“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”
— Adam Smith,
The Wealth of Nations (1776),
Book V, Chapter II, Part II
Last week, on Nov. 28, I attended a conference on Cutting Red Tape for Small and Medium Enterprises (SMEs) organized by the AIM Rizalino S. Navarro Policy Center for Competitiveness and the Konrad Adenauer Stiftung (KAS) held at Discovery Primea in Makati. A very interesting paper, “Cost of Regulatory Compliance for SMEs in the Philippines: Methodology and Survey Results,” was presented by the authors Jamil Paolo Francisco and Georgina Gonzales.
The authors and their team made a survey and they covered 300 SMEs from Metro Manila, 145 each from Cebu and Davao cities, for a total 590 SMEs, with average employment of 29 for Metro Manila, and 18 for Cebu and Davao. The survey was done from August to October this year.
The study had some interesting or troubling results. I summarize many charts and sub-topics into a table which accompanies this column.
The study made the following Summary from their survey results:
• SMEs find regulatory compliance, on average, moderately burdensome and they consider compliance as a concern as soon as the business is being established.
• Tax and local government regulations are perceived as most burdensome, and the Bureau of Internal Revenue (BIR) and local government units (LGUs) as most difficult to deal with.
• On average, SMEs spent 30 hours to comply with regulations, about a third of which was spent on tax compliance.
• The burdens on SMEs are more on time and effort, so to save time and effort, almost a fifth of SMEs surveyed reported making informal payments of an average of 2% of their total expenses.
• When it comes to monetary costs, businesses spend around 17% of their total expenses for regulatory compliance and 20% for tax requirements. Figures include both direct and indirect payments such as salaries, transportation, supplies, etc.
There, Adam Smith’s words from some 243 years ago are still spot on.
Bureaucracies in SMEs can expand as companies become large. Take the case of transport network companies (TNCs). Recently, PBA Partylist Jericho Nograles unleashed a political attack on one private company, saying that “Grab owes government P15 billion in fines for overcharging 3 million riders.”
Again, the term “overcharging.” When people fly business class or first class instead of economy class, they do so voluntarily and pay for the ticket, do not cry about being over-charged. When people watch a concert or sports game with a ringside ticket instead of lower box or upper box, they just pay and do not cry that they are being over-charged.
So when people take an expensive ride, the fare they already know before clicking “Book a ride,” they just pay for reasons of safety and comfort and do not cry about being over-charged. Otherwise they can take the ordinary taxi, or motorcycle taxi, or an aircon van, jeepney, bus, the MRT/LRT and save money. A person carrying six or seven-digits in cash, or important documents, or rushing to the airport and paying P500 for a safe TNC ride instead of P300 for a regular taxi or P150 for a motorcycle taxi will not cry that they are being over-charged. People decide what rides are important for them, not politicians or bureaucrats.
So when politicians like Mr. Nograles charge billions of pesos that a private company “owes” to the passengers they have safely and comfortably served, there is clear malice.
The more political harassment from politicians, the more restrictions from agencies like the LTFRB (Land Transportation Franchising and Regulatory Board) on expanding the supply of accredited cars or players, then the more public suffering via long waiting time for the few accredited cars, or shorter waiting times but more expensive rides.
Can new government regulations like the Anti-Red Tape Act address problems that government agencies themselves created? Perhaps yes.
Methinks that one lasting solution is to limit government people from staying in government, for a maximum of 20 years combined work in local and national agencies, appointed and elected positions. Many government officials intend to be regulators and politicians until retirement, meaning the hardships they create and implement will not apply to them and their friends. If they know that their taxation, regulations, and prohibitions will apply to them someday, they will think two times or ten times about crafting legislation for irrational taxation and regulations.
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.