Doing business in the Philippines made easier

The World Bank’s Doing Business 2018 report reveals that the Philippines has slipped when it comes to the ease of doing business to 113th place from 99th place last year. 190 countries were surveyed in the report. Perhaps in response to this development, the government recently passed Republic Act (RA) No. 11032 or “The Ease of Doing Business and Efficient Government Service Delivery Act of 2018.” This new law, which aims to reduce processing time, cut bureaucratic red tape, and eliminate corrupt practices, enhances the decade-old Anti-Red Tape Act of 2007, which focused on streamlining and improving the current systems and procedures of government services.

What are the significant highlights of RA No. 11032?

1. Prescribed processing time

All government agencies (national or local), government-owned and -controlled corporations (GOCCs), and government instrumentalities located in the Philippines or abroad shall comply with the prescribed processing time:

a. Simple transactions — Three working days

b. Complex transactions — Seven working days

c. Highly technical transactions — 20 working days

2. Automatic approval

If agency fails to approve or disapprove an original application within the prescribed processing time, the application shall be deemed approved. However, if the cause of the delay is due to force majeure or natural or manmade disasters, the mandated prescribed processing time shall be suspended and appropriate adjustments shall be made.

3. Zero-contact policy

Government employees shall have no contact in any manner with any requesting party concerning an application or request, except during preliminary assessment of the request and evaluation of submitted documents or unless strictly necessary.

4. Citizen’s Charter

All government agencies shall set up a current and updated Citizen’s Charter to indicate the following details:

a. Checklist of requirements for each type of application or request;

b. Procedure to obtain a particular service;

c. Person(s) responsible for each step of the process;

d. Amount of fees, if necessary;

e. Maximum time to complete the process; and

f. Procedure for filing complaints.

5. Administrative penalty for noncompliance

Any government official or employee found in violation of RA No. 11032 will face the following penalties:

a. First offense — Administrative liability with six months’ suspension

b. Second offense — Administrative and criminal liability

While the different agencies are expected to issue the related implementing rules and regulations, the inclusion of these five significant points is a welcome development indeed. To give teeth to the law, RA No. 11032 even provides for an administrative/criminal liability to erring government official or employees in applicable situations.

With the new law, applying for permits, licenses, and certificates will be easier and faster. According to the Doing Business 2018 report, good rules create an environment where new entrants with drive and good ideas can get started in business and where good firms can invest, expand, and create jobs, encouraging more Filipinos to be entrepreneurs.

RA No. 11032 would also complement the incoming Tax Reform for Acceleration and Inclusion (TRAIN) 2 package. The easier way of doing business, together with the proposed reduction of the corporate income tax rate under TRAIN 2, will enhance the country’s competitiveness against neighboring Asian countries and, hopefully, encourage more foreign companies to come to and invest in the Philippines. RA No. 11032 may also soften the negative impact of the proposed removal or reduction of the tax incentives of some businesses, which is feared to scare away potential and existing investors.

Several studies show evidence of a significant correlation between the ease of doing business indicators and the flow of foreign direct investments. Although this does not imply causation, the findings do support the claim that a country’s ease of doing business more accurately reflects the overall investment climate than what matters only to small and medium-sized domestic firms.

It will be interesting to see the effect of RA No. 11032 in the months and years to come. Note that the Bureau of Internal Revenue (BIR), through its issuances, is striving to align with the objective of helping taxpayers streamline their registration applications, tax filing, and compliance processes.

Taxpayers hope that, in the context of the ease of doing business in the Philippines, the BIR would continue to evaluate or re-evaluate its processes in various areas, such as in computerized accounting system (CAS) applications, securing of tax rulings and of certificates authorizing registrations in sale of shares or real properties (CPM1), and tax refund processes, among others. The BIR’s efforts will require additional funds, manpower, and technology support. However, many believe that resources, if channeled into further streamlining BIR requirements, will largely contribute to the call for ease of doing businesses in the Philippines, especially since tax requirements and constraints have a permanent and continuing impact on businesses.

Rufino Gerard G. Moreno III is an associate of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

As published in BusinessWorld, dated 05 June 2018