DISCLAIMER: This article does not create an attorney-client relationship between the author and the reader.  The answer of the author on the issue is just an expression of his general opinion based on Philippine law and hence does not constitute legal advice.

I’ll begin my article sharing with this frequent concern of entrepreneurs, how to avoid or at least how to minimize income tax. Allow me to use this live case to facilitate the discussion.   Here we go!

An executive secretary working in Metro Manila together with her friends are planning to set-up a coffee shop business.  First in the list of their concerns is how to avoid income tax.

Unless one has the express and clear exemption from the legislature too plain to be mistaken, one cannot avoid paying tax, but can only minimize it to the extent allowed by law.

Avoiding or minimizing income tax is a very broad topic but since the coffee shop business is a new endeavor, it might be best for the owners to check R.A. 9178, also known as the Barangay Micro Business Enterprises (BMBE) Act of 2002.  Under the BMBE Act, qualified entities whether new or existing, which have been issued BMBE Certificate of Authority are exempted from paying income tax for a period of two (2) years, renewable for a period of two (2) years for every renewal.   The following are the other benefits of a registered BMBE:

1) Exemption from the coverage of the Minimum Wage Law.

2) Credit facilities to service the financing needs of BMBE.

3) Development fund for the technology transfer, production and management training and marketing assistance to BMBEs.

The application for BMBE Certificate of Authority is at the Office of the City or Municipal Treasurer where the BMBE is located. Under the BMBE Act, the following are the qualifications to be eligible to be issued a BMBE Certificate of Authority and to continuously enjoy the benefits:

1) The business must be in the production, processing or manufacturing of products or commodities, including agro-processing, trading, and services other than practice of profession.

2) Total assets of the business including those arising from loans but exclusive of the land on which the business entity’s office, plant and equipment are situated, shall not be more than Three Million Pesos (PHP3,000,000.00).

Prospective applicants may want to visit the Office of the City or Municipal Treasurer for further inquiry and eligibility assessment.

The BMBE Act mentions only exemption from income tax.  Following then the basic rule in taxation that “exemption from tax is strictly construed against the taxpayer and liberally in favor of the government”, BMBE registered entities are therefore not exempted from the value-added tax (VAT) or percentage tax.

Make an initial assessment now and avail of the benefits!

(March 30, 2024)