CHAPTER II REVIEW OF RELATED LITERATURE

This chapter presents a review of related literature and studies relating to the Barangay Micro Business Enterprise Act of 2002, its history, significance and benefits to the micro businesses in the Philippines. This chapter also contains a discussion on the overview of micro and small businesses in and outside the Philippines. Lastly, this chapter includes relevant studies regarding tax incentives and its role in the empowerment of micro, small and medium-scale enterprises. Barangay Micro Business Enterprise Act of 2002 (BMBE) A. History and Significance of BMBE Micro Businesses are essential to the growth of the Philippine economy. Micro Businesses provide an avenue for job creation, employment opportunities and possible alleviation from poverty. This now leads to the creation of the Barangay Micro Business Enterprise Act of 2002. This act is penned by former senator Juan Flavier. According to dti.gov.ph, the act was signed into law by the former president Gloria Macapagal-Arroyo on the 13th of November 2002. Moreover, the implementing rules and procedures of such act were issued on February 7, 2003 as DTI Administrative Order No. 1 Series of 2003. Such was published in February 11 and 26 of the same year in the issues of Manila Bulletin.

According to the law, BMBEs are critical to the economic development because they are the stepping stone in the formulation of the development of Filipino entrepreneurial talent. This act also aims to incorporate the informal sector through granting specific incentives to these firms therefore giving them a chance to be part of the mainstream of the economy. Given these, the law endeavours to strengthen the BMBEs because in doing so, it is tantamount to having more jobs and livelihood for the people and more so better quality of life for the Filipino people. (unknown) According to Reyes (2012) in her study entitled Rural Micro -Enterprise Promotion Program: An Assessment on the Impact of the Financing Delivery Role of Small Business Corporation to MSMEs in Albay, Ragay and Sipocot Camarines Sur, R.A. 9178 otherwise known as the Barangay Micro Business Enterprise Act of 2002 provided assistance to the micro businesses through offering incentives and benefits for these firms. One major incentive is the income tax exception awarded to the registered BMBEs. The aim of the law is to incorporate the micro enterprises to the mainstream economy since they contribute a lot to the economic growth. Also, its aim is to strengthen the said sector thus leading to job creation, livelihood and better quality of life of Filipinos. (Reyes, 2012) Micro and Small Enterprises: An Overview A. Definition According to Shaper and Voley (2007), creating a clear cut definition of a small business is very difficult. They said that since small businesses are located in almost all places in the world, they vary in their definition and characteristic. The

small businesses all over the world and in almost all industries vary in their organizational, legal and operating forms (Shaper and Volery 2007). In addition, a business may be categorized as small provided that they conform to the qualitative and quantitative criteria. The qualitative criteria, according to the book, are that small businesses are those that are owned by just one or two individuals who therefore provides for the financing, those that have a limited market share and limited life span, those that are sometimes run on a part-time basis, those that have low levels of net profit, those with limited product or service offering, those that are geographically limited to one or two locations (branches or outlets) , those that are often home based and family based business, and those that are located only in the private sector. These qualitative characteristics are very helpful in better understanding the life of these small scale businesses. Conversely, these are hard to measure and evaluate since these are based on subjective perceptions. On the other hand, quantitative criteria include the number of staff that works in the firm, the annual wages and salaries expenses, total annual revenue that the business produce, the value of the assets of the business which involve their materials, equipments, properties and the like, and the share of ownership that is held by the owner-manager. (Shaper and Volery 2007) Moreover, Australia was able to come up with four major categories of enterprises namely, micro, small, medium and large enterprise based on the number of workers a firm employs. Micro enterprises employ less than five (5) workers including those who are self-employed, small enterprises are those which have between five to nineteen (5-19) workers, medium enterprises include firms having more than 19 staffs but less than 199

people while large firms consist of more than 200 employees. Although they gave these categories, they stated that often times, micro, small and medium enterprises are collectively referred to as small and medium enterprises (SMEs). Even with these qualitative and quantitative definitions, it is still difficult to give a standard and clear definition of what characterizes a small enterprise. The challenge here is that there has to be a balance in qualitative and quantitative aspect so that the definition may be unambiguous. Given such, the writers gave a general definition of a small business. Their definition of a small business is a small-scale independent firm usually managed, funded and operated by its owners and whose staff size, financial resources and assets are comparatively limited in scale. (Shaper and Volery 2007) According to Megginson, normally, those that are within the neighbourhood vicinity are the ones considered as small businesses. The definition as to what are the classifications of a small business remains vague and unclear. The Small Business Administration of the United States classified the four categories of businesses namely very small, small, medium, large according to the number of their employees: very small firms are those under 20 employees, small firms with 20-99 employees, medium firms with 100-499 employees and lastly, large firms with 500 or more. However, Megginson, et.al. cited an example inconsistent with the previous data showing that American Motors having 8500 employees was once considered as a small business for the reason that it was relatively small compared to its main competitors like General Motors, Ford and Chrysler. It was later on bought by Chrysler. Aside from the quantitative descriptions of these categories of

businesses, qualitative factors were also mentioned. The authors said that a small business must at least possess two of the following features: (1) Management is independent, since the manager usually owns the business (2) Capital is supplied and ownership is held by an individual or a few individuals (3) the area of operations is primary local, although the market isnt necessarily local (4) the business is small in comparison with the larger competitors in its industry. The definition considered and used by the Congress of the U.S. which was defined in the Small Business Act of 1953 was considered the best definition for a small business: A small business is one that is independently owned and operated and is not dominant in its field of operation. (unknown) A business journal written by Jamak, Ali and Salleh from Malaysia focused on micro businesses owned by the Orang Asli Aborigines, a minority group in the multi -ethnic Malaysian society. They conducted a survey and found out that 56% of their respondents engage in small scale retail businesses though almost all are uneconomic because they usually have their businesses located at settlement areas and the operation of the business is customarily because of social obligation and not really about gaining profit. The most common reason why majority of the businesses fail is because of uncollected debts from their customers. Micro businesses in this part of Malaysia usually engage in retailing although some do odd jobs or take up contract work within the settlement area. The Orang Asli aborigines still hope and seek the help of the government in terms of monetary and skill training for them to atleast progress. The researchers suggest that assistance by the government should not only target these indigenous

entrepreneurs and village chiefs but more importantly, the aide must also reach all interested level of Orang Asli of smaller rank. Entrepreneurial trainings and seminars are a good idea because the aborigines of Malaysia did not receive a high formal education to help them in business strategies and decision-making processes necessary for the survival and growth of their businesses. (unknown) B. Difference from other Types of Business In a book entitled Small & Medium Industries in the Philippines: An Overview published by the Institute for Small-Scale Industries, University of the Philippines Diliman, everything about SMEs from its definition, to the business aspects and even to the government assistance programs given to these SMEs was thoroughly discussed. The book also presented the differentiation between a small industry from a cottage industry; the latter defined as manufacturing and/or industrial service enterprises with employment of less than five and with total assets not exceeding 250,000. Cottage industry also possesses some or sometimes even all of the characteristics of a small business. These businesses are mainly situated at the home of the owner and subsequently, the members of the family are the ones who help in the operations of the business. Having said this, however, small industries do not cover cottage industries in general. This is because of the qualifying characteristic of small businesses that is: the owner does not participate in the actual production process. Cottage industry merely provides an efficient entrepreneurial base for SMEs. (unknown)

Clark and Douglas (2010) said that although micro businesses in New Zealand, representing 89% of New Zealand firms thus a significant sector in the economy of the country, have rarely been studied and as a matter of fact, it was not focused in any academic research, government policy or even business support programs in New Zealand. In their journal entitled Micro Business Characteristics of Home-Based Business in New Zealand, they listed some factors that contributed to the continuous increase in popularity of home based businesses. They emphasized however the two kinds of home based business: (1) firms generating at home, where all business operations are done at the residence of the owner; and (2) firms operating from home, where only administration, record-keeping and supplies management are maintained at home. The factors include improvements in information and communication technologies, changes in cultural attitude towards self-employment, societal attitudes towards flexible work and lifestyle as well as economic cycles driving business restructuring and redundancies. Clark and Douglas defined home-based businesses as enterprises which operate at or from the owners home residence. The business owner is self -employed and uses his/her home residence for some of the core business activities to generate income. Their study specifically examined the characteristics and basic activities of home based businesses in New Zealand. Results showed that a home based business owner may work full time or part-time on his/her business or work part-time and at the same time be affiliated with other businesses or even work part-time and be an employee in another organization. Their study also yielded to the result that majority of home based businesses were under 10 years old although a significant

percentage of 14% represents businesses that had been operating for 15 years or more. In addition to this result, the study showed that a very small ration of one-third of home based businesses were sole proprietors while a majority of 56% were limited liability companies and the remainder are registered as partnerships. Generally, home based businesses are relatively small but these firms have strong passion and commitment to growth and progress. (unknown) According to a study undergone by three researchers from Victoria University in Australia, home-based businesses comprise 67% of the total number of microbusinesses in the country. It can be expected that since they are small and cater to minor markets, they would initially make contact with the local government. Basing from the data gathered by Ali, Paguio & Breen, home based businesses prefer to be anonymous and they do not usually coordinate with the local government because of the fear that this might lead to a negative effect on their business. Given this, the local government goes through a hard time reaching out to these home-based businesses. (unknown) Storey and Greene (2010) in their book entitled Small Business and Entrepreneurship presented the difference between small and large firms. T hese differences, among others, are: Aspect 1. Risk of Failure Small Firms Large Firms

According to the book, Although large firms do small firms are more likely fail, the risk of failure is

to cease operations than not that high compared to the large businesses. This the small businesses. risk of failure factor is the that

primary

differentiates small from large enterprises. This is due to the reason that small businesses focus on the short term goals and short term survival. 2. Market Power They have no market More likely to have the

power as to set prices. power to set prices. Small through firms service, compete quality

and responsiveness. 3. Management Most small firms are Owners and private are commonly or

generally

owned

stakeholders

managed by the same financial institutions. The person(s). management responsibility are given to professionals are only

modest owners of shares.

4. Motivation of Owner

The

purpose

of The owners usually have small the objective of

establishing

businesses for most cases maximizing the potential is to obtain a comfortable value of the firm. living to themselves and/or to their family members. 5. Brand No brand value Brand is an important

factor for large firms. It can increase or decrease profitability since the

brand provides awareness resulting to confidence

and later on loyalty to the firm. 6. Strategy The strategy has to be Large firms seek to exploit flexible because small its price, advantages and

enterprises are deficient in advantages through labor opportunities to reap scale resource, economies. research development. 7. Source of Finance Small firms are founded Large businesses have plant or and

primarily from the personal vast choices of finance

savings

and

retained sources.

profits of the owners. (Storey & Greene, 2010) C. Significance to the Economy Shaper and Volery (2007) stated that small firms are essential in the growth of the national economy. Small enterprises are very crucial components in the economic structure of any country. The book enumerated the potential and significant contribution that a small firm may give the economy. First, small firms provide employment opportunities for people. Not only does the owner have employment (self employment) but also their staff or workers. Second, the small enterprises are the next generation of large firms. It is customary that large firms are not going to exist forever so having small firms will enable new potential large businesses in the future if the small firms survive and succeed. Third, they provide competition in the market. If the market is monopolized by one or two firms, the customers will be experiencing over pricing and that they will have no other choice but to avail of their product or service even if it is over-priced, low in quality and with poor service. Fourth, small firms provide innovative ideas and specialized products and services that will allow the market to have new and fresh products or ideas. Lastly, they aid in having exports and they provide an outlet for entrepreneurial activities for the growth of the economy. The important contributions are not limited to those that are given above. There may be other possible contribution that small firms may give to the growth of the economy. (Shaper and Volery 2007)

In the study entitled SME Development and Technology Upgrading in Malaysia: Lessons For The Philippines by Habaradas (2008), it stated that small and medium enterprises are the backbone of vibrant economies since they provide significant contributions in addressing the poverty crisis by creating jobs and increase employment opportunities, in scattering economic activities in rural and urban areas and providing broadbased sources of growth, in serving as a top supplier or provider of support services for large enterprises, in stimulating entrepreneurial skills among the people and lastly, in acting as seedbeds for developing domestic enterprises into large corporations. (Habaradas, 2008) A study made by John V. Mensah entitled Small-Scale Industry as a Sponge? An Empirical Survey in the Central Region, Ghana stated that small scale industries are beneficial to developing nations having abundance in the supply of labor. This study mentioned that small scale enterprises provide broad employment opportunities for the excessive labor force and that they have potential in income opportunities thus aiding in alleviating poverty. This study stated that economic growth can have a dual effect, it can either be good or bad. Small scale industries sponge up excess labor when the economy is tight and let go of this surplus when the economy is at ease (Liedholm & Mead, 1999). This study used three questionnaire surveys, observation and library research as their method in gathering data. The researchers found out that engaging in numerous occupations is the only strategy these small scale proprietors to minimize economic risks and to survive low income from their individual firms. Moreover, results showed that only a small portion of small scale owners wanted to close their

firms however, most of them declared that they cannot carry on with their operations and that they could not offer better work conditions because of their limited resources. The study suggested that there is an urgent and great demand for devising strategies that would be beneficial in improving national and regional economy, in reducing the populations growth rate and improving the profitability of small and micro enterprises and the like. (Mensah, 2005) Megginson, et.al wrote a comprehensive discussion on the basic and essential pieces of information necessary for the success of a small business. Americans believe that the best way to achieve the American dream is by means of owning and operating a small firm or business. As a matter of fact, a study showed that 40% of the top 1% of the wealthiest people in America started from a small business. The authors presented six reasons why there is a significant increase in the interest for the establishment of a small business and the three most important of these are (1) there is a rapid growth in number of small businesses (2) they create new jobs and increase employment and (3) course offerings in high school and college levels include entrepreneurship and small business management. While it is true that the first five years of a business are the most crucial years of its operations, facts show that out of 10 firms, a ratio of 9:1 was found to be the proportion of newlyestablished firms as to those who fail and close, respectively. In addition to this, small firms generate the most job openings and greatly contribute to the rate of employment of the United States. Larger firms for the past years increased their revenues by an estimate of 3.5% but employment in these firms significantly

declined. The authors also pointed out that these smaller firms provide good opportunities for older members of the work force. (unknown) Micro businesses, among others, are the least profitable types of businesses. They often include service firms like beauty shops and repair shops and most of the time, these firms provide minimal return to the owner. There has been a significant increase in the percentage of womens share of total self-employment from 22% to 38%. Even the revenues received by these businesses owned by women increased. They are also engaging themselves in industries that are unusual to them like construction firms. Unlike before, majority of the businesses they start are engaged in service. Just because compared to men, women are inferior atleast in experience; there are common problems that face these women entrepreneurs. They face the disadvantage in access to credit although the most prevalent problem that remains and continually faces women is still discrimination. As years pass, however, women have finally proven their effectiveness as competitive entrepreneurs of this generation and a lot of these women contest that the business climate for them improved throughout the years. (unknown) Corporate Social Responsibility has been a trend in the business world for the past years. Basically, as defined by Hershey Panelo Coralde in her thesis entitled Contributions of Business Social Responsibility to Micro, Small and Medium Enterprise: Begy. Angio San Fabian Pangasinan, it is a self -regulating approach to give something in return to the community. The researcher presented the significant

positive effects of MSMEs (micro, small and medium enterprises) in our country not only economically but also in terms of empowering the community. The study primarily focused on determining if the six respondents succeeded in improving the quality of life in Brgy. Angio San Fabian, Pangasinan through Business Social Responsibility. Results showed that 100% of the total employees of the six establishments were fully aware of their employers community service. In addition to this, 98% said that they were able to feel that they were fully helped by the programs while 2% said that they were partially helped. 28 of the total 38 respondents said that their employers community programs helped in their livelihood while 6 said it helped in family assistance and 4 others said it helped in education aspect of the employees and their families. All of the employees, here treated as the respondents of the study, and the whole community appreciated the programs of the six establishments. And lastly, 100% felt that their current employer created a difference in the lives of the community. (Coralde, ) A more thorough discussion on micro-enterprises especially on their growth and efficiency was presented in a thesis study by Genevieve P. Yanga entitled, Evaluation Micro-Enterprises in Aurora Province Based on Growth and Efficiency. This study aimed to determine the characteristics of micro-enterprises in Aurora, the inputs that contributed to their total sales and income, the causes of success or failure of micro-businesses, and the effects of different variables to micro enterprises productivity and efficiency in Aurora. Results showed that, in general, the labor productivity with respect to sales was 90.6% and with respect to income, a percentage 85.8% for years 2000-2004. In addition to this, the year 2004 increased

returns on operations and growth rates of inputs as well as outputs as the net income increased. This particularly resulted to a high efficiency in operations. On a slight contrary, the manufacturing sector of micro enterprises in Aurora experienced a substantial a decrease in productivity because of factors like frequent brownout, poor road condition, inconsistent policies and lack of support. Generally, the study showed that micro-enterprise in Aurora Province achieved productivity and growth from 2000-2004 although they were also hindered by outside factors that affected the condition of the business workplace. The primary cause of the increase in productivity among MEs in Aurora is their innovation. Hence, MEs helped in economic development in terms of job creations, revenue generation and improvement in the condition of life in Aurora Province. (Yanga, ) D. Challenges Encountered The book entitled Small Business Management, Entrepreneurship and Beyond by Hatten (2012), stated that operating a small business involves certain risks that entrepreneurs may encounter. Operating ones own business is not simple and easy, it is not simply creating concepts, ideas and strategies that once can apply overnight for the betterment of the business. Running a small firm is complex and difficult. A research firm named Dan and Bradstreet defined business failure as: A business that closes as a result of either (1) actions such as bankruptcy, foreclosure, or voluntary withdrawal from the business with a financial loss to a creditor; or (2) a court action such as receivership

(taken over involuntarily) or reorganization (receiving protection from creditors. (Hatten, 2012) According to a study conducted by National Federation of Independent Business (NFIB), stated that more than 10% of the businesses stop their operations at their first year while roughly 25% ceased operations at their second or third year or in between those given. Moreover, 20% closed between their third and fifth year of existence and only 13% percent were able to survive for more than 21 years. Businesses fail because of many factors: type of ownership, size of business and expertise of the owner. However, the two major factors are inadequate financing and inadequate management. In terms of inadequate financing, some small firms do not have enough finances to continue with the business and to support the cost of operations. On the other hand, inadequate management results from the lack of experience of the owner-manager of the firm since in these kinds of firms, management skills are desirable. Another reason is that since these small enterprises have limited funds and resources, they are not able to hire full-time experts who could help lessen their expenses and costs. (Hatten, 2012) Small firms have a high mortality rate in the business world. Small firms are lucky enough to survive more than five (5) years of existence due to many difficulties. According to Birch (2006), an estimated number of eight million enterprises operating in America closed every year. The book entitled The Complete Small Business Guide by Colin Barron (2006) enumerated the reasons behind business failure in th small enterprises field. It was stated that eventhough

there have been impressive increase in new enterprise establishment, failure rates remain depressingly high. According to Colin (2006), the major factors contributing to the business failure are the lack of management expertise and undercapitalization. Aside from these two factors, Colin also stated that insufficient turnover, poor management supervision, lack of proper accounting, competition, not enough capital, bad debts and excessive renumeration to the owners. It was indicated that lack of management and lack of expertise on the part of the owners can be traced to having scarce capital resources. Since according to the book, all learning has its equivalent price. Moreover, enterprises also experience cash flow crisis since the resources are low and the cost of operations are high. (Barron, 2006) Another disadvantage of entering small business is the ambiguity and constant change in the market. There may be instant rise and fall in the sales income, profitability, government regulations, competitors and market dynamics from one time to another. Moreover, another disadvantage given by the book entitled Entrepreneurship and Small Business written by Shaper and Volery (2007), is having potential financial loss. Since the small business are solely owned by an individual, if the business collapses, then the owner might loose his starting capital and also some of his own personal assets, in some cases ie use of personal asset to satisfy a withstanding bank loan. Moreover, Shaper and Volery (2007) enumerated the potential problems that might be encountered by the small firms obtained through research in three countries namely UK, Singapore and Malaysia. First, in terms of finances, problems

are lack of funds, cash flow difficulties, lack of working capital and problem of getting paid. Also, small firms face crises in the marketing field. These problems include having difficulty in obtaining sufficient sales, pricing, distribution, competition, lack of marketing skills and knowledge. In terms of production, there problems include their business premise, getting supplies, low-quality of product and/or service. More so, in the case of personnel management, problems are having difficulties in hiring competent and good staff, interpersonal problems and the problem of laying off employees. Lastly, in the case of personal dillemma, stress, immersion in the business, long hours of work, no family support, prejudice and distrust, lack of respect, tension between personal life and career are evident in the lives of small firms owners. (Shaper & Volery, 2007) According to the book entitled Small business Management: An

Entrepreneurs Guide to Success by Meggison et al, despite the emergence and rapid growth of small businesses all around the world, there are still difficulties that the owners of these firms face. Megginson, et.al. listed six common problems small businesses face and taxes rank number one in the list being 25% in severity. Regulation/red tape, insurance costs, weak sales, competition from large companies, finding good workers follow, in this particular order. National Federation of Independent Business reported this list and was reported in USA Today. (unknown) Robert S. Frey, in his book entitled Successful Proposal Strategies for Small Businesses, listed constraints as well as advantages over bigger firms. He said that small businesses tend to fill the areas or markets that large corporations cannot

cater to. In addition to this, since smaller firms have fewer layers of management, decision-making is faster. As a result, policies and business operations can be made flexible to efficiently meet the customers demands. Small firms are also at an advantage when penetrating new market sectors. They are, however, at risk because of (1) very limited B&P funds (2) lack of depth in human resources (3) small business base (4) a contract backlog deficit (5) low level of contractual experience (6) lack of name recognition in the marketplace (7) line of credit challenges. (unknown) According to an article entitled Help for Small Business written by Goldstein, there has been wants to change some of the states business incentive program such that small firms may be able to qualitfy to avail of the given incentives. Many small business owners said that Garden State is a difficult place to start businesss because of expensive starting costs, high taxes and precipitous health insurance benefits. This leads to the idea that the current policies regarding these should be altered to fit the small business and be able to provide assistance for them too. Kosci (2007) stated that small business had been neglected by the current policies since most business incentives had been focused on the large enterprises. Kosci tried to include a state tax credit to reimburse small firms foor bank fees that they incur when closing small business administration-guaranteed loans. He further argues that this inclusion would be a small project as compared to those programs alloted for the benefits of the larg firms. Moreover, he further contends that eventhough this project may seem less, it will enable to show that the state is willing to give assistance and work with the small firms which are also essential to their

economy. Moreover, he states that this inclusion will be able to create more or less two jobs that would last for more than a year. The article concluded by saying that New Jersey is harsh place for small businesses to survive because of high tax rates and high cost of living. (Goldstein, 2007) E. Assistance Provided An article entitled How Could a Development Policy be Based on Small and Medium-Scale Business in Latin America by Marc Labie stated the foundations of creating a developmental policy on small and medium-scale businesses. This article laid down the steps that are needed in order to create an effective and beneficial developmental policy. Labie stated that before a developmental policy be conducted, one must first identify three points. First, identify the kind of development the policy interested in. Many theories can be used to categorize the development and that three major aspects of development must be covered namely growth policy, income distribution and the focus or non-focus on individuals. Second, a characterization of small and mediumscale firms are of high importance. Also, the identification of the pros and cons, including its social role, town planning challenge and emplyment issues and the speed of adaptation, of these type of businesses are of high essence in creating development policies. Lastly, identification of the issues on hand are essential in creating a developmental policy. It would allow the creators to frame the

developmental policy suitable and effective in the issue they are planning to tackle and eventually solve. (Labie, 2001) According to the book entitled Entrepreneurship and Small Business written by Shaper and Thierry, the state recognizes the potential of these small businesses so they exert effort in encouraging entrepreneurship. Moreover, The state sees entrepreneurship as a way to create job opportunities, increase productivity and competitiveness, alleviating poverty and achieving other societal goals (Shaper and Volery 2007). In the book, it was stated that in almost every country, there are programs aiming the promotion and encouragement of the entrepreneurship of small and medium enterprises (SMEs). Amongst the countries, Singapore is one of the earliest to develop a program to encourage SMEs. They created a package that provides tax incentives and financial assistance, also technological adaptation, business development and international marketing. Since the government recognizes the role of small firms in the growth of the economy, they offer assistance to these small firms in the many forms. They offer business start-up assistance, a package that provides starting small firms training method for potential business formulation, consulting low-cost or free business experts that will aid in the preparation and operation of a potential business. Also, they provide business development and improvement programs wherein the government afford subsidies to employ consultants for better operation of business as well as trainings for the entrepreneurs and staffs. Giving infrastructure support is also a way of the government in encouraging SMEs. Likewise, government provides tax concessions wherein they give tax reduction for cost related activities of the

business whether in the start-ups, growth or expansion of these small firms. (Shaper and Volery 2007) Many organizations are geared towards the empowerment of small enterprises. These organizations provide a aid in the business as well as give essential and critical advice to the firms. These helping institutions are often those that are directly or indirectly linked to the government for two obvious reasons; the government sees this as a stepping stone to get votes from the people and also the government sees these small firms as vital in the incease of employment in the United States (Birch, 2006). In the book entitled The Complete Small Business Guide by Colin Barron (2006) stated that in the study of Birch, it was confirmed through statistics that small enterprises are vital in the increase in employment not only in US but also to most of the developing countries. Moreover, according to Barron (2006), it was these small firms, having less than 20 employees, that were behind the increase of almost two-thirds in the employment in the United States. Also, another contribution of these small firms is that they increase prosperity for nations thus achieving another primary goal of the government. Due to this, it has been stated that the government should improve govermental programs that empower and encourage this small firms. (Barron, 2006) President Barack Obama and Iowa Secretary of State Matt Schultz both laid down two different proposals on how the government can help small businesses. The president wanted to join some federal departments while Secretary Schultz wanted to propose a couple of incentives for companies that are on the process of starting up in the industry. Although both proposals intend to aid small businesses,

there is an uncertainty as to whether there will be much of help to them and not to mention some consequences that might arise due to these two federal proposals. It can be contested that the merging of some federal departments like the Commerce Departments core business related functions to smaller agencies like Small Business Administration will leave business owners less because burdened in navigating the federal bureaucracy. However, because this plan, the Small Business Administration, a government agency genuinely concerned and helpful towards small business, will receive a negative impact. Regarding the second proposal made by Secretary Schultz, however bearing a good intention, is insufficient. The journal article therefore suggests that a better way instead is for Mr. Schultz to coordinate with the legislative body to make it easier and cheaper for would-be entrepreneurs to file with the office of the Secretary of State. (unknown) In Virginia, USA, the government wanted businesses to pay fewer taxes from the export sales than on domestic sales. Through this, the US government aimed to give a trade subsidy to manufacturers. These tax incentives have been existent for many decades now but before it was only directed towards large companies and small firms were neglected. In the present time, the tax incentive allowed both large and small firms to be benefitted. The author of the journal article cited two kinds of incentives applicable to export sales: Extraterritorial Income Exclusion (EIE) and Interest Charge Domestic International Sales Corporation (IC-DISC). The former almost works automatically and requires very little of the taxpayer. The only thing required of the taxpayer is the completion of a form to be attached to the companys annual tax return. This incentive is basically a reduction to the taxpayers income

equal to 15% of the companys qualifying export profits. These profits include good s produced in the US and shipped out of the country or it also includes imported goods that later on shipped out of the country. The second incentive, IC-DISC, converts half of a businesss export profits from income taxed at 35% to income taxed at 15%. IC-DISC is a domestic corporation established in each state in the United States. It was established since 1983. (unknown) An article in the Buffalo Law Journal entitled Federal Tax Incentives Benefit Small Business written by Kline (2009) discussed three major programs that can be applicable to most small businesses in terms of tax cuts. These tax cuts programs are the five-year carryback of net operating losses, extension of the small-business expensing allowance and an extension of bonus depreciation. According to the article, in the five-year carryback program, businesses with net operating losses could carry back those losses up to two years before the loss year. The impact of this program is that it can put more money in hand. As Peter Bellanti, senior tax manager at Arnato Fox & Co. said it will be helpful to the cash flow of the firms. Moreover, another program is the extension of expensing allowance. In this program, businesses can write off up to 250,000 dollars spent on business assets like office furniture and equipments, machinery and fixtures. Lastly, in the program called extension of bonus depreciation, it allows companies who buy a piece of equipment or invest in an asset of 20 years or less to make an election to take 50% of that depreciation in the first year thus enabling them to have tax cuts . (Kline, 2009)

It is given that the SMEs have significant roles in the economic development of a country. Due to this, the government provides services and assistance to these SMEs to ensure their growth, survival and competitiveness. This leads to the creation of a study entitled The Government Business Support Services in Malaysia: The Evolution and Challenges in the New Economic Model conducted by Bin Yusoff and Bin Yaacob (2010) which assessed the effectiveness of the Government Business Support Services (GBSS) in Malaysia. This study tried to investigate the roles of GBSS and SMEs in the current status quo of Malaysia. It was stated that GBSS is recognized as very essential in the development of the small and medium-enterprises. According to Bin Yusoff and Bin Yaacob (2010), the challenges faced by GBSS intervention are entrepreneurs/owners support and participation, GBSS stringent and rigid conditions, problems with the bureaucracy, problem with GBSS representatives and the lack of awareness of the SMEs as regards to the existence and programs of GBSS. One of the challenges encountered by GBSS in carrying out their program is the difficulty in obtaing the entrepreneurs participation and support. Bin Yusoff and Bin Yaacob (2010) stated that SMEs are usually owned and managed by the owner per se. Owners are often the sole decision makers in the business and that the owners are those who are most capable of understanding and knowing what their business needs without the need of relying to external advice or intervention. Thus, most of the entrepreneurs are reluctant in obtaing advice from external advisers provided by the GBSS. Moreover, in terms of trainings, SMEs are unwilling to attend trainings since they perceive that trainings are a waste of time and that these

training do not affect positively in their business operations. Moreover, GBSS encountered problems arising from their stringent and rigid conditions, their beureaucracy and their representatives. Having stringent and rigid conditions in terms of giving financial assistance is one factor why SMEs are not able to fully benefit in their services provided. The need for the collateral is one factor why SMEs cannot avail of this benefit. Furthermore, Having lenghtly and time consuming process results to SMEs turning to private support porviders instead. Time is essential for these SMEs so they are unwilling to apply and participate with the system since it requires more time consumed. Likewise, the low usage of the services of GBSS is caused by the negative perception of SMEs about the advising capabilities of their representatives. Lastly, another factor that caused the low rate of usage of GBSS services is the lack of awarness of the SMEs as to the projects, programs, services and assistance offered by GBSS and worst, they are not even aware that GBSS exists. (Bin Yusoff & Bin Yaacob, 2010) An endevour to achieve better economic competitiveness in the global business arena is one of the primary goals of developing countries like Malaysia and Philippines. A study made by Habaradas (2008) entitled SME Development and Technology Upgrading in Malaysia: Lessons For The Philippines provided an analysis of the programs and mechanicms used by Malaysia to empower small and medium-scale enterprises in their country. It also provided some of the programs ventured into by Malaysia that became very effective in the empowerment of small and medium firms. Likewise, the study presented ways on how the Philippine

government can implement to encourage, promote and empower the SMEs in the Philippines. In the study, it stated that small and medium enterprises are the backbone of vibrant economies since they provide significant contributions in addressing the poverty crisis by creating jobs and increase employment opportunities, in scattering economic activities in rural and urban areas and providing broadbased sources of growth, in serving as a top supplier or provider of support services for large enterprises, in stimulating entrepreneurial skills among the people and lastly, in acting as seedbeds for developing domestic enterprises into large corporations. Moreover, according to the study, SMEs comprise most of the volume of the business enterprises in both developed and developing countries. Due to this, it is evident that governments put an emphasis in this topic. Governments create policies and mechanicms to support and empower the SMEs because SMEs prove to help attain the two major goals of the government: poverty alleviation and employment generation. The study of Habaradas (2008) discussed the policy of Malaysia regarding SME development and empowerment. According to him, the chief SME policy of Malaysia is the development of a competitive, innovative and technologically strong SME sector that is able to contribute to the domestic economy and to complete globally. (SME Annual Report, 2006). In order to fulfill such, the government of Malaysia came up with many interesting programs and mechanicms to insure the attainment of such vision. Despite the many programs, the study of Habaradas focused only on three major areas: financial assistance for technological upgrading,

strengthening SME linkages with large firms and universities and, developing human capital (Habaradas, 2008). Since the government of Malayia is aware of the limitations and constraints faced by the SME sector in terms of financial resources, the government offers financial assistance and incentives in the form of grants and soft loans that are given by many ministries and their agencies (Habaradas, 2008). These financial aid can help in the mission of these small and medium-scale enterprises to have a technological advancement venture. Moreover, the government encourages SME linkage through strengthening SME connections by having programs such as linkage with large firms. In this program, it is beneficial to the SMEs since they will have technological assistance, training, and information given by the large companies. Likewise, the government of Malaysia encourages connections between the universities and public research institutions, the provider of knowledge, and the SMEs, users of knowledge, to allow both parties to influence on both the physical and human resources of each other. Lasty, the government encourages the development of the human capital by providing training to enhance their skills and capabilities that will yield to the empowerment of SMEs. Habaradas (2008) provided insights patterned in the policy of Malaysia for the Philippines to better empower and support the SMEs in such country. These insights include linking SME development efforts to over-all socio-economic goals, adjusting programs and policies to fit environmental realities, designing support programs and incentives to fit the specific needs of the SMEs, strengthening the formal education system in the Philippines and encouraging the participation of the private sector in

the quest to empower and support the SME development in the country. (Habaradas, 2008) Micro Businesses in the Philippines A. Definition and Significance to Philippine Economy Abion (2012) classified and defined the categories of the business firms according to the number of staff and to the amount of capitalization. According to Abion (2012), those having less than 10 employees are considered as micro enterprises while those having at least 10-199 staffs belong to the small and medium classification. More so, those firms having at least 200 and above employees belong to the large enterprises strata. (Abion, 2012) According to Abion (2012), a recent statistics presented by the House of Representatives provided that micro, small and medium enterprises include about 99% of the total business enterprise in the Philippines. This links to the conclusion that MSMEs have a vital role in the national development and national growth of the Philippines. It was also mentioned that the MSMEs contributes to the advancement of the Philippines through job creation and provider of economic activity. Moreover, it was also stated that alleviation of poverty had been one of the major contributions of these MSMEs to the Philippines. A thesis written by Reyes (2012) entitled Rural Micro-Enterprise Promotion Program: An Assessment on the Impact of the Financing Delivery Role of Small Business Corporation to MSMEs in Albay, Ragay and Sipocot Camarines Sur

discussed the definition and role of micro, small and medium enterprises (MSMEs) in the economy as well as its role in poverty alleviation. According to the Small and Medium Development Council (2003), micro and small enterprises are those who are engaged in industry, agricultural business and services, whether single proprietorship, cooperative, partnership and corporations whose total assets inclusive of the loans availed but exclusive of the land where the business is located, do not exceed: For micro enterprises: asset size should only be up to 3,000,000.00 and that there employees must be from 1-9 staffs only. For small enterprises: asset size should be from 3,000,00115,000,000.00 only and that the number of employees must be 10-99 individuals. (Reyes, 2012) In terms of poverty alleviation, micro and small businesses are of critical importance to the developing countries. It has been recognized as a major source of employment especially in Third World countries. It has been established that it may its potential for helping the working poor, the unemployed and those who receive public assistance through the many contributions these small and micro firms have. Moreover, not only do they provide employment opportunities but also they are a source of job creation and livelihood for the Filipino people. As a result, this may lead to poverty alleviation and betterment of the lives of the Filipinos. Through their income generation in both rural and urban areas, rural development and employment generation, sources said that MSMEs play a vital role

in the economic development of the Philippines. Since it is given that the Philippines is rich in labor resources, the problem now arises since if less firms or corporations employ them, it will result to high unemployment rate. In this scenario, MSMEs play a vital role. According to the National Statistics Office (NSO), 68% of the total number of employed individuals are employed by MSMEs and only 32% of the total are employed by large firms. (Reyes, 2012) B. Condition The writer of a thesis entitled Assessing the Legal Rescue: Critical Issues on the Rehabilitation Process for Micro, Small and Medium Enterprise (MSMEs) described the condition of the MSMEs in the Philippines. Abion stated that many of these enterprises experience financial crisis and are nearing the point where such enterprises will foreclose their business. According to Abion, this now becomes detrimental. If their firms foreclose, many families could lose their source of income and people will lose employment thus, aggravating poverty in the Philippines. (Abion, 2012) In a book entitled Small & Medium Industries in the Philippines: An Overview published by the Institute for Small-Scale Industries, University of the Philippines Diliman, it was stated that SMEs, being a minority in terms of size and capital, face problems in different aspects of the business. In the operations aspect, the first constraint is the shortage in the supply of raw materials because some suppliers tend to be biased against smaller businesses and cling toward the larger ones. Scheduling, inventory control and quality control are usually taken for granted

and this is the second problem of SMEs. Third is the inadequacy of machineries and the inferiority on technological advancements. Other problems consist of small factory sites, lack of cost control, high labor cost and machine breakdowns. The second aspect of the business to encounter difficulties is the financial aspect. Shortage on investments on plant and equipment/machineries counts as one of the problems but worse is the inadequate working capital. Studies show that this ranks as the top problem among the financial problems of small firms. Moreover, most of these businesses find most difficult to borrow money from the bank only followed by relatives and usurers, respectively. The author of the book thinks that this problem arises because banks have the reluctant attitude toward lending money to smaller firms. Banks think that there is a higher risk in lending money to them. A study entitled Small-Scale Business Enterprises in The Philippines: Survey and Empirical Analysis conducted by Ruane (2007) tried to determine the factors that contribute to entrepreneurial motivations and success in the Philippines. Moreover, this study aimed to identity the extent of sacrifices made and challenges faced by Filipino entrepreneurs. This study involves entrepreneurial intensity, sacrifice, motivation, business plans, the effect of the business to the entrepreneurs quality of life, the businessmans personal beliefs and attitudes and challenges and difficulties faced by the owner at the different stages of operating the firm. As to the entrepreneurial intensity, the study found out that owners prioritize their families over the management of the firm. They spend less time managing the business while more time is allocated for family related activities. Moreover, in the

case of entrepreneurs sacrifices, the extent of this involves acquiring additional skills at their own expense and performing tasks that are beneficial to their business. However, the entrepreneurs are most likely not willing to sacrifice their marriage, family and friends for their business operations. Most of the respondents when asked what motivated them to start business answered that they believe that their business will be a source of higher income and better financial status for them and their families. Also, they answered that starting their business is caused by its benefit of having a flexible schedule to balance work and family life. This study also showed that the business positively affects the quality of life of the entrepreneurs. The business provided sufficient source of income and financial stability to the entrepreneurs and their families. Also, having small businesses lead them to a better quality of life and achivement of personal goals. (Ruane, 2007) A local study by Eric S. Parilla of Northwestern University, Laoag City Philippines presented a very comprehensive discussion on micro business in Laoag City from demographics, qualitative and quantitative assessments of products and services to the effect of those to the Socio Economic Development in the city. He arrived with the following conclusions: (1) Micro-business owners in Ilocos Norte are majority young, college graduates and are mostly women. Most of the respondents have not attended previous seminars on business and they are also not members of professional organizations. (2) Most micro businesses in the city have existed for only less than 5 years and majority of them are sole proprietors and into retailing/ merchandising. (3) Majority have started their operations with a starting capital of less than 500,000 usually from the owners savings. Most businesses have only 1 -

2 employees who are usually family members. Moreover, majority have an average annual sale of below 150,000. (4) Microbusiness owners in Ilocos Norte are responsible towards their employees and customers, highly competent to handle and manage their respective businesses and that they observe a high level of management practice. Lastly, (5) Microbusinesses play a significant role in the economic and social development in the province of Ilocos Norte. (unknown) In the present generation of world trade liberalization and fast technological changes, the government through its legislative department enacted laws that paved way for the declaration of programs that help and encourage the increase in number of micro to small enterprises. In a thesis entitled Success Factors of the Selected Micro Chicharon Ventures in Bulacan, the researcher cited that according to the data as of 2007 by the National Statistics Office (NSO), micro businesses comprise 91.36% of the total establishments in the Philippines and basing from the researchers presented data, a high percentage of 93.2% employment rate in Bulacan was due to the high number of micro businesses in the province. Wholesaling/Retailing also ranks as the top industry in Bulacan. The research undergone by Gravador covered four business variables namely marketing, finance, human resources and production to determine the perceived success factors of the micro chicharon enterprises in Bulacan, particularly in San Miguel and Santa Maria. Results showed that marketing is the number one perceived success variable in the micro business ventures having a grand mean of 3.20. This was followed by human resource, production and lastly, finance. (Unknown)

A study on management practices of small businesses in selected industries in Greater Manila, showed that in terms of accounting or financial management they are effective in the practice of summarizing and balancing book of accounts; they conduct frequent physical inventory count and lastly, they extend credit to regular customers. These three practices made a significant contribution in the success of small businesses in Greater Manila in terms of financial aspect of the business. However, there are also practices that are weak and ineffective. These include, lack of adequate accounting records and financial statements, inability of making periodic estimates of income and expenses to compare to actual performance, weakness in hiring external auditors to do the job of checking accounting records and lastly, the use of perpetual inventory record system. With regard to operations or production management, the factors that greatly contribute to the profitability of the business are (1) choice of business location (2) right delegation of responsibility (3) number of supplies (4) separate storeroom facilities. (unknown) C. Philippine Government Assistance A book entitled Small & Medium Industries in the Philippines: An Overview published by the Institute for Small-Scale Industries, University of the Philippines Diliman stated that the government, in the adoption of the 1983-1987 Five Year Development Plan, gave attention towards SMEs. The plan included the promotion of SMEs by providing a greater access to institutional finance, intermediate technology and marketing schemes for these small and medium industries. Some of the institutions tasked to give aide to SMEs in terms of financing are DBP and other development banks, commercial banks and specialized government banks. For

production, National Science and Technology Authority aims to guide engineering and technological efforts of the people (i.e. SMEs). Lastly, R.A. 6041 was enacted in 1969 to participate in training and research for the benefit of small and medium industries. This Act mandated the University of the Philippines Institute for Small Scale Industries (UP ISSI) to be the national government training institute for Philippine small-scale industries. Up to this time, the UP ISSI continues to seek the help of foreign institutions for its different goals and activities. (unknown) A book entitled Promoting Philippine Enterprise Development written by Santiago (2011) presented a study that was conducted by Emilina R. Sarreal which determined the factors that causes the growth of selected small and medium enterprises in the National Capital Region. The researcher used variables such as the owners personality, firms attributes, formal assistance and training provided by the government, and other macroeconomic factors to access which of the abovementioned significantly affect the firms performance, the personal growth of the entrepreneur and economic growth. The research concluded that entreprenuerial capability in terms of the SME owners non managerial activities and their firms form of ownership had direct impact on sales growth. This study also assessed the aid of SME services provided by the government through the Department of Trade and Industry to the small and medium enterprises in NCR. This research presented two paradigms by having two kinds of respondents: those availing of SME services and the other who are those who do not avail of SME services. According to the research, SME services exerted moderating influence on the sales growth of firms that availed of these services. In

this study, the researcher concluded that formal assistance (SME services) does not have any significant impact on a firms growth (Sarreal, 2011). The reason behind this finding is that the government was unable to understand how the external factors and limitations affect the growth of a firm. (Santiago, 2011) Agnes A. Cosme, in her thesis entitled An Analysis of the Small and Medium Enterprise Credit Program I Philippine Business for Social Progress, said that in order for SMEs to grow and expand, they should rely on productivity and resources. This, however, is often not achieved because of the limitation of their working capital. SME owners usually depend on their own money to fund the operations of their business. Some resort to commercial banks as a source of credits though most entrepreneurs do not prefer this alternative because of the strict lending policies and requirements. The study primarily focused on Philippine Business for Social Progress- Small and Medium Enterprise Credit Program to measure the effectivity of traditional and non-traditional ways of lending in helping small and medium scale industries. Results showed that PBSP through its SMEC program effectively served its purpose and was able to help SMEs in their financial as well as technical needs. The funds released to the businesses that availed of such program were able to help in the addition of employees and they were able acquire additional fixed assets and working capital. (Cosme, )

Effects of Tax Incentives Sole Proprietorship is one of the most common forms of doing business, apart from partnerships and corporations. This form is where only one individual serves as the only driving force behind the business. Richards presented a U.S. scenario of the tax aspect of sole proprietorship that is whether it is advantageous or not. He explains that sole proprietorship, compared to a corporation, does not have the advantage of a flexible tax planning. So Richards suggests that a sole proprietor should carefully analyze important matters with his or her legal counsel or account unless the owner is extremely and extensively knowledgeable about these matters. If not, there is a great possibility that this tedious process may be the reason for the failure of the business because the proprietor cannot distance himself very well from the business itself. He may pave his way to bankruptcy together with the downfall of the business. The income or loss of a business is reported in the Individual Income Tax Return of the sole proprietor so subsequently, when the profitability of the business increases, the tax rates applied to the proprietor goes up as well. (Richards, 1977) A study conducted by Marinas (1995), tried to assess the influence of tax incentives to the Non-government organizations (NGOs) in the Philippines through the use of survey and other statistical methods. Marinas, as part of her study, tried to identify the types of tax incentives NGOs are availing of and how these tax incentives affect their operations. Moreover, in her study, she tried to name the

problems encountered by these NGOs as regards to these tax incentives given and what can be the remedies to improve the system of granting tax exclusions. According to Hamid et al (2011), several past studies claimed that tax incentives are ineffective and it has deviated from the real purpose of tax incentives and that is to trim down tax liabilities and fuel SMEs investment project. Moreover, it was stated that tax incentives were found to be frail policy mechanisms in either attracting entrepreneurs to start their businesses within the promoted areas or in drawing businessmen into the industries promoted by special tax privilege. Hamid et al (2011) tried to negate the previous findings of past studies through their study entitled Factors Affecting SMEs Successful Utilization of Tax Incentives in Manufacturing Sectors. According to them, the purpose of their study is to allow both SMEs and the policy makers to re-examine the significance of tax incentives in line with their aptness in attaining the marked productivity level and their usefulness in achieving competitive advantage. This study conducted by Hamid et al (2011), tried to determine factors which contribute to the successful utilization of the tax incentive given to SMEs. Also, not only did the study want to determine the key factors but also the paper tried to access which of the factors are significant in the successful utilization of tax incentives. The result of the study showed that the four key factors were capital investment, business strategies, governmental support and environment. In terms of capital investment, venture in a more highly developed machinery and equipment and use of automated manufacturing process would pilot to an

increase in the productivity level which therefore allow SMEs to meet the growing demand. Meeting the growing demand therefore means that the SMEs will improve sales revenue and enhance the profitability level of these SMEs. On the other hand, business strategies affect the successful utilization of tax exemptions since these strategies are essential in achieving organizational success to guarantee the survival of the firm and continuous growth as well. Third, in the case of governmental support, reduction in tax liability, roles of government agencies in promoting support programs for SMEs, promotional effort to encourage other eligible SMEs to apply for tax incentives and professional assistance to simplify the tax incentives application process are the key factors that contribute to the success of the utilization as well as the survival and growth of SMEs (Hamid, Noor, & Zain, 2011). Lastly, the environment is also an important factor in achieving the success of the utilization of tax incentives by the SMEs. The environment affects the successful utilization through the factor of giving subcontracts to other companies, developing networking and having access to government agencies monitoring report. (Hamid, Noor, & Zain, 2011) A study entitled Distinguishing Community Benefits: Tax Exemptions Versus Organizational Legitimacy conducted by James D. Byrd and Amy Landry examines community bnefits through understanding regulative, normative and culturalcognitive foundation. Furthermore, this study also stated that tax exemptions for hospitals had been a major debate over the years and that policymakers have continualy question this specific status given to Hospitals. Many critics state that the many hospitals did not meet the standard for community benefit. The problem arises

since community benefit had not be clearly determined and defined. The definition of community benefit is vague and loose. According to Byrd and Landry (2012), tax incentives can be perceived as a means of granting indirect financial assistance to these organizations who operate and offer services which they do not receive profit and compensation. Tax incentives allow these hospitals to operate and survive since most of them operate in thin limits due to their resources being limited. These tax exemptions allow these hospitals to continue operations and offer their services to the community even if the community cannot afford to pay all costs. (Byrd & Landry, 2012) According to the study, since the government recognizes the role of NGOs in the national development, they provide aid for them in the form of tax incentives thus enhancing their involvement to national development. In the study, it was stated that tax incentives have an affirmative influence on the operations of NGOs. From their programs and projects, their beneficiaries to the benefits derived from their operations were greatly affected by these tax incentives. However, on the part of the NGOs financing opportunities, tax incentives had only minimal effect. It was stated that their savings were only 10%, some have none at all. Also, there is scarcity in funding still thus causing impediments in doing their work. Not only are the abovementioned the difficulties encountered by these NGOs, there also problems in terms of applying for the privilege. Most of the respondents complained that the institutions concerned are compelling too many requisites before such NGOs can be granted exceptions from taxes. Aside from having too

many requirements, they also complain about the long period of time it takes before one can be granted such tax incentive. To answer such crisis, Marinas recommended that the governmental agencies should simplify the process of approving tax incentives and that such agencies should improve the information dissemination regarding these tax privilege. (Marinas, 1995) A study conducted by Henriette Houben and Ralf Maiterth entitled Endangering of Usinesses by the German Inheritance Tax? - An Empirical Analysis had an objective of accessing whether or not tax privileges for businesses in the current German Inheritance Tax Law can be defensible. Likewise, this study aimed to evaluate Inheritance Tax and its effect in the family businesses. According to Houben and Maiterth (2011), the Inheritance tax burdens the firm because of liquidity issues. It stated that the firms should linger within the family for welfare benefits hence, tax incentives are reasonable and necessary. More so, it evaluated the necessity of these tax exemptions for the survival of these businesses. The study concluded that even though the massive tax privileges created for businesses is the result of successful lobbying, it cannot, however, be justified as a protection of businesses. (Houben & Maiterth, 2011) Even though tax incentives are generally beneficial to business, there are those who are not willing to avail of these benefits. Evidence from an International Journal in Business and Management expressed that tax compliance among small and medium enterprises is need improvement. This particularly study entitled

Factors That Affect Tax Compliance among Small and Medium Enterprises (SMEs) in North Central Nigeria aimed to determine specific factors that affect and encourage compliance among theses SMEs. The researchers found out that the two most common factors why there is non-compliance are high tax rates and complex filing procedures. Atawodi and Ojeka, therefore, recommend that the government should impose lower taxes on small and medium enterprises to encourage growth and potential success of these firms and more specifically to give opportunity to these businesses for them to allocate more funds in their operations, finances and other core activities. Furthermore, tax incentives and exemptions should be considered by the government to promote not only the increase in number of investors but also more importantly to encourage business owners to faithfully comply with their tax duties. (unknown) According to the article entitled Apply These Breaks by Marielle Segarra, few small and midsize companies actually take advantage of using tax incentives. Many often do not avail of the tax incentives because they see these tax incentives as a tedious and complex process. They view is as too costly and too complicated. They think that since it is too costly, they dont have enough internal resources to fund such process. Moreover, they believe that the process is too complicated. Hence, they perceive that they dont have the luxury of devoting time and attention to it. The author believes that having these principles, they prohibit themselves from gaining an advantage. These tax incentives are actually beneficial to them and that when they choose to rely on their notion of tax incentives it becomes a limitation

to them. They could actually improve more when they engage into the tax incentives given. Segarra (2012) mentioned three given tax regulations that could help these small and midsize businesses in numerous ways. The first one given is The Research-and-Experimentation Tax Credit. She mentioned that companies could trim down their cost due to this R&E Tax Credit. According to Zerbe (2012), small and midsized companies overlook this credit since they believe that their line of business is not involved with research and experimentation. They have a wrong notion regarding research and experimentation. They fail to understand that improving a product or a process is also part of the research and experimentation. Another mentioned tax regulation is the Interest charge-domestic international sales corporation. This could actually help these companies have a 20% increase in their income from exports. The last tax regulation mentioned in this article is the EnergyEfficient Commercial Building Deduction. This is beneficial when they build or modify their warehouses, offices and the like. It would allow them to have 50% lower energy and power costs. (Segarra, 2012)

The debate as to whether having tax cuts and putting up a few trade barriers will be able to bring back manufacturing jobs in America is answered in an article written by De Matta (2012) entitled Tax cuts are not always the solution. In this article De Matta (2012) stated that eventhough taxes are essential in the operations of a business, its decisions are not primarily and based soley on taxes. Considerations that businesses need to think about before they set up or locate their business are not only limited to taxes deliberation. Factors such as location of their

suppliers, labor force and politics are also part of the things to be considered by firms before venturing in a location or country where they would set up or put their business. According to De Matta (2012), aside from creating policies implementing tax cuts, political leaders should come up with a much complex approach to public policy for improvements to happen in reality. (De Matta, 2012)