Press Release
January 23, 2011

'Jobs Act of 2011' rolls out more relief, perks to small enterprises
Micro, small & medium enterprises (MSMEs) to plug job leaks

Sen. Ralph G. Recto yesterday said the job creation potential of the 783,000 micro, small and medium enterprises (MSMEs) should be harnessed by providing them with a wider elbow room for growth through expanded incentives and lesser stringent national and local registration requirements.

Recto said with a ballooning army of unemployed, which has reached to around 2.8 million in October 2010, the small businesses categorized as MSMEs could deliver the a significant batch of "able bodies" required to plug the employment problem.

"The strong army of entrepreneurs falling under the MSMEs sector has the potential of significantly addressing the unemployment problem that has the combined wallop of a corporate giant's total workforce if the jobs to be created (by MSMEs) are put together," he said.

The senator, who chairs the Senate committee on ways and means, said if only each of the registered 783,000 MSMEs is successfully wooed into hiring one more employee, the unemployment rate would instantly go down by 783,000.

Records show that in 2006, MSMEs employed a total of 3.3 million individuals, dwarfing that of large-scale industries which only generated 1.6 million jobs as of the same year.

This fact, Recto said, is a testament to the ability of MSMEs to generate employment given the right conditions.

But the senator lamented that even with the existence of laws like Republic Act (RA) 6977 or the Magna Carta for Small Enterprises; RA 9178 or the Barangay Micro Business Enterprises Act of 2002; and RA 9501 or the Magna Carta for Micro, Small and Medium Enterprises, the growth of MSMEs are still slow with the wide-array of bureaucratic hurdles that each small businessman has to pass through.

"The energy and enthusiasm of an entrepreneur are already sapped out by the time he could start his business with the dizzying requirements that needed to be complied with," Recto said.

"And what, to me, is unacceptable is that LGUs and national agencies seem to have developed masochistic satisfaction seeing MSMEs go through the bureaucratic red-tape like going to and back from hell," he added.

He said this is the reason why would-be legitimate MSMEs chose to stay 'incognito' or remain underground just to evade the tedious process of complying with local and national regulatory and registration requirements.

Recto said while the existing laws were successful in advancing the welfare of MSMEs, a complementary legislation is needed to ensure that small businesses formally operating now stay afloat and those still "in hiding" be encouraged to surface and help in the job generation effort.

He said aside from freeing them from cumbersome bureaucratic red-tape, MSMEs should be enticed to expand their payrolls by hiring additional workers and get "allowable deductions" in return.

Recto, in unveiling his package of "relief" and benefits to MSMEs, proposed that micro-enterprises that have assets up to P5 million like "sari-sari" stores be exempt from income tax, minimum wage law, value added tax (VAT) registration and percentage tax to fully harness their growth and job creation potentials.

He pointed out the exemption would free micro-enterprises from focusing their time in registering with local and national agencies like the Bureau of Internal Revenue (BIR).

Micro-enterprises need only to register with the city or municipal treasurer to be formally enlisted as an 'MSME' while small and medium enterprises (SMEs) will have to register with the Department of Trade and Industry (DTI) to avail of incentives and benefits.

SMEs, whose assets is between P5 million to P15 million for small businesses, and P15 million to P100 million for medium businesses, would also be exempt from registering as a VAT entity but only if their annual sales do not exceed P3 million.

SMEs could likewise enjoy lower income tax for a period of five years if they would hire a maximum of two new workers for an allowable tax deduction of P40,000 for each worker or a maximum of P80,000 for two employees.

Recto said the allowable deductions could only be availed if the two new workers would remain employed for at least one year.

"The allowable tax deductions would serve as incentive to small businesses to go mainstream, expand and hire more employees, thus, reducing unemployment," he said.

To avoid the tedious yearly registration with the city reasurer or the DTI, all MSMEs would be entitled to a one-time registration effective for two years while LGUs which have jurisdiction over SMEs are strongly encouraged to reduce their local taxes, fees and charges.

The senator said MSMEs would also be afforded access to cheap loans by mandating lending institutions like banks to set aside eight percent of their loan portfolio to the sector.

Banks, in return, would be exempt from paying gross receipt tax (GRT) for loans extended to MSMEs.

Recto hoped that his proposed package of benefits to MSMEs would be included in the list of priority legislations that would be submitted by the President to the Legislative Executive Development Advisory Council (LEDAC) that would be convening by the end of the month.

Senate Bill 2643, aptly called "Jobs Act of 2011", was formally filed late last week.

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