A tax consultant has urged the government to allow Small and Medium Enterprises (SMEs) to register for Value Added Tax (VAT) with zero revenue, arguing that this would lower costs and increase profitability.
In 2015, the government amended the VAT Act, removing the voluntary registration threshold that previously allowed SMEs to register for VAT without having generated revenue. Speaking during the FNBB Budget Review Seminar, Jonathan Hore, Managing Consultant at Aupracon Tax Specialists, explained that the amendment aimed to address issues with “tenderpreneurs.”
“Because they had registered for VAT, if they didn’t win the tender, they wouldn’t file VAT returns,” Hore said. “BURS wasn’t happy with that, and the then Minister of Finance proposed that only quality investments be allowed. He said if you wanted to voluntarily register for VAT, you needed to have P500,000 in your bank account.”
While Hore acknowledged the rationale behind the move, he said it created challenges for SMEs. He explained that businesses not registered for VAT must bear VAT costs on their purchases, which reduces profits and increases operational expenses.
“SMEs are currently struggling to register for VAT, which raises their costs, reduces profits, and makes starting a business more expensive,” Hore said.
Presenting on the topic “Empowering SMEs Through Tax Incentives and Compliance Strategies”, Hore proposed that SMEs be granted a special VAT waiver, given their role in job creation.
“They create employment, so register them with zero revenue,” he advised. “This would allow them to claim VAT charged by suppliers, lowering their costs and enabling them to create more jobs.”
Hore argued that the P500,000 requirement is a barrier for SMEs.
“Let’s revisit the pre-2015 system, where businesses could register for VAT without revenue,” he said. “However, they should be required to reach the P500,000 threshold within the first one or two years. This way, legislation won’t hinder their ability to do business, and once they meet the requirement, they can remain in the system.”
Hore criticised the current VAT regime as overly stringent for SMEs, particularly due to the P500,000 revenue requirement.
“This is revenue, not capital, and SMEs typically don’t have that at the start,” he said. “Allowing them to register without revenue would boost job creation, increase profits, and reduce capital costs.”
Additionally, Hore proposed introducing a Corporate Income Tax specifically for SMEs.
“Currently, all taxpayers, regardless of revenue, must pay a 22 percent Corporate Income Tax,” he noted. “There is a provision that allows small taxpayers earning no more than P300,000 to be treated as a partnership, but the government could go further by offering a lower fixed rate to small businesses with annual revenue below P1 million.”
