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How to revolutionize doing business in the Philippines

With this year’s promising growth in our GDP, the Philippines has been dubbed the fastest-growing economy among Asian nations. We can achieve more if we are able to continuously improve on areas that are critical to growing the economy.

The difficulty of doing business has been our long standing problem. Although the Philippines moved up to no. 99 from no. 103 last year in World Bank’s “doing business” ranking, the Philippines dropped from number 165 to number 171 in the category of starting a business. Outdated procedures and “red tape” remain the biggest obstacles towards improving doing business. From setting-up, to complying with local rules and regulations, even dissolution of a business is a lengthy and complicated process. Many procedural reforms claim to have reduced the number of days to secure certificates, licenses, and permits. Yet in reality, it still takes at least one to as long as three months to fully register in all government agencies.

The government may consider the following enhancements to simplify procedures and consequently hasten the ease of doing business.

  • Create an online registration system or one-stop-shop. There are a considerable number of steps to complete the registration of a new business. In 2015, the SEC implemented the Integrated Business Registry System (IBRS) which aims to reduce the number of steps and days in starting a business. Although the IBRS generates the TIN and registration numbers of social agencies, it covers only the initial stage of registration. A new business must still go to the different social agencies like SSS, PhilHealth, and Pag-IBIG, in different locations; submit requirements; and wait in line to complete registration. Additionally, it must transact with the local BIR office to pay a registration fee, secure a certificate, register books of accounts, receipts, Cash Register Machine (CRM), Point of Sale (POS) machine, etc. The BIR has recently issued a revised list of documentary requirements to streamline the registration process but we have yet to see the positive effect. In reality, the IBRS only accelerated the issuance of the pre-generated registration numbers without actually reducing post-incorporation work.
  • Standardize requirements and procedures. The different local government units (LGUs) and social agencies (e.g. SSS), have no consistency in their requirements and procedures. Even the SEC, with only seven extension offices, does not maintain the same requirements. Consistency in requirements, especially for businesses with branches in various locations, will simplify the process of registration. This will also support businesses in provinces where the processing time seems to double.
  • Simplify forms and filing requirements. Taxpayers are required to file around 23 kinds of tax returns for the whole year. This includes monthly, quarterly, and annual returns. Additionally, alphalists, summary lists, and other supporting schedules and documents are also required to be filed. Annual ITR forms consist of 12 pages for individuals and 8 pages for companies. A taxpayer can easily feel overwhelmed just by looking at these forms, much more so if he or she would engage in the laborious course of compliance.
  • Provide simpler requirements to micro, small, and medium enterprises (MSMEs). There is currently no distinction in the requirements and procedures imposed upon large, small, and medium enterprises. This is especially significant in tax filings and payroll related payments which take up plenty of man-hours. Compliance requirements should be simplified for the smaller business. As they have limited capacity, simpler requirements would help MSMEs reduce the cost of doing business.
  • Create regional branch offices. BIR ruling requests, tax case filings, and importer clearance applications are just some examples of transactions that necessitate special travel to Metro Manila. Allowing filing in BIR regional offices or creating regional Tax Court branches in other major metropolises, like Cebu and Davao, will be more efficient for applicants/petitioners from the Visayas and Mindanao. This will also alleviate the glut of filings in Manila.
  • Extend the validity of permits and licenses. Generally, permits and licenses issued are valid only for a year and so require renewal annually. Every year, a company is required to secure a business permit, sanitary permit, fire inspection permit, community tax certificate, environmental compliance certificate, barangay clearance, occupational/professional tax of employees, and so on. Similar to the proposed extension of passport validity, extending the validity of these permits will reduce the clutter of yearly applications for renewal.
  • Remove redundancies in the approval system. Permits and licenses go through a series of approvals before issuance. Obtaining business permits from LGUs require going through the City Health, Zoning Department, Fire Department, City Environment and Natural Resources Office, and even the Barangay. The function of approval should be limited to a few officers that may be held accountable for authorizing permits.
  • Update training of government agencies. Front liners are essential for prompt and efficient services. Government employees should be qualified to handle different situations and provide options and solutions to registrants/applicants. The presence of so-called “fixers” in such offices indicates poor government service. Government employees should be regularly trained to ensure efficiency, competency, and fidelity.
  • Create back-up procedures. It has been a practice to discontinue all transactions when an agency’s system is “off-line,” notwithstanding the several hours of long wait for many registrants. It is squarely practicable to have a back-up procedure to continue the transaction despite this deficiency. Another matter that requires an alternative is the approving authority. For example, securing a barangay clearance should not have to wait until the barangay captain returns from his or her vacation. An applicant should be able to speedily secure the necessary permit from another duly authorized officer.

These are just some of the possible solutions to help ease doing business in the Philippines. As this is a massive subject, there are still a lot of areas for improvement such as in securing of construction permits, the registration of properties, applying for utilities, obtaining credit, enforcing contracts, and so on.

The intention is to reduce inefficiency in our processes, make matters simpler, and readily understandable for the general public. After all, these processes are meant to protect the consumers, enable existing businesses to flourish, and encourage new local and international investments. If we can find a way to streamline these procedures and enhance their availability to the majority of eager industrialists, we can be well on our way to fast tracking our global competitiveness as well as sustaining our economic growth.

Charity P. Mandap-de Veyra is a tax manager at the Cebu and Davao Branches of Punongbayan & Araullo.

As published in Business World, dated 15 November 2016