How difficult is it to do business in the Philippines in comparison to other economies?
One way to answer this complex question is to look at the annual Ease of Doing Business Index issued by the World Bank. As its name suggests, the Index ranks almost all the world’s economies according to how easy it is to do business. The Index is based on a study of laws, regulations, and practices in a given country, taking into account the following factors: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.
In other words, the Index is used as an indicator of the simplicity of business laws and regulations and the level of protection for businessmen and their property rights. As such, the Index is often cited by legislators as a catalyst for the issuance of new laws and regulations to facilitate ease of doing business.
In the 2020 Ease of Doing Business Report, the Philippines ranked 95th among 190 economies. Although this ranking was a significant improvement from last year’s performance, the Philippines still ranks last among the founding members of the Association of Southeast Asian Nations — Singapore is ranked 2nd place, Malaysia 12th, Thailand 21st, and Indonesia is at 73rd place.
According to the World Bank, it takes an average of 13 procedures to start a business, nine procedures to register property, and 22 procedures to build a physical establishment in the Philippines. Once the business has been set up, the company makes 13 annual tax payments. If a contract is broken and a business needs to resolve a dispute with its customers or suppliers, it takes an average of 962 days to resolve an issue through our courts.
These inefficiencies have long been sought to be corrected by different Congresses. Fortunately, the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 was signed and became effective on June 17, 2018. The Implementing Rules and Regulations (IRR) were passed on July 17, 2019.
The IRR seeks to provide simple and straightforward regulations for entrepreneurs, micro-, small-, and medium-sized businesses and ordinary citizens:
• All government agencies and offices in the Executive Department including Local Government Units (LGUs) and government-owned or -controlled corporations that issue licenses, clearances, or permits (LCPs) to business entities are covered.
• Each agency/office must submit a Citizen’s Charter which outlines a comprehensive checklist of requirements, step-by-step procedures, and schedule of fees.
• There are prescribed processing times for LCPS — a maximum of three working days for simple applications, seven working days for complex applications, and 20 working days for applications that require technical evaluations and other conditions, subject to qualifications.
• Each agency/LGU must adopt a Zero-Contact Policy where interactions between applicants and government employees are limited. Electronic submission of requests and requirements is preferred.
• Upon lapse of the processing time, submission of complete documents and payment of all fees, the LCP is automatically deemed approved or extended.
• The IRR prescribes penalties for: (a.) refusal to accept applications/requests and to act on them despite complete submission of documents and payment of fees; (b.) failure to give written notice of disapproval; (c.) imposition of additional irrelevant requirements or costs; (d.) failure to render service during regular working hours and within prescribed processing times; (e.) failure or refusal to issue receipts; and (f.) colluding with fixers. The penalties range from administrative liability and six months suspension to criminal liability, dismissal, and perpetual disqualification to hold public office, imprisonment of up to six years and a fine of not more than $40,000.
• A Unified Business Application Form will be used in processing new applications and renewals. This consolidates all the information for an application such as local taxes and clearances, sanitary permits, zoning clearances, and the like. In the same vein, there are streamlined procedures for securing fire safety clearances.
• The IRR establishes a National Policy on Anti-Red Tape and Ease of Doing Business. This refers to a comprehensive business registration and regulatory management policy to improve competitiveness and ease bureaucratic and regulatory burdens on businessmen. It also adopts a Whole-of-Government approach, where agencies focus on providing integrated and streamlined public service.
• Finally, the IRR creates an Anti-Red Tape Authority and Advisory Council. Essentially, these bodies implement the IRR and craft policies on business registration and regulatory management.
Any significant improvement in the ease of doing business in the Philippines requires a whole-of-country effort. The efforts by legislators, government agencies, and private corporations are a welcome start to improving the business climate. Hopefully, these efforts will significantly reduce the entry barriers to business which, ultimately, will lead to economic efficiency for the benefit of the ordinary Filipino.
Paula P. Plaza is an Associate of the Litigation and Dispute Resolution Department of ACCRALAW Offices.