DOF wants extended tax deductible losses for SMEs
Published Apr 27, 2020 12:00 am
By CHINO S. LEYCO
The Department of Finance (DOF) has proposed to extend the net operating loss carry-over (NOLCO) for small and medium enterprises (SMEs) to five years to help these enterprises recoup their losses resulting from the economic fallout amid coronavirus pandemic.
Finance Secretary Carlos G. Dominguez III
In a statement, Finance Secretary Carlos Dominguez III said the national government is prepared to absorb as much as ₱139.6 billion in foregone revenues from the extension to ease the burden on small businesses affected by the economic crunch.
But Dominguez said stretching the NOLCO by two more years would require congressional approval.
Under the National Internal Revenue Code (NIRC), NOLO could be extended up to three taxable years.
“We will propose to Congress an extended NOLCO of five years for net losses that will be incurred in 2020. This means that a small business’ losses this year may be deducted from their income for up to the next five years for tax purposes,” Dominguez said.
“The purpose of extending NOLCO is to give them more time to recoup their losses arising from implementation of the enhanced community quarantine (ECQ) and other measures to contain the spread of COVID-19,” he added.
Dominguez said DOF estimates show that financial losses of small businesses will amount to ₱465.3 billion as a result of the ECQ and other containment measures that have forced them to temporarily close shop or to continue operating but with only a skeleton force.
“The longer NOLCO period will have the effect of lowering the tax payments between 2021 and 2025 of affected small businesses by a combined estimated total of ₱139.6 billion,” the finance chief said.
DOF estimates showed that small businesses operating in malls and other retail outlets would incur losses of about ₱461 billion while those that have remained open but on skeleton force capacity will lose around ₱4.3 billion.
Dominguez said the enhanced NOLCO for small enterprises to cover losses in 2020 is similar to the tax relief measures being adopted in the US and China to provide relief to their respective business sectors.
Based on the existing provisions of the NIRC, net operating losses, which had not been previously offset as a deduction, shall be carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.
Finance Secretary Carlos G. Dominguez III
In a statement, Finance Secretary Carlos Dominguez III said the national government is prepared to absorb as much as ₱139.6 billion in foregone revenues from the extension to ease the burden on small businesses affected by the economic crunch.
But Dominguez said stretching the NOLCO by two more years would require congressional approval.
Under the National Internal Revenue Code (NIRC), NOLO could be extended up to three taxable years.
“We will propose to Congress an extended NOLCO of five years for net losses that will be incurred in 2020. This means that a small business’ losses this year may be deducted from their income for up to the next five years for tax purposes,” Dominguez said.
“The purpose of extending NOLCO is to give them more time to recoup their losses arising from implementation of the enhanced community quarantine (ECQ) and other measures to contain the spread of COVID-19,” he added.
Dominguez said DOF estimates show that financial losses of small businesses will amount to ₱465.3 billion as a result of the ECQ and other containment measures that have forced them to temporarily close shop or to continue operating but with only a skeleton force.
“The longer NOLCO period will have the effect of lowering the tax payments between 2021 and 2025 of affected small businesses by a combined estimated total of ₱139.6 billion,” the finance chief said.
DOF estimates showed that small businesses operating in malls and other retail outlets would incur losses of about ₱461 billion while those that have remained open but on skeleton force capacity will lose around ₱4.3 billion.
Dominguez said the enhanced NOLCO for small enterprises to cover losses in 2020 is similar to the tax relief measures being adopted in the US and China to provide relief to their respective business sectors.
Based on the existing provisions of the NIRC, net operating losses, which had not been previously offset as a deduction, shall be carried over as a deduction from gross income for the next three taxable years immediately following the year of such loss.