Providing Tax Relief for Micro-enterprises Act

Citice of the countary TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES 25 AUG -7 P6:09 First Regular Session ) RECEIVED BY: SENATE 1148 Senate Bill No. - Introduced by Senator JOEL VILLANUEVA AN ACT PROVIDING FOR SIMPLIFIED REGISTRATION, FILING OF RETURNS AND PAYMENT OF INCOME AND PERCENTAGE TAXES AND PROVIDING TAX RELIEF FOR MICRO-ENTERPRISES, AMENDING FOR THE PURPOSE SECTIONS 74, 128, AND 236 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED EXPLANATORY NOTE Micro-enterprises play a crucial role in the development and resilience of the Philippine economy. According to the Philippine Statistics Authority's 2023 List of Establishments, micro-enterprises comprised 99.63% of the total establishments in the country, generating more than 6.4 million jobs.! Despite their significant contribution, they continue to face burdensome regulatory processes and tax compliance requirements that hinder their growth and sustainability. Republic Act No. 9501, or the Magna Carta for Micro, Small and Medium Enterprises (MSMEs), recognizes the pivotal role of MSMEs in promoting inclusive economic growth and employment. The law mandates the State to support MSMEs through greater access to financing, training, and more efficient government services. However, implementation gaps remain. The World Bank's Doing Business 2020 Report ranks the Philippines 171st out of 190 economies in starting a business, with entrepreneurs facing 13 separate procedures over 33 days, as well as high tax compliance costs-estimated at 171 hours annually.2 Department of Trade and Industry. MSME Statistics. Available at https://www.dti.gov.ph/resources/msme- %20statistics/ (Accessed an July 10, 2025). World Bank. Doing Business 2020. Available at https://www.doingbusiness.org/content/dam/doingBusiness/country/p/philippines/PHL.pdf (Accessed on July 10, 2025).

Moreover, the COVID-19 pandemic further exposed the vulnerability of micro- enterprises, many of which operate on thin margins and limited liquidity. As reported by the Department of Trade and Industry (DTI), more than half of MSMEs temporarily or permanently ceased operations during the pandemic. 3 The Department of Labor and Employment (DOLE) similarly noted that most closure reports came from micro and small enterprises. In response to these persistent challenges, this bill proposes the "Providing Tax Relief for Micro-Enterprises Act," which amends Sections 74, 128, and 236 of the National Internal Revenue Code, as amended, to introduce the following reforms: a) Simplified Tax Filling - Self-employed individuals operating as sole proprietors of micro-enterprises (defined here as employing fewer than 10 employees) will be required to file only a final or annual income tax return, instead of quarterly submissions. A similar provision applies to percentage tax returns, streamlining the compliance burden. b) Three-Year Income Tax Exemption - Micro-enterprises meeting the definition above will be exempt from paying income taxes during their first three years of registration as taxpayers. This relief is designed to provide a crucial runway for new businesses to gain financial stability and reinvest profits. c) Simplified and Digitalized Registration Process - The Bureau of Internal Revenue (BIR) will be mandated to establish a simplified, streamlined online registration, filing, and payment system to reduce red tape and expand access to formal business registration and tax compliance. By easing compliance costs and offering targeted tax relief, this measure supports micro-enterprises during their most vulnerable early years and encourages more informal businesses to enter the formal economy. These reforms are consistent with the objectives of the Magna Carta for MSMEs and contribute toward a more inclusive, dynamic, and competitive national economy. In view of the foregoing, the immediate passage of this bill is earnestly sought. J0E VILANUEVA 4 Inquirer.net. DTI: Over half of MSMEs in PH fully stopped operations due to virus outbreak. Available at https://business.inquirer.net/296227/dti-over-half-of-msmes-in-ph-fully-stopped-operations-due-to-virus- outbreak (Accessed on July 10, 2025).

-Dife of the secretate TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES AUG -7 P6:09 First Regular Session SENATE RECEIVED BY: Senate Bill No. 1148 Introduced by Senator JOEL VILLANUEVA AN ACT PROVIDING FOR SIMPLIFIED REGISTRATION, FILING OF RETURNS AND PAYMENT OF INCOME AND PERCENTAGE TAXES AND PROVIDING TAX RELIEF FOR MICRO-ENTERPRISES, AMENDING FOR THE PURPOSE SECTIONS 74, 128, AND 236 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be known as the "Providing Tax

2 Relief for Micro-Enterprises Act. "

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the

State to have a national economy that provides for a more equitable distribution 5 of opportunities, income and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged. Towards these ends, the State shall provide an environment that will enable small businesses to flourish by providing them with accessible, affordable, and more efficient government processes to enable them to engage in entrepreneurship and other productive activities.

SEC. 3. Simplified Filing of Returns and Payment of Income Tax, -

Section 74(B) of the National Internal Revenue Code, as amended, is hereby

amended to read as follows:

"Section 74. Declaration of Income Tax for Individuals. - x x x (B) Return and Payment of Estimated Income Tax by Individuals. - The 3 amount of estimated income as defined in Subsection (C) with respect to which a 4 declaration is required under Subsection (A) shall be paid in four (4) installments. 5 The first installment shall be paid at the time of declaration and the second and 6 third shall be paid on August 15 and November 15 of the current year, respectively. 7 The fourth installment shall be paid on or before May 15 of the following 8 calendar year when the final adjusted income tax return is due to be filed: 9 PROVIDED, THAT SELF-EMPLOYED INDIVIDUALS REGISTERED AS SOLE 10 PROPRIETORS OF MICRO-ENTERPRISES EMPLOYING LESS THAN TEN 11 (10) EMPLOYEES SHALL ONLY BE REQUIRED TO FILE A FINAL OR ANNUAL INCOME TAX RETURN: PROVIDED, FURTHER, THAT SELF- EMPLOYED INDIVIDUALS REGISTERED AS SOLE PROPRIETORS OF MICRO-ENTERPRISES EMPLOYING LESS THAN TEN (10) EMPLOYEES SHALL BE EXEMPT FROM PAYMENT OF INCOME TAXES WITHIN THE FIRST THREE YEARS OF THEIR REGISTRATION AS TAXPAYERS."

SEC. 4. Simplified Filing of Returns and Payment of Percentage

Taxes. - Section 128(A)(1) of the National Internal Revenue Code, as amended, is hereby amended to read as follows: "SEC. 128. Returns and Payments of Percentage Taxes. - (A) Returns of Gross Sales or Earnings and Payment of Tax. - (1) Persons Liable to Pay Percentage Taxes. - Every person subject to the percentage taxes imposed under this Title shall file, either electronically or manually, a quarterly return of the amount of his gross sales, receipts or earnings and pay the tax due thereon within twenty-five (25) days after the end of each taxable quarter: Provided, That in the case of a person whose VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of this Code, the tax shall accrue from the date of cancellation and shall be paid in accordance with the provisions of this Section: PROVIDED, FURTHER, THAT SELF- EMPLOYED INDIVIDUALS 30 REGISTERED AS SOLE PROPRIETORS OF MICRO-ENTERPRISES 31 EMPLOYING LESS THAN TEN (10) EMPLOYEES SHALL ONLY BE 32 REQUIRED TO FILE A FINAL OR ANNUAL PERECENTAGE TAX RETURN."

SEC. 5. Simplified Registration Process. - Section 236(A) of the National

Internal Revenue Code, as amended, is hereby further amended to read as follows: "Section 236. Registration Requirements. (A) Requirements. - Every person subject to any internal tax shall register once, either electronically or manually, with the appropriate Revenue District Office: (1) Within ten (10) days from date of employment, or (2) On or before the commencement of business, or (3) Before payment of any tax due, or (4) Upon filing of a return, statement, or declaration as required in this Code. The registration shall contain the taxpayer's name, style, place of residence, business and such other information as may be required by the Commissioner in the form prescribed therefor: Provided, That the Commissioner shall ensure the availability of registration facilities to all taxpayers including those who are not residing in the country: Provided, Further, That the Commissioner shall simplify the business registration and tax compliance requirements of self-employed individuals and/or professionals, INCLUDING THE ESTABLISHEMNT OF AN ONLINE REGISTRATION, FILING, AND PAYMENT SYSTEM. A person maintaining a head office, branch or facility shall register with the Revenue District Officer having jurisdiction over the head office, branch or facility. For purposes of this Section, the term 'facility' may include but not be limited to sales outlets, places of production, warehouses and storage places."

SEC. 6. Implementing Rules and Regulations. - Within sixty (60) days

from the implementation of this Act, the Bureau of Internal Revenue, upon consultation with relevant stakeholders, shall issue the implementing rules and regulations to implement the provisions of this Act.

SEC. 7. Separability Clause. - If any portion or provision of this Act is

declared unconstitutional, the remainder hereof or any provisions not affected thereby shall remain in force and effect.

SEC. 8. Repealing Clause. - Any law, presidential decree or issuance,

executive order, letter of instruction, rule, or regulation inconsistent with the provisions of this Act is hereby repealed or modified accordingly.

SEC. 9. Effectivity. - This Act shall take effect fifteen (15) days after its

complete publication in the Official Gazette or in a newspaper of general circulation. Approved,