Proposed Senate Bill 2021-4
Nurturing Entrepreneurship With Incentives Act/NEW Incentives Act)
Micro, Small, and Medium Enterprises (MSMEs) employ a bulk of workers (62.4%) in the Philippines and thus serve as the lifeblood of the country’s economy. Unfortunately, few incentives are given to nurture MSMEs, especially those that are yet to be formed and newly established ones. Meanwhile, big business enterprises were historically pampered by incentives ranging from tax holidays to preferential tax rates. This proposed Senate bill will thus provide incentives for the formation of more MSMEs and ensure that existing ones are able to grow and help workers and citizens, while helping lift the country’s economy too. This proposed legislation will also help the country’s entrepreneurial laws be attuned to 21st century realities such as e-commerce and e-business. Such consideration is driven by the fact that the country’s business registration processes are notoriously cumbersome and expensive. For example, sole proprietorships – even start ups – are required to have a physical business address for initial Department of Trade and Industry (DTI) registration and succeeding registrations and/or accreditations in other local and national agencies. Some business enterprises in the Philippines have started virtual office arrangements to help solve such problem, but these are still expensive (for example, VOffice’s cheapest offer is at 2,248 pesos per month).
Be it enacted by the Senate and the House of Representatives of the Philippines assembled.
SECTION 1. Short Title. This act shall be known and cited by its short title “Nurturing Entrepreneurship With Incentives Act (NEW Incentives Act).”
SECTION 2. Declaration of State Policy. Promotion of entrepreneurship as a state policy enshrined in ARTICLE XII, Section 14 of the 1987 Constitution is hereby reiterated and implemented: “The sustained development of a reservoir of national talents consisting of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields shall be promoted by the State…”
SECTION 3. Coverage. This Act shall cover all Micro, Small, and Medium Enterprises (MSMEs) registered as or to be registered as sole proprietorships, whose total assets including those arising from loans, shall not be more than Three Million Pesos (P3,000,000.00).
SECTION 4. Flexibility of Physical Business Address Requirements. This Act hereby allows the use of a functioning website with complete details on business name and business activities/services offered, in all government registration forms, accreditation forms and the like – local and national – in lieu of physical business address for eligible entities where the feasibility of e-business/e-commerce is demonstrable, such as but not limited to: online selling, electronic or digital publishing, consultancy services, video production &/or editing services, editorial services, and other similar services or business activities. The complete list of eligible entities for this section will be threshed out in the implementing rules and regulations (IRR). Such list shall be updated yearly. For non-eligible entities, the entrepreneur shall be allowed to use his/her home address as his/her physical business address, if he/she is unable to rent or acquire an office for his/her business.
SECTION 5. Tax Exemption. All proceeds from the products and/or services offered by covered entities are hereby exempted from income tax for the first five years of business operations, provided that net profits for the applicable year doesn’t exceed One Million Pesos (P1,000,000.00), except for Barangay Micro Business Enterprises (BMBEs) which will continue to enjoy tax-free status unless if their registration status is upgraded into levels above the barangay. Meanwhile, all covered entities are permanently exempted from the percentage tax, unless their non-VAT registration or VAT-exempt status is changed.
SECTION 6. Registration and/or Accreditation Fees. The registration and/or accreditation fee (and consequently, fees for renewal of registration and/or accreditation) for every covered entity is capped at 100 pesos per government agency – local or national – for the entity’s first five years of operation, after which it is capped at 500 pesos per agency, except for BMBEs which will continue to enjoy the initial rate, until its registration status is upgraded.
SECTION 7. Exemption from Requirements Related to Physical Business Address. All eligible entities that use a website in lieu of a physical address, are exempted from business registration and/or accreditation requirements that require physical inspection of a physical business address.
SECTION. 8. Fully Online Business Registration and Renewal Processes. Within 1 year from this Act’s effectivity, the DTI and the Bureau of Internal Revenue (BIR), through the help of the Department of Information and Communications Technology (DICT) ensure that the country’s national and local electronic Business One-Stop Shop (or eBOSS) systems are fully integrated into one system with fully functioning online business registration and renewal platform which will make it possible for covered entities to be registered and eligible to legally operate within 2 business days after filling out the required online forms.
SECTION 9. Interest-Free Loans. All government-owned banks are hereby required to provide interest-free loans amounting to a maximum of One Million Pesos (P1,000,000) per covered entity, with the total amount of loans per bank capped at One Billion Pesos (P1,000,000,000) per year. Every covered entity can apply only for one such loan for every 5 years, and every entrepreneur can apply only for a maximum of two such loans for every 5 years. Such loans will also be exempted from any service fees, and will only be subject to minimal documentary requirements including the DTI and BIR certificate of registration, and a business proposal that outlines how the money will be spent for the enterprise. Every loan is payable a year after it was granted, in at most 60 monthly installments. No interest will be charged on any late payment, but non-payment of the loan balance within 7 years after it was granted will disqualify the recipient from acquiring any loan from government banks, until the balance is settled. Furthermore, the business registration of the enterprise for which the loan was made will be cancelled and no new business registration application will be processed in the entrepreneur’s name, until he/she has settled the loan balance.
SECTION 10. Seed Capital. Subject to the guidelines in the IRR, the DTI will issue an annual competitive call for applications for seed capital amounting to Two Hundred Thousand Pesos (P200,000) per successful covered entity’s application. The total amount of seed capital to be released annually is capped at One Billion Pesos (P1,000,000,000). This seed capital application will be on top of the available interest-free loans in the preceding section. Every entrepreneur can file only one application for seed capital for every year, and one for every business registered under his/her name throughout its existence.
SECTION 11. Free Trainings and Business Mentoring. The DTI, BIR, and other pertinent agencies are hereby required to provide free trainings and business mentoring for covered entrepreneurs, subject to the provisions in this Act’s IRR.
SECTION 12. Incentives for Professionals’ Services to MSMEs. Filipino professionals who would render their relevant services (e.g. business mentoring, bookkeeping and/or accounting, expert consultancy and the like) to MSMEs covered by this Act, for free, will be able to use such service as proof of completion of Continuing Professional Development (CPD) requirements for their respective professions, in which one year of free service to the MSMEs is equivalent to full compliance with the CPD requirements for one professional license renewal cycle. The guidelines for this section will be threshed out in this Act’s IRR.
SECTION 13. Funding. Sections of this Act which require new funding will be funded through general appropriations.
SECTION 14. Implementing Rules and Regulations. The DTI, BIR, in coordination with pertinent agencies, representatives of government-owned banks, and representatives of entrepreneurial groups, will draft and release the implementing rules and regulations of this Act, not later than 3 months from its effectivity.
SECTION 15. Separability Clause. In case any provision in this Act shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
SECTION 16. Repealing Clause. All laws, decrees, executive orders, proclamations, rules and regulations, and other issuances, or parts thereof which are inconsistent with the provisions of this Act, are hereby repealed or modified accordingly.
SECTION 17. Effectivity Clause. This Act shall take effect upon its publication in at least two (2) national newspapers of general circulation.