FIST Act (RA 11523) has been passed into law and we should be happy about it. But why?

Image result for FIST

The fist as far as we know is how we show our support to the current administration. But now the “fist” takes a new and more welcoming meaning which is Financial Institutions Strategic Transfer Act – Republic Act 11523 (FIST Act) an act sought to help out banks and financial institutions which will in turn help stimulate the economy.

But how?

Effects of Covid -19 on Financial Institutions

To understand how the new FIST Act will benefit you, we must first review how banks and other financial institutions work.

Financial institutions which include banks (FIs ) earn from INTEREST (and other charges) arising from the money they loan out. So as long as debtors pay their monthly amortization the FIs remain healthy and will continue to roll out loans.

However, 2020 happened. As we all know everyone was affected by the pandemic, many businesses closed shop which made it hard for business owners (and individuals alike) to pay back their loan on time, which ultimate. Added the fact that thru Bayanihan Acts 1 and 2 where there were express provisions extending the grace period for collection.

Because of the inability to collect, the banks accumulated Non- Performing Loans (NPL – are loans whose principal and/or interest have remained unpaid for at least 90 days after they have become past due or any of the events of default under the loan agreement) simply called as bad debts.

Central bank data showed that gross non-performing loans in the banking system climbed to P391.66 billion, or 3.61 percent of total loans, as of December 2020 from P234.99 billion, or 2.16 percent of total, in January 2020 or before the pandemic struck1.

Because of this FIs held out on loaning out money since they are trying their best to stay liquid as their cash is tied down to loans that can’t be paid right away or assets that can’t be disposed since not everyone has the money to buy.

This made it difficult for entrepreneurs to recover and rehabilitate their business.

FIST – The Answer

To answer this dilemma, President Rodrigo Dueterte certified the passage of the FIST Act as urgent and true enough it was approved by him on February 16,2021.

Basically, the FIST Act enables FIs to sell non-performing loans/assets to asset management companies.

This is good why?

Because it will allow the FIs to unload those bad debts and non performing and be liquid once again. This will allow FI’s to issue out new loan packages which will increase buying power to consumers and help entrepreneurs by giving a much needed source of funds to rehabilitate their businesses.

What’s next?

As per reports the Securities and Exchange Commission, the lead agency in this thrust is now asking stakeholders for their inputs as they draft the implementing rules regulations2.

Hopefully, the IRR be drafted the soonest so that the fresh capital will be out their in the market which is a much needed boost our economy.

But of course to avail of loans from banks and financial institutions you need to present financial documents such as registration papers, financial statements and income tax returns or else you will have to resort to loan sharks.

We should also be excited with another bill to be enacted hopefully soon, this is of course the Corporate Recovery and Tax Incentives for Enterprises (CREATE) which is highly anticipated since it offers to lower the corporate tax rate from 30% to 25%.

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Want to take out a loan but was asked for business papers? Let us help you. Just email us at waniaandpartners@gmail.com or message our facebook page @waniaandpartners.

Resources:

Republic Act 11523 -Full text FIST Act

Regulators get stakeholders’ inputs for IRR of FIST Act

https://business.inquirer.net/317931/bsp-says-fist-law-great-news-that-would-reduce-banks-bad-loans

Demystifying Barangay Micro Business Enterprise (BMBE)

You might have heard of it, may even have applied for it but what is it really and how does it work?

What is Barangay Micro Business Enterprise (BMBE)?

A BMBE is defined as any business enterprise engaged in production, processing, or manufacturing of products, including agro-processing, as well as trading and services, with total assets of not more than P3 million. Such assets shall include those arising from loans but not the land on which the plant and equipment are located.

What incentives can you get when you are registered as a BMBE?

  • Income tax exemption from income arising from the operations of the enterprise;
    • Please take note that what it only exempts is a tax on INCOME and therefore does not include other taxes such as Other Percentage Taxes or Value Added Taxes (which are based on sales and/or collections), withholding taxes on compensation, expanded withholding taxes, documentary stamp taxes (if applicable to your business) -Check your BIR Form 2303
    • Also please take note for individual taxpayers (those registered as sole proprietors) once you chose to be registered to be a BMBE entity you CANNOT avail of the 8% flat tax rate.
  • Exemption from the coverage of the Minimum Wage Law (BMBE employees will still receive the same social security and health care benefits as other employees);
  • Priority to a special credit window set up specifically for the financing requirements of BMBEs; and
  • Technology transfer, production and management training, and marketing assistance programs for BMBE beneficiaries.
  • The LGUs are also encouraged to either reduce the amount of local taxes, fees, and charges imposed or exempt the BMBEs from local taxes, fees, and charges.

Who again are qualified for the above incentives?

  • Any business entity hence be it:
    • Sole proprietorship (those business registered with the Department of Trade and Industry or DTI);
    • Corporations and/or partnerships(those registered with Securities and Exchange Commission or SEC) and
    • Cooperative (those registered with Cooperative Development Authority)
  • EXCEPT licensed professionals (those rendered by anyone, who is duly licensed by the government after having passed government licensure examination, in connection with the exercise of one’s profession e.g., Accountant, Lawyer, Doctor, etc.).
  • The above business entity must NOT HAVE MORE THAN Php 3 million in ASSETS. Such assets shall include those arising from loans but not the land on which the plant and equipment are located.

Once an entity has been given a BMBE Certificate, is the exemption from income tax automatic?

No. The entity in order to avail of the exemption from income tax MUST:

  1. The person or its duly authorized representative must go to the Revenue District Office where the business is located.
  2. Fill up BIR Form 1905 -Update and Correction
  3. Present a copy of the BMBE Certificate
  4. Surrender the original Certificate of Registration – BIR Form 2303 (if one has already been issued).
  5. Await the release of an updated where it expressly indicates that the taxpayer has availed of the income tax exemption
    • Note the tax type “INCOME TAX” shall not be deleted since the BMBE registered shall still be required to file an income tax return however will have a zero tax due.

Is the exemption from the minimum wage law automatic?

Yes, once a BMBE Certificate has been issued to the entity the exemption to the minimum wage law automatic.

Am I still required to file Income Tax Returns even after I have registered my BMBE Certificate with the BIR?

Yes or else you will be facing penalties for open cases.

Is the exemption from the minimum wage law retrospective?

No. The rule is that laws shall have prospective application only. Thus, an enterprise’s exemption from the coverage of the minimum wage law can only be applied to employees hired after its registration as a BMBE.

Read more about BMBE here:

Want to have your business registered and qualify for BMBE? We could assist you!

Just email us at waniandpartners@gmail.com or message us in our Facebook page @waniaandpartners.