DOF PR
The Department of Finance (DOF) has proposed to extend the net operating loss carry-over (NOLCO) for small businesses to five years, with the government absorbing as much as P139.6 billion in the form of foregone tax payments to help these enterprises recoup their losses resulting from the economic fallout triggered by the coronavirus disease 2019 (COVID-19) pandemic.
Finance Secretary Carlos Dominguez III said stretching the NOLCO by two more years, which, under the National Internal Revenue Code (NIRC), is up to three taxable years only, would require congressional approval.
“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. 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,” Dominguez said.
Dominguez said DOF estimates show that financial losses of small businesses will amount to P465.3 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 P139.6 billion,” the finance chief said.
DOF estimates show that small businesses operating in malls and other retail outlets would incur losses of about P461 billion while those that have remained open but on skeleton force capacity will lose around P4.3 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 United States (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.
Dominguez said the DOF’s enhanced NOLCO proposal forms part of the three-pronged rescue program to help small businesses and their workers survive the economic repercussions of the COVID-19 pandemic.
