Business clients of our firm say their common problems last year have something to do with 1) rising cost of doing business; 2) lack of capital and cash flow; 3) use of online platforms for their business that often gets them into trouble instead of getting customers and expanding their market. They are hoping 2025 will be better.
For sure, there are management, marketing and practical solutions to these problems, but we are looking at the legal angle. Here are some suggested legal solutions.
Rising cost of doing business
For one, to help micro-enterprises survive in the face of increasing cost of gasoline, raw materials and overhead, there’s support that can be availed of per Republic Act No. 9178, the Barangay Micro Business Enterprises (BMBE) Act. Signed into law in 2002, a business with assets not exceeding 3 million with not more than 10 workers, qualifies for BMBE. To register, the BMBE needs to comply with the requirements set by the Department of Trade and Industry (DTI) or the local government unit where it operates.
Although this law does not reduce the production cost, it offers a way for micro-businesses to gain access to benefits, such as exemption from income tax and other fees for the first three years of operation. They are also exempted from the minimum wage law and can avail of government financing programs and technical assistance.
Republic Act No. 11534, also called the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, is also a source of support for MSMEs. This became effective in 2021 to provide economic relief to businesses affected by the COVID-19 pandemic. It offers support by reducing corporate income tax rates and granting additional incentives to companies.
Under this, small businesses with a taxable income of up to PHP 5 million can benefit from a corporate income tax rate of 20%. In comparison, larger businesses with a taxable income of over PHP 5 million will have their corporate income tax rate from 30% to 25% over the next few years.
To be eligible for the incentives, businesses must register with the Philippine Economic Zone Authority (PEZA) or the Board of Investments (BOI). On top of that, they must also fulfill specific criteria such as investing in certain industries, creating jobs, and using locally sourced materials.
Lack of capital, cash flow
Many MSMEs depend on loans for capital and cash flow. But, for varied reasons, it is not easy for MSMEs to secure loans. Thus, even though the DTI has loan programs such as the RISE UP Micro Multi-Purpose Loan; RISE UP Multi-Purpose Loan for SME First Time Borrowers; RISE UP Multi-Purpose Suki Loan; RISE UP Tindahan Loan; and Pondo sa Pagbabago at Pag-Asenso (P3) Program, many MSMEs borrow from loan sharks.
A loan shark is an unlicensed lender. Their lending practice is predatory, often targeting borrowers with bad credit history, offering very bad terms, and using threats and violence to collect debts. Two known predatory lending practices in the Philippines are 5-6 loans and sanglaATM.
Note that the SEC imposes an interest rate cap on lending companies and their online lending platforms, per BSP Circular No. 1133. Under the circular, the maximum nominal interest rate is at 6% monthly (or 0.2% daily), while the effective interest rate is at 15% monthly (or 0.5% daily for unsecured covered loans and general-purpose loans not over ₱10,000 and with a four-month tenor). However, according to the BSP, there’s no existing law prohibiting the use of ATM cards as collateral.
MSMEs should avoid loan sharks. If already a victim, the loan sharks can be reported to the SEC and BSP:
Securities and Exchange Commission
- Address: G/F North Wing Hall, Secretariat Building, PICC Complex, Vicente Sotto Street, 1307 Pasay City (weekdays from 8 a.m. to 5 p.m.)
- Email: [email protected]
Bangko Sentral ng Pilipinas
- Email: [email protected]
- BSP Webchat: www.bsp.gov.ph
- SMS: 21582277
- Facebook: www.facebook.com/BangkoSentralngPilipinas
On the other hand, if the MSME has fallen victim by nonpaying clients or debtors, it can send demand letters first. Sample demand letters can be downloaded from our BizHelp page. If the demand letter is ignored, MSME can file collection suits with Small Claims Court if the unpaid loan is PHP 1 million or less.
Merchant’s obligations in using online platforms for business
As online selling became easy and popular through Facebook and other online market places, it has also become a common platform for consumer complaints and collection demands. Some MSMEs lose customers because of bad reviews and other MSMEs, out of frustration or despair, post their angry demands and comments to compel payment, causing them to be sued for cyberlibel and other violations of ecommerce laws.
To avoid such unfortunate situation, MSMEs should know the Internet Transactions Act of 2023 (ITA), a new law governing the country’s e-commerce industry.
The ITA, officially titled An Act Protecting Online Consumers and Merchants Engaged in Internet Transactions, Creating for This Purpose the Electronic Commerce Bureau, Appropriating Funds Therefor, and for Other Purposes, stipulates the rights and obligations of consumers, online merchants, e-marketplaces, and other digital platforms in the course of e-commerce transactions. It will apply to all business-to-business (B2B) and business-to-consumer (B2C) transactions carried out online in which at least one of the parties is located in the Philippines, or “where the digital platform, e-retailer, or online merchant is availing of the Philippine market and has minimum contacts therein”.
Merchants and e-retailers are obliged to ensure that their products and services meet requirements on price tags stipulated in Article 81 of the Consumer Act of the Philippines (which prohibits the sale of a product without an appropriate price tag or selling at a price higher than that stated on the price tag). Merchants must also issue paper or digital invoices for all sales.
Merchants are required to ensure that the consumer receives the goods purchased online and that the goods meet the following requirements:
- Complies with the description provided and the purposes for which it is intended;
- Complies with the sample, picture, or model of the goods shown to the consumer upon request and any additional details provided to the consumer upon request; and
- Is fit for the purpose required by the consumer as communicated by the merchant.
Also, goods delivered must have all the necessary accessories, and any user manual must be printed in either Filipino, English, or both.
There are certain requirements for the type of information that a merchant must publish on its homepage on the e-marketplace. This information includes:
- Corporate and trade business name;
- Address of physical shop or place of business;
- Contact details, including phone number and email address; and
- Details of membership in a professional body if the merchant sells regulated products or services.
As with e-marketplaces, merchants are also required to protect the privacy of consumer data in compliance with the Data Privacy Act of 2012.
To know more about ecommerce laws and other information on this blog, you may request a learning meeting with our BizHelp team. We provide free learning sessions for followers of our website and social media accounts (so like and follow them!) Let’s start the year informed and empowered for a successful business this 2025!
