The Duterte administration should grant tax incentives to micro, small and medium enterprises (MSMEs) to stir economic growth, an expert said Thursday.

Lothar Grad, general manager of Schletter Shanghai Solar Technology Co. Ltd., made the pitch during the Business Innovation Congress in Manila hosted by the European Chamber of Commerce in the Philippines.

“The government could look at it this way: it can invest on 100,00 MSMEs. Maybe, only 50,000 of this number will flourish, but you would have created far more employment, collected far more taxes, provided far more social services in return,” Grad, who has worked with SMEs in China and Germany, said.

“For so long, we have been unwilling to go through a crisis. But in the long run, there is benefit in going through a crisis. It is an opportunity to get stronger,” Grad added.

The Philippine economic growth slowed down in the third quarter of the year at 6.1 percent, lower than the second quarter’s 6.2 percent. The country needs to register at least a 7 percent growth in the fourth quarter to meet the government target of 6.5 to 6.9 percent growth.

Grad then said developing countries can take cue from Germany which does not impose taxes on MSMEs for the first three years and collects 50 percent of the prevailing corporate income tax rates for the fourth and fifth year.

“These tax rates make sure that MSMEs will make it. At the very least, it will give them security, which I think is very good,” Grad said.

Grad welcomed the government’s proposed the Tax Reform for Attracting Better and Higher Quality Opportunities bill which cuts corporate income taxes from 30 percent to 20 to 25 percent.

“Tax is one of the instruments that the government can use to encourage this type of industry. It will give the MSMEs a strategic advantage,” Grad said.

MSMEs are businesses employing less than 200 workers or those with an asset size of no more than P100 million.

Based on the records of the ECCP, 70 percent of the country’s 60 million workforce, or 40 million, work in SMEs.

Likewise, MSMEs comprise 32 percent of the Gross Domestic Product or P100 billion a year. —LDF, GMA News

Article was published on November 16, 2018 on MSN Philippines