP 52,500 tax before the TRAIN law. With the new rules, their tax will be down to just PHP 25,000 a year using flat tax.
Meanwhile, the CREATE Act will provide assistance to MSMEs by reducing the corporate income tax from five per cent to 10 per cent. “The impact of CREATE is two-fold. First, it provides immediate relief to our MSMEs with a five or 10 percentage point reduction in the regular corporate income tax (CIT) rate. Second, it brings our corporate tax rate closer to our peers in Southeast Asia and enhances our fiscal incentives system to help attract more foreign direct investments (FDIs), which will help generate more jobs and accelerate our recovery,” Chua said.
Hurdles Amid The Pandemic
During the unprecedented COVID-19 breakout, the Philippines imposed quarantines that resulted in huge economic losses. In a study conducted by the Asian Development Bank (ADB) it was estimated that the regional economic growth in developing Asia would sharply decline from 5.1 per cent in 2019 to -0.4 per cent in 2020 due to the pandemic.
Meanwhile, the Philippine Institute for Development Studies said that the Philippines may suffer economic losses between PHP 276.3 billion and PHP2.5 trillion if the hard lockdowns continue. "The most affected business sectors will be manufacturing, with losses between PHP 82.1 billion and PHP855.2 billion, wholesale and retail trade, with losses between PHP 93.2 billion and PHP 724.8 billion, and transport with losses between PHP11.7 billion and PHP124.3 billion."
Adapting To Change
Because of the lockdowns, many entrepreneurs have decided to put up their businesses in the online market. Through digitalisation or the use of online platforms, they were able to transact, utilise non-cash payment options, and allow employees to work from home. However, the United Nations Development Programme (UNDP) Philippines suggested that small-scale business owners still need assistance to recover from their losses.
In a survey implemented by the group, 60 per cent of respondents said that they have yet to receive aid from any stakeholder (government, private sector, NGOs, and others). “MSMEs play a crucial role in the Philippines’ efforts to recover from the crisis brought about by this pandemic. Digital infrastructure in the country is key to enable the development of a new market space online,” said UNDP Officer-in-Charge Enrico Gaveglia.
Bouncing Back
Small businesses are considered the backbone of many economies. Below are ways to help them keep their operations afloat amid the pandemic:
- Social media shoutouts are free. Give them generously.
- If the brand doesn't matter (clothes, shoes, bags, and wallets), consider buying from local stores instead of large-scale enterprises.
- Leave positive reviews to promote small stores.
- Skip the discount and don't forget to tip.
Are You A Small Business Owner In The Philippines? Here Are A Few Things To Know
