Quote

“I'd rather regret the things that I have done than the things that I have not.”
― Lucille Ball

Saturday, May 2, 2015

Our experience with "Barangay Micro Business Enterprise" and other pitfalls

Steps for Registering

Introduction


Barangay Micro Business Enterprise (BMBE) was an attempt of the former president of the Philippines, President Gloria Macapagal-Arroyo, to stimulate small- and micro-businesses in the barangay's of Philippine's municipalities and cities.
This was regulated by REPUBLIC ACT NO. 9178 of November 2002.

The title of the act was:

AN ACT TO PROMOTE THE ESTABLISHMENT OF BARANGAY MICRO BUSINESS ENTERPRISES (BMBEs), PROVIDING INCENTIVES AND BENEFITS THEREFOR, AND FOR OTHER PURPOSES 
The whole idea was to stimulate businesses and exempt them from tax by the BIR (Bureau of Internal Revenue) for a period of two years.

After the first term of two years you have to apply for an extension, which seems to be a bit more complicated.

In this post I will share our experience and my conclusion that the act is not really bringing what was anticipated.



Businesses covered by BMBE


A micro business or enterprise is defined as any business activity or enterprise engaged in industry, agribusiness and or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value of not more than 3 million Pesos (Sec. 3. of R.A. 9501 otherwise known as the Magna Carta for Micro, Small and Medium Enterprises (MSMEs).

Advantages


The advantages of BMBE are advertised as follows:
  1. Income tax exemption from income arising from the operations of the enterprise
  2. 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)
  3. Priority to a special credit window set up specifically for the financing requirements of BMBEs
  4. Technology transfer, production and management training, and marketing assistance programs for BMBE beneficiaries.
For us the main advantage was #1 and that the BIR reporting would be much simpler. As far as #4 is concerned, in our case this was reversed, as WE are transferring swimming pool knowledge to the community and municipality management.

How it started


As my wife wanted to do some small business, I advised her to go for BMBE. Her business would be a mini resort, with our swimming pool as the center of the resort, and a couple of tables and bahay kubo's around it.

I studied everything about BMBE including the  registering procedure  (see poster above) and then we went to the City Hall to find out if we could proceed with BMBE.

A cousin of my wife is working in the treasure department and responsible for preparing business permits. So we went to her, as is usual in the Philippines to get help from someone you know. Later on we discovered that this was not a smart move.


We brought the application form 01 with 3 passport photo's as requested, see step plan above, and an explanation of what BNBE is, as I expected already they didn't know.

Indeed her cousin didn't know what BNBE was and said: "in Santa Barbara we don't do this, it is not in our municipality code book".

DTI


She instructed my wife to go to DTI (Department of Industry) in Dagupan and register the name of our business and then come back to her.

I didn't agree and wanted to talk to the treasurer as is indicated in the step plan, but she was not around.

So we went to DTI, registered the company name as a BNBE for a few pesos and returned to the City Hall next day. Then she filled up the application form for a normal business (NOT a BNBE) and she sent us to several departments, like the sanitary department, the fire brigade and there was a discussion if we had to go to the zoning department and municipal engineering office to show the building permit and design papers of the swimming pool, which we don't have. Finally it was decided that we didn't have to go there.

Water testing


The sanitary department head of office asked me to have the swimming pool water tested by the Dagupan Water District, the same way they do for drinking water refilling stations. So I did, but then I had a discussion with the people of the testing laboratory. The water that I brought was from the swimming pool and they wanted to test the source of the water, so my drinking water from our deep well pump.

I didn't agree, as we use chemicals in the pool to kill bacteria and remove other things like urine, skin oil and sweat, but I kept my mouth shut. So I returned home with a sterilized bottle from them, took water from our drinking water system and brought it to them for testing. We passed the test easily.

Finally we got the business permit and a sign with the permit number to attach to the wall as to show that we have an official mayor's business permit.

On the permit paper the start and end dates of the permit were the same. The lady said that it is a bug in the program that she used to produce the permit. I didn't accept the permit. She had to change it manually on my request. It seems I was the first one to ask for a manual change in the permit.

In total we paid about 3.000 pesos to the municipality departments we had to visit and the water test laboratory.

BIR


As you have to visit the BIR within 30 days after registration of the business name, we decided to go there the next week. When we came there I started again a discussion about BMBE and the officer was very helpful, understood us and told us that we should try it once more in the City Hall. He also explained what documents we should bring to the BIR once we had the BNBE permit. And that if you get the permit from the BIR you have to follow a seminar where they explain the BIR reporting.

Before we started this whole process I bought a small and clear book for business starters in the Philippines, called: "Handy Guide for Business Starters", from Rowena B. Cequena, CPA, MBA. So I knew already how complicated the reporting is and that was for me the main reason for going for BNBE, as the reporting would be much easier or even non-existent. The tax exempt was not the main goal for me, but my wife would appreciate it very much.

Investments



Meanwhile my wife prepared our compound for turning it into a mini resort. I made already a year ago 4 large tables for if we had a party, we purchased some more bamboo tables and seats, parasols and our third bahay kubo.

A cousin, who is an artist, made for us a sign with the swimming pool rules and some more.

A tarpaulin was ordered to hang it at the fence of the entrance and some more signs for the entrance fees and opening hours. Facebook did the rest of the marketing. We got a lot of (positive) reactions, even from Calasiao and Urdaneta, which is 15 km from our place.

The swimming pool needs of course maintenance, like vacuuming, cleaning the filters, adding chemicals to kill bacteria and remove unwanted fluids like urine, skin oil and sweat.

When I build our house I made also an outbuilding, they call it here a bodega, with a toilet/shower. So this is the place where people can change cloth, take a shower and so forth.

The total investments we did are about 20.000 pesos, including the 3.000 pesos for the business permit.

Mapandan


To find out if BMBE was a known business model in one of the neighboring municipalities, I went to the head of the treasure department in Mapandan and had a nice discussion with the lady managing this department and found out that there is one BMBE business in Mapandan. She showed me the papers, indeed the same application form that I brought when we visited our City Hall for the first time.


Santa Barbara


Meanwhile we got a message from the cousin of my wife, saying that she found out that she had made a mistake by not allowing us to apply for BMBE. She had spoken with her boss, the lady managing the treasure department of Sta. Barbara, and indeed a BMBE was possible. So we went there spoke to the manager and than she came with her requirements. She also told me that there is currently only one BMBE in town, we would be the second.

First we had to make an Affidavit and execute it before a Notary Public, saying that the assets (the swimming pool) where less than 300.000 pesos, which we did.

The next day we delivered the application form, three passport photo's of my wife, as she would be the manager and sole owner of the business. My contribution was to let her use OUR assets for HER business.

Then they came with two other requirements. First was the land tax that I hadn't payed for a couple of years. Before they would give us the BNBE permit, the land tax must be payed, probably 39.000 pesos, not including the late payment penalty.

Second was that our property was registered as residential and had to be changed now to commercial land. Apart from the procedure with the zoning department, it would of course mean that the land tax would be increased as well.

We were both flabbergasted and refused to do this. Why was this not required when we applied for a normal business permit?

We were both so disappointed that we decided to cancel our plans for a small business, which would give some people a job, and other people a nice stay in our mini resort, but apparently the government is not willing to let us do so.

Cancelling a Business


So next was to cancel our business name in DTI, To do this you need to make an affidavit again which I did. The title is: Affidavit of Cancellation with no Financial Obligation. Next to a Notary Public to register the affidavit and swearing the truth and then again to DTI. The cost is only 20 pesos and it takes less than an our.

Because we didn't register yet for the BIR, we didn't have to go there to cancel. We are lucky that we didn't do it already, as cancelling a business with the BIR will not be so easy and I guess a lot of paperwork.

Next step is to cancel the business permit in the City Hall.

Conclusion


If you want to start a small business in the Philippines, investigate carefully what you have to do to register and to operate the business. The BIR reporting is in my view quite complicated, but you can hire a book-keeper for 300 pesos per month. The BIR will also ask you to do their seminar.

If you start a single proprietorship business you have to pay tax two times. First regular business tax, which will be a higher percentage the higher your financial turnover is. From what is left (your gross income) you have to pay again income tax, but there are some exempt amounts depending on your family size. Read the little book that I mentioned above, if you are interested in the details.

Reporting is monthly, quarterly and yearly. Even when you stop your business temporarily, for example if you go abroad for holiday or visiting your family, you have to continue to report and to hire a book-keeper who you can trust to do this for you.

I was also planning to do some business with my machine shop, but I am convinced now that it is not worth doing it. I will do it in the same way as they have the sari-sari stores here. So one day that will be my sari-sari machine shop. No BIR no permit, no commercial lot, no tax.

Note:
Sari-sari means diversified or varied, so a sari-sari store is a small shop for food, soft drinks, booze, cigarettes, etc..



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