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COVID-19, Business Taxes, and the Fate of the Local Economy

 

A good friend told me days ago that she has been thinking of closing her tourism-related business.

 

For the last eight months after stringent entry restrictions have been implemented in the province, the business has been very slow to a crawl.  But she chose to operate and kept her core workers, those who have stayed with her for the last ten years because she did not want them and their families to starve.   But now, she has doubts.

 

It’s true that the tourism sector is the most severely affected by the pandemic, brought about by stringent mobility restrictions imposed by  governments. Based on most recently available data, the Southeast Asia region has one of the sharpest declines in tourist arrival, at 78% based on annualized figures.  But projections in the next two years are far from optimistic. Despite the good news that the vaccine is already available, and governments are racing towards inoculating their citizens, tourist confidence may not necessarily bounce back to pre-pandemic levels.  As a matter of fact, experts consulted by the United Nations World Tourism Organization opine that recovery will likely happen only in the next two to four years, probably starting by the last quarter of the year.  

 


 

 

For my friend, waiting for recovery to happen is a risk that she is no longer willing to take, especially now that the local government unit where her business is located is asking for the impossible; she is assessed business taxes equivalent to 50% of what she paid prior to the pandemic.  In 2020, just a few days before the first COVID 19 case was detected in the Philippines, she paid close to Php1million (app. 20.8 thousand USD) in business permits.  This year, she is required to pay half of that amount.

 

Indeed, the logic of that computation is baffling.  Business permits are usually computed based on gross receipts of the previous year.  In 2020, non-essential businesses, including those in the tourism sector, were closed for at least three months.  Gradual reopening happened only around June last year.  Based on my friend’s experience, patrons only started coming in in the last quarter of the year.  Given this scenario, the most that the LGU can collect is at least Php250,000 (app. 5,200 USD), if indeed the basis of computation is presumptive sales.

 

Tourism-related businesses, including that of my friend’s, have been bleeding profusely.  I went through her sales records and I was disheartened to see zero sales on some days.  As a businessman myself, I can commiserate with this daily loss – the freezers need to be on, workers need to be paid, and rent goes on with our without customers. 

 

On the other hand, I can also understand that local governments need to raise local revenues to keep public services open, especially during this time of the pandemic.  But to levy business taxes of unjust amounts will kill local businesses.  When owners decide to close business, they are not the only ones affected.  The workers will lose jobs. Backward linkages like suppliers, including small-scale farmers and fishermen, will eventually lose revenue sources. Local government leaders cannot be so short-sighted not to see the long-term economic impacts of certain bad decisions on the economy. 

 

I call on local government units to program defensible tax targets and impose just and justifiable local business taxes.

I call on the national government to launch specific programs to help local businesses weather this crisis. 

I call on local consumers, especially those who have the means to do so, to continue supporting local businesses by ramping up consumption.

 

We are all in this together. We need to help each other see all of us through. 

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