Doing business the Phl way

A recent report of the World Bank/International Finance Corp. ranked the Philippines as among the top 10 economies that have made the biggest improvement in business regulation in the past year.

The report noted that the Philippine government implemented regulatory reforms in three areas. These are the introduction of a fully operational online filing and payment system that has made tax compliance easier for companies, simplified occupancy clearances that have eased construction permitting, and nnew regulations that guarantee borrowers’ right to access their data in the country’s largest credit bureau.

The Philippines jumped up in ranking by 30 points from 138 to 108, more than any other country out of 189 economies that were ranked.

Motoo Konishi, Philippines country director of the World Bank, noted that with the Philippines needing to generate around 10 million jobs per year, with over 95 percent of the labor force in the Philippines either self-employed or work in micro, small and medium enterprises, and with a vast majority of those working in these enterprises working in very small firms, creating an environment that helps micro and small enterprises to grow is essential to create jobs in the economy.

He emphasized the need for an environment where various permits and licenses are rationalized, where compliance with rules and regulations does not create unreasonable burden, where rules and regulations are clear and transparent, where creditworthy firms can obtain financing even if they do not have real estate to offer as a collateral, and where disputes are resolved efficiently, fairly and at low cost.

In his speech, Konishi pointed out that business registration and renewal of various permits remains an area that needs major improvements. In Malaysia,  one needs only six days and three steps to register a business. In the Philippines, 15 steps and 35 days.

A look at the WB/IFC Doing Business Report details these 15 steps and why it takes 35 days to register a business here.

Step One involves verifying and reserving the company name with the Securities and Exchange Commission (SEC) and this takes a day.

Step Two involves notarizing the articles of incorporation and treasurer’s affidavit at the notary and this also takes a day.

Here are the other steps and the number of days it would take to accomplish them:

Step Three:  Register the company with the SEC and receive pre-registered Taxpayer Identification Number (TIN) – three days

Step Four: Obtain barangay clearance – one day

Step Five:  Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer’s Office (CTO) – one day

Step Six:  Obtain the business permit to operate from the BPLO – six days

Step 7: Buy special books of account at bookstore – one day

Step 8: Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR) – two days

Step 9: Pay the registration fee and documentary stamp taxes (DST) at the AAB – one day

Step 10: Obtain the authority to print receipts and invoices from the BIR – one day

Step 11: Print receipts and invoices at BIR – seven days

Step 12: Have books of accounts and Printer’s Certificate of Delivery (PCD) stamped by the BIR – one day

Step 13: Register with the Social Security System (SSS) – seven days

Step 14: Register with the Philippine Health Insurance Co. (PhilHealth) – one day

Step 15: Register with Home Development Mutual Fund (Pag-ibig) – one day, simultaneous with previous procedure

We all know that the 35 days actually takes longer. Step 11 alone takes eons.

Registering a business in Hongkong takes only three days and involves three steps.In Thailand, its four steps and around 28 days. In China, its about 13 steps and 31 days.

Konishi suggested that an effective electronic platform for business registration would not only reduce costs, but would also improve transparency and accountability of the various agencies responsible for each step in business registration.

He added that some legal acts need to be changed to bring them up to date with modern practices, shifting away from requirements for paper receipts and stamped books in the age of computers.

True, the Philippines has made significant improvements in the area of doing business but are these enough to make our country attractive to investments?

The Philippines has remained a laggard in terms of attracting foreign direct investments (FDI).

In the World Investment Report for 2013 released by the United Nations Conference on Trade and Development (Unctad) on Wednesday, the Philippines’s FDI inflows reached only $2.797 billion in 2012.

Among Asean members, Singapore’s FDI inflows were the highest at $56.65 billion, followed by Indonesia with $19.85 billion and Malaysia with $10.07 billion.

Asian Development Bank Philippines Country Economist Norio Usui said that the Philippines needed to increase its yearly FDI to three to five times more to be able to be at par with its neighbors.

Usui noted that despite the Philippines’ brilliant economic performance, foreigners have not yet come because of many issueslike deficient infrastructure, including the high power price and also the red tapes and the ownership in the Constitution and rigid labor laws, among others.

If our own businesses are complaining about the difficulty of doing business here due to inconsistent policies and rules that change midstream,  red tape and corruption in the bureaucracy, then all the more foreign investors who do not have the patience to deal with all these roadblocks.

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