DOF against grant of incentives to microfinance coops

by Elijah Felice Rosales – The Philippine Star, 30 Nov 2021

MANILA, Philippines — The Department of Finance (DOF) has warned that putting up a microfinance cooperative in each barangay nationwide will harm the country’s fiscal standing due to the tax incentives that will be given out.

In a hearing at the House of Representatives, DOF division chief Lyonel Tanganco cautioned lawmakers about the risks posed by the passage of House Bill (HB) 7968 filed by Bataan Rep. Geraldine Roman.

Tanganco said the measure fails to provide a mechanism on how the government can monitor the incentives extended to barangay microfinance cooperatives (BMCs).

“We initially flagged the bill as it was unclear on the mechanism to monitor and review the proposed tax incentives under the law. We are concerned that this would be inconsistent with the government policy to promote fiscal accountability and transparency enshrined under the TRAIN (Tax Reform for Acceleration and Inclusion) Law,” Tanganco said.

Under HB 7968, BMCs will be exempt from paying income taxes derived from their operations. Likewise, they are exempt from the minimum wage policy as long as they grant social security and healthcare to their workers.

Further, local governments can slash or even exempt BMCs from taxes, fees and other charges.

Tanganco said the DOF rejects the provision on exemption from taxes, fees and charges, noting that it will injure the financial capability of local governments to fund their programs.

“While the proposed measure recognizes the constitutionally enshrined policy on local autonomy, we wish to underscore that the exemption or reduction of local government taxes and fees could impair the fiscal capability of the LGUs and hamper its capacity to fund local projects,” he said.

Tanganco added the DOF also opposes HB 7968’s creation of a financing pool worth P10 billion that will bankroll the creation of barangay microfinance offices tasked to issue certificates of accreditation to the BMCs. The development fund will get its resources from collections made by state-run Philippine Gaming and Amusement Corp. (PAGCOR) and from sin tax revenues.

Tanganco pointed out that PAGCOR and sin tax incomes are channeled into the Universal Health Care Law. As such, he said directing funds into other programs may bring down the amount allocated for the health measure most needed during the pandemic.

The bill seeks to set up at least one BMC per barangay nationwide in an effort to veer micro, small and medium enterprises (MSMEs) from loan sharks, especially the 5-6 scheme, known to charge borrowers with an interest of 20 percent per day, week or month.

It also establishes a barangay microfinance office in each city and municipality to be made up of four members: the chairman of the local committee on trade, commerce or industry; the mayor; the head of a local business chamber; and the head of any government bank in the locality.