TWENTIETH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
)
25
-7 PI :59
S. No.
SENATE
230
Introduced by Senator Francis G. Escudero
AN ACT
PROMOTING BUSINESS COMPETITIVENESS BY PROVIDING TEMPORARY 
TAX RELIEF TO SINGLE PROPRIETORSHIPS, COOPERATIVES, 
PARTNERSHIPS OR CORPORATIONS CLASSIFIED AS MICRO, SMALL AND 
MEDIUM ENTERPRISES
EXPLANATORY NOTE
Despite its pivotal role in the economy, Micro, Small and Medium Enterprises 
(MSMEs) are particularly vulnerable to external shocks. This vulnerability was 
particularly highlighted at the height of the coronavirus pandemic, which induced 
restrictions in business operations and decline in consumer demand. Such negative 
impact on cash flows caused temporary and permanent closure of MSMEs and the 
displacement of their employees. Based on the published figures by the Department 
of Trade and Industry, MSME establishments and MSME employment declined by 
42,776 and 129,945 from 2019 to 2020, respectively.
While the most devastating impact of the pandemic has since passed and 
businesses are starting to reopen and recover, they still remain particularly vulnerable 
to factors such as the escalating cost of doing business and limited access to financing 
and markets, among others. As such, there is a need for the government to cushion 
MSMEs against the lingering impact of the pandemic and to bolster their resilience 
against future shocks.
To address this concern and to adhere to the state policy of promoting, 
supporting, strengthening and encouraging the growth and development of MSMEs in 
all productive sectors of the economy, the government can incentivize their continued 
operation in the country. This bill seeks to provide MSMEs a three-year exemption 
from income tax and authorizes the deduction from taxable income an amount


equivalent to twenty-five percent (25%) of labor expenses by MSMEs within three (3) 
years following the effectivity of the proposed measure. The twin tax relief provision 
in this proposed measure can provide qualified enterprises with additional resources 
for continuing business activities, hiring more people, and expanding business 
operations.
Ultimately, these incentives are but small investments to catalyze the growth 
of the MSME sector and aid in government efforts to reduce poverty incidence, 
increase employment rate and pump-prime economic activities in the post-pandemic 
Philippines.
In view of the foregoing, the passage of the measure is earnestly sought.
FRANCI
CUDERO


TWENTIETH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
)
25
JUL-7 PI :59
S. No.
SENATE
230
Introduced by Senator Francis G. Escudero
AN ACT
PROMOTING BUSINESS COMPETITIVENESS BY PROVIDING TEMPORARY 
TAX RELIEF TO SINGLE PROPRIETORSHIPS, COOPERATIVES, 
PARTNERSHIPS OR CORPORATIONS CLASSIFIED AS MICRO, SMALL AND 
MEDIUM ENTERPRISES
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assemble
1 
Section 1. Grant of Relief from Payment of Income Tax. - Single
2 
proprietorships, cooperatives, partnerships or corporations classified as Micro
3 
Enterprises under Republic Act No. 6977, otherwise known as the "Magna Carta for
4 
Small Enterprises," as amended, shall be exempt from income tax: Provided, That the
5 
exemption from income tax shall be extended to qualified enterprises within the
6 
effectivity period as provided under Section 6 of this Act.
7 
Sec. 2. Grant of Authorization to Deduct Labor Expense from Taxable Income.
8 
- In computing taxable income subject to income tax under Sections 24(A); 25(A);
9 
26; 27(A), (B), and (C); and 28(A)(1) of the National Internal Revenue Code of 1997,
10 
as amended, there shall be allowed a twenty-five percent (25%) additional deduction
11 
on the labor expense incurred for each employee hired by single proprietorships,
12 
cooperatives, partnerships or corporations classified as Small and Medium Enterprises
13 
under Republic Act No. 6977, otherwise known as the "Magna Carta for Small
14 
Enterprises", as amended: Provided, That no deduction in the computation of taxable
15 
income shall be extended to taxpayers earning compensation income arising from
16 
personal services rendered under an employer-employee relationship: Provided,


1 
further, That the additional deduction on the labor expense incurred for each
2 
employee shall be extended to qualified enterprises within the effectivity period as
3 
provided under Section 6 of this Act.
4
5
6 
7
11
12
13
14
15
16 
17
Sec. 3. Implementing Rules and Regulations. - Within thirty (30) days from the 
effectivity of this Act, the Department of Finance shall, in coordination with the Bureau 
of Internal Revenue, promulgate the rules and regulations to effectively implement 
the provisions of this Act.
8 
Sec. 4. Separability Clause. - If any provision or part hereof is declared
9 
unconstitutional, the remainder of this Act or any provision not affected thereby shall 
10 remain in fuli force and effect.
Sec. 5. Repealing Clause. - All laws, acts, decrees, executive orders, issuances, 
and rules and regulations or parts thereof which are contrary to and inconsistent with 
this Act are hereby repealed, amended or modified accordingly.
Sec. 6. Effectivity. - This Act shall take effect on the fiscal year immediately 
following its publication in the Official Gazette or in at least two (2) newspapers of 
general circulation, and shali remain in full force and effect for three (3) fiscal years, 
unless otherwise extended through an act of Congress.
Approved,