RP needs to cut business costs to attract foreign investments — WB

The Philippines must lower fees, taxes and other business costs to attract foreign investment, the International Finance Corp. and the World Bank said in a report released yesterday.

Taxes, fees and other government charges imposed in the Philippines are the second highest, behind China, among 24 countries in East Asia and the Pacific region, the report said. These expenses account for 46.4 percent of companies’ gross profit, compared with China’s 46.9 percent, it said. The IFC is a unit of the World Bank.

The government "should simplify licensing and other fees, taxes, broaden the tax base and limit exemptions,’’ Joachim von Amsberg, the World Bank’s Philippine country manager, said in a press briefing. "Reducing rates on some of these fees will help enhance the business environment.’’

The Philippines, which has posted budget deficits since 1998, needs foreign investment to spur economic growth and create jobs. The nation has the second-highest jobless rate in the Asia- Pacific region, behind Indonesia, and a third of its 85 million people live on less than 60 US cents a day.

The report, titled "Doing Business in 2006: Creating Jobs,’’ ranked 155 countries worldwide on key regulations, costs and reforms. It assessed regulations on starting, operating and closing a business, payment of taxes and the time and cost involved in dealing with the government and complying with its requirements.

Foreign direct investment in the Philippines, excluding funds withdrawn by foreign investors, reached $495 million in the first half of this year, latest data from the central bank showed. China received $28.6 billion in overseas capital in the same period, its commerce ministry said on July 13.

The Philippines also ranked in the bottom four among the 24 countries in the region in terms of procedures to start a business, steps for registering property and in resolving insolvency, the report said. The nation was rated the third highest in introducing reforms to improve doing business in the region, next to Vietnam and Indonesia.

The Philippines was ranked a poor 113 out of the 155 nations covered by the study.

Von Amsberg said the study helps increase the awareness of both public and private sectors of the importance of certain conditions that encourage and develop business, expand the small and medium enterprises (SMEs), and help alleviate poverty.

However, he said that the Philippine problem is basically fiscal in nature, with a huge budget deficit and debt situation nearing crisis level.

"Businesses, both foreign and local are concerned with the Philippine macroeconomic stability, especially fiscal reforms. We also feel that the other critical issues that need to be addressed is infrastructure and microeconomic reforms like what studies encourage," he said.

Encouraging business brings employment and economic activity which brings about sustainable growth not solely dependent on external conditions, the World Bank executive stressed.

The top 30 economies in the world in terms of "ease-of-doing-business" index are New Zealand, Singapore, the United States, Canada, Norway, Australia, Hong Kong (China), Denmark, the United Kingdom, Japan, Ireland, Iceland, Finland, Sweden, Lithuania, Estonia, Switzerland, Belgium, Germany, Thailand, Malaysia, Puerto Rico, Mauritius, the Netherlands, Chile, Latvia, Korea, South Africa, Israel, and Spain.

The worst performers, on the other hand, are Congo, Angola, Tanzania, Nigeria, Cambodia, Afghanistan, Belarus, Iraq, and West Bank and Gaza.

Among East Asian economies, Taiwan ranked 35, mainland China 91, Vietnam 99, Indonesia 115, Lao PDR 147, Timor-Leste 142, and Cambodia 133.

The study likewise classified the judicial system in the Philippines as "not efficient," oftentimes resulting in the "non-respect of existing business contracts."

"It has become a deterrent for doing business in the Philippines, with the foreign investors becoming more risk-adverse in the case of the Philippines," it added.

The study indicated that China, Fiji, the Philippines, and Timor-Leste streamlined administrative barriers to trading. Upgrades to the ports in Shanghai cut loading times by two-thirds while Fiji introduced electronic filing of customs documents.

The Philippines introduced online business registration, and Vietnam established electronic name verification, cutting one week off the time to start a business. Indonesia and Vietnam introduced new bankruptcy laws that clarified rules for closing insolvent businesses and reorganizing viable businesses.

The Philippines and Vietnam also fasttracked contract enforcement by setting time limits on court judgments. – Ted Torres, Bloomberg