RATIONALIZING THE BUSINESS PROCESS IN THE PHILIPPINES

19Jan11

(Privilege speech delivered by Rep. Mel Senen S. Sarmiento during the first day of session of 2011, Jan.17)

Happy New Year to all!

I had the opportunity to attend the launch of the 2011 Doing Business in the Philippines Subnational Report last December 10, 2010 in Cebu.

The Doing Business report, which was undertaken by the World Bank, International Finance Corporation, and the Asian Institute of Management Policy Center, compares 25 Philippine cities from Luzon, Visayas, and Mindanao with other cities from 183 countries around the world. This is the follow-up to the first Doing Business subnational study which was released 3 years ago.

FINDINGS OF THE DOING BUSINESS 2011 SUBNATIONAL REPORT

There have been gains for the Philippines over the past 2 years, as many of the cities covered in the study showed significant improvements in rationalizing the time and cost of doing business. The Doing Business 2011 report finds that 65% of the cities benchmarked since 2008 have improved in at least one of the indicators measured – starting a business, dealing with construction permits, and registering property. This means that over the past 2 years, 13 out of 20 cities in the Philippines carried out 19 regulatory reforms to make it easier to start and operate a business. These reforms include business process re-engineering, computerization and use of information technology, reduction of requirements and costs, and the availability of multiple service providers. This is certainly very good news, and I congratulate the cities and national government agencies that worked together to make these reforms possible.

Cebu City, for example, now makes use of the National Economic Research and Business Action Center (NERBAC) of the Department of Trade and Industry, resulting in reduced registration requirements. It has also established one-time assessment and payment of fees for business registration. The Visayan Electric Company started to refund the cost of electricity connection within a year from service connection.

The Register of Deeds in Cebu City has completed the computerization project of the Land Registration Authority, reducing the number of days to register property.

That having been said, however, the Doing Business 2011 report also finds that there are continuing challenges to Filipino entrepreneurs. The high number of procedures continues to be the biggest challenge for entrepreneurs. To register one’s business in the Philippines, it can take between 15 to 22 procedures, or an average of 18 procedures. This is far more than the average number of procedures for the East Asia-Pacific region, and worlds apart from the best performing countries in the world, New Zealand and Singapore, both of which are our neighbors.

Because of the high number of procedures across the 3 Doing Business indicators, even our best performing cities rank poorly when compared to the rest of the world. Our best cities as far as registering property is concerned rank 137^th out of 183 countries. In dealing with construction permits, our best cities rank 155^th out of 183. And in starting a business, our best cities rank 175^th out of 183. The average number of procedures in the Philippines – 18 procedures – is only 2 procedures less in Equatorial Guinea, the country that ranks 183rd globally.

FINDINGS OF THE DOING BUSINESS 2011 GLOBAL REPORT

In the Doing Business 2011 global report, where the world’s economies were ranked on the ease of doing business, 4 East Asian Economies figure in the Top 30: Singapore (no. 1), Hong Kong (no. 2), Thailand (no. 19), and Malaysia (no. 21). Alas, the Philippines is nowhere near there: we are ranked at no. 148.

Clearly, my friends, there is a lot that needs to be done.

THE NEED TO CREATE JOBS

When President Benigno Aquino gave his first State of the Nation Address last July 2010, he stressed the importance of streamlining our country’s business processes. Ang sabi ng ating Pangulo: “Una sa ating plataporma ang paglikha ng mga trabaho, at nanggagaling ang trabaho sa paglago ng industriya. Lalago lamang ang industriya kung gagawin nating mas malinis, mas mabilis, at mas maginhawa ang proseso para sa mga gustong magnegosyo.”

During this time that the Philippines is recovering from the global economic crisis, it has become more important than ever to create new jobs and preserve existing ones. Micro, small, and medium-scale enterprises have the great potential to create jobs. They account for 99.6% of all businesses registered in the Philippines, and for more than 70% of total employment. (Note: information taken from the DTI website. Statistics are as of 2006, but the website is current as of January 16, 2011.)

Improving the regulatory environment to help these businesses grow is one of the biggest ways we can support them and build the Philippine economy.

THE ROLE OF LOCAL GOVERNMENT UNITS

In his State of the Nation Address, the President called on the Local Government Units to rationalize and streamline their permitting processes, in order to make it easier for entrepreneurs to do business in their localities. Our Local Government Units play a critical role in fostering a sound business climate. LGUs can either make or break the country’s economic performance. The consequences of ineffective, excessive or, in some instances, inappropriate regulation in the local levels generally have adverse effects on investment and economic development.

INITIATIVES UNDERTAKEN BY THE LEAGUE OF CITIES

During my term as the Secretary General of the League of Cities of the Philippines (LCP), we mobilized our member-cities to coordinate closely with the DTI in streamlining business registration and permit processes. In fact, during our National Convention in 2009, then President Gloria Macapagal Arroyo supported the initiative of the LCP with the Metro Manila Cities in promoting the Standardized Business Registration and Permit Processes to enhance the business climate in cities and ease the process of doing business. This initiative aims to reduce the transaction time and requirements, and the use of a standard business registration form for all cities. Some of the reforms that have resulted from this initiative can already be seen in the findings of the latest Doing Business 2011 subnational report.

The LCP has also jumpstarted streamlining the process of securing a Fire Safety Inspection Certificate, in close coordination with the Bureau of Fire Protection. The League has proposed amendments to the IRR of the New Fire Code to enable business registrants to secure only one FSIC when getting an occupancy permit, rather than securing two FSICs for occupancy permit and business permit. This will definitely save transaction time.

THE NEED FOR NATIONAL LEVEL REFORMS

Fostering a vibrant business climate is a development prerogative that calls for the concerted effort of all branches in all levels of government. Indeed most interaction between government and business happens at the local or regional level. And the Doing Business 2011 study shows the dynamism that is already happening among our cities and in our local government units.

However, if we are to foster a truly vibrant business climate in the Philippines, local level reforms will not be enough. National regulatory policies are just as important, or perhaps even more important. National laws influence and affect investment decisions of entrepreneurs. And post-investment operations are influenced by national government agencies that have legal authority over such operational activities.

As it turns out, based on the Doing Business 2011 subnational report, there are large variations among the cities benchmarked, both in local regulations as well as the implementation of the same national laws. Also, the national government has not reformed at the same pace as the local governments. Moreover, some changes at the national level do not support the cities’ efforts to improve efficiency.

WE NEED TO REVIEW OUR LAWS

There is a need therefore to review our existing laws that may be hampering a healthier business climate, and to ensure that our national laws are consistent with, complement, and support the efforts of our local government units and national government agencies to reform.

We can learn from what has taken place in other countries.

Peru for example did a legal analysis of the business license process and uncovered that many of the requirements for obtaining a business license had no legal foundation. From the review, they were able to determine what business processes were critical and what processes could potentially be removed if there was no other justification or rationale for their inclusion.

In Canada, they were determined to remove inconsistencies and conflicts between federal, provincial and municipal levels of government as part of their simplification initiative. Between 2001 and 2004, 35 acts and 112 regulations were reviewed. Many of these laws and regulations were repealed, updated, reviewed, and simplified.

RATIONALIZING OUR BUSINESS PROCESSES

We must do the same here in the country. With many members of the 15^th Congress coming from local governments, my colleagues, I invite you to work with us to:

• Review our laws that may be obstructing smoother business transactions;

• Strengthen laws that encourage more business and investment;

• Amend, revise, and repeal laws that are do not support efforts to reform and streamline our business processes; and

• Come up with much needed new, cutting-edge laws that will make the Philippines more competitive and attract much-needed domestic and foreign investment.

EXISTING LAWS AND POLICIES

Indeed we already have good laws and policies that if fully enforced and supported further by other complementary laws and regulations will be of great help in making our country more conducive to doing business. Some of these include:

(a) The “One Stop Business Registration Center” for all permits and licenses for barangay entrepreneurs under RA 9178 or the “Barangay Micro Business Enterprises Act of 2002”;

(b) The Philippine Business Registry Project under EO 587, series of 2006. This aims to create an online one-stop shop for business applications, registration, permits and licenses, including the Securities and Exchange Commission, the DTI, the BIR, SSS, PhilHealth, PAG-IBIG, and City Hall. Once this is fully realized, people can register their businesses by clicking their mouse in their homes. No more costly, time-consuming trips to the different government offices to register one’s business.

PROPOSED INITIATIVES FOR THE 15^TH CONGRESS

I wish to propose a number of legislative initiatives that may support and complement these ongoing initiatives to rationalize and streamline our business processes:

(1)   Legislative support for the Philippine Business Registry project and other initiatives on the part of local government units and national government initiatives to rationalize and streamline business processes;

(2)   Sharing of vital information between the LGUs and the BIR for tax collection purposes. I have filed House Bill No. 1492, which seeks to enact EO 646 which allows LGUs to access BIR files pertaining to gross receipts. At present, the Local Government Code precludes the cities from taxing businesses whose annual gross receipts do not exceed P50,000. Also, the BIR does not give LGUs access to their records unless the LGUs oblige businessmen to register with the BIR prior to the issuance of the business/mayor’s permit. When enacted, the proposed bill will provide a simple mechanism where the LGU is furnished a copy of the entrepreneur’s BIR registration for an accurate tax assessment. This measure will likewise grant the BIR access to the records of the local treasurer, in line with the Lateral Attrition Law. This will hopefully rationalize and harmonize business and tax registration between the LGUs and BIR, and make tax collection more efficient and effective.

(3) And there is the Valuation Reform Bill, which seeks to reform the country’s real property valuation system. The absence of a national standard and method for real property valuation has resulted in inefficient allocations and utilizations of the land market and a lack of public confidence in the real property sector. This in turn has constrained the country’s economic development, reduced the opportunities for the poor, and discouraged sustainable management of land. If the Valuation Reform bill is enacted, both the government and private sector can be assured of a fair price for real property since market value will be used as the benchmark and basis for valuation.

CALL TO ACTION

Simplifying and rationalizing our business processes is not just a process of eliminating inputs or steps in a particular process. Government executives and policymakers must be committed and remain committed to reducing regulatory burdens on entrepreneurs. This entails structuring and designing regulatory policies in such a way that they are sustainable in their design and implementation well into the future. To do this, relevant stakeholders must be involved to assist the government in ensuring that any deviation from that commitment is closely examined.

The Congress, the LGUs, the national government agencies, and the private sector all have critical roles to play in the simplification initiative.  Meaningful and continuing consultations with all sectors concerned will ensure that the process design reflects the needs of our people, most especially our entrepreneurs and MSMEs which are the backbone of our economy.

Rationalizing and streamlining our business processes will improve government’s efficiency and ability to deliver needed services to the Filipino people. This in turn will enhance the business climate in our country and encourage more entrepreneurs and MSMEs to do business. More business and more investment mean more jobs for our people. And more jobs means more people lifted out of poverty. More people lifted out of poverty means a more vibrant and productive economy and society. And so on towards an upward spiral of growth.

My friends and colleagues in government, let us all work together to make the Philippines a place where it is not just easy but a pleasure to do business. Together, we can and will make this happen.

Maraming salamat po.

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