The Philippines’ Performance in Doing Business 2008 Kim S. Jacinto-Henares September 26, 2007

2 IFC and the World Bank: Part of the World Bank Group International Bank for Reconstruction and Development (IBRD or World Bank), 1945 International Development Association, 1960 Multilateral Investment Guarantee Agency, 1988 IFC is owned by its 179 member countries, which collectively determine policies. International Centre for Settlement of Investment Disputes, 1966 International Finance Corporation

3 Doing Business project Starting a business Dealing with licenses Employing workers Registering property Enforcing contracts Getting credit Trading across borders Protecting investors Paying taxes Closing a business Update of 2006 Add 20 countries Update of new countries 10 topics 178 economies

4 What is the Doing Business report? Presents quantitative indicators, empirical data set on business regulations & their enforcement Highlights the extent of obstacles to doing business Helps identifies the source of those obstacles Helps identifies what reforms are needed and provides advice on how to start the process Highlights best practices in how to reform An objective benchmark against which to measure regulatory performance in comparison to other economies

5 Doing Business indicators measure Degree of regulation (e.g. no. of procedures to start a business or register commercial property) Regulatory outcomes (e.g. time & cost to enforce a contract, go through bankruptcy or trade across borders) Extent of legal protections of property (e.g. protections of investors against looting by company directors or the range of assets that can be used as collateral) Flexibility of employment regulation Tax burden on businesses

6 What Doing Business indicators don’t measure Macroeconomic policy Currency volatility Ease of access to markets Proximity to large markets Quality of infrastructure services (other than those related to ‘Trading across borders’) Investor perceptions Crime rate Security of property from theft & looting Transparency of government procurement Bribes Underlying strength of institutions

7 Doing Business 2008 Overall Ranking Topic Phils Ranking World’s Best Ease of doing business133Singapore Trading across borders57Singapore Dealing with licenses77St. Vincent & the Grenadines Registering property86New Zealand Getting credit97United Kingdom Enforcing contracts113Hong Kong, China Employing workers122United States Paying taxes126Maldives Protecting investors141New Zealand Starting a business144Australia Closing a business147Japan Overall Doing Business ranking is based on an average of the averages of the 10 topics. Ranking on each topic is the simple average of rankings on its component indicators.

8 3-year Philippines performance Reforms have started but need to be accelerated & fully implemented.

9 Starting a business: entry regulation Measures the challenges of launching a business in the Philippines. Records all procedures that are officially required for an entrepreneur to start up and formally operate a general commercial business. Both pre- and postincorporation procedures are recorded, including official correspondence or transactions with public agencies. Indicator Procedures (number)15 Time (days)58 Cost (% of income per capita) 26.8 Min. Capital (% of income per capita) 6.9 Rank144

10 Dealing with licenses: operations regulations Measures the requirements for ongoing operations in the Philippines. Records all procedures that are officially required for a business in the construction industry to build a standardized warehouse. Indicator Procedures (number)21 Time (days)177 Cost (% of income per capita) 75.9 Rank77

11 Employing workers: labor regulation Measures the regulation of employment, specifically as it affects the hiring and firing of workers and the rigidity of working hours (examines employment and social security laws). Indicator Difficulty of hiring index56 Rigidity of hours index20 Difficulty of hiring index30 Rigidity of employment index 35 Non-wage labor cost7.4 Firing cost91.0 Rank122 Each index takes values b/w 0 and 100, w/ higher values indicating more rigid regulation.

12 Registering property: regulation of property transfers Measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building. Records the full sequence of procedures necessary to transfer the title from the seller to the buyer. Indicator Procedures (number)8 Time (days)33 Cost (% of property value) 4.2 Rank86

13 Getting credit: credit information and legal rights (1) Measures the legal rights of borrowers & lenders, describing how well collateral and bankruptcy laws facilitate lending. (2) Measures the sharing of credit information, specifically the coverage, scope, quality & accessibility of credit information available through public & private credit registries. Indicator Strength of legal rights index 3 Depth of credit info index3 Public registry coverage0.0 Private bureau coverage5.5 Rank97 Index ranges from 0 (weak legal rights) to 10 (strong legal rights).

14 Protecting investors: corporate governance Measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain. Indicator Extent of disclosure index1 Extent of director liability index 2 Ease of shareholder suits index 8 Strength of investor protection index 3.7 Rank141 Index ranges from 0 to 10, with higher vaues indicating more protections or greater disclosure.

15 Paying taxes: tax payable and compliance Records the taxes and mandatory contributions that a company must pay or withold in a given year & the administrative costs of doing so. Measures all taxes & contributions that are government mandated, at any level, apply to the standardized business & have an impact in its income statements. Indicator Payments (number per year) 47 Time (hours per year) 195 Total tax rate (% of profit) 52.8 Rank126

16 Trading across borders: importing & exporting Compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure involved is recorded – starting from the final contractual agreement between the two parties, and ending with the delivery of the goods. Indicator Documents to export (number) 8 Time to export (days)17 Cost to export (US$ per container) 800 Documents to import (number) 8 Time to import (days)18 Cost to import (US$ per container) 800 Rank57

17 Enforcing contracts: court efficiency Measures the efficiency of the judicial system in resolving commercial dispute. Indicator Procedures (number)37 Time (days)842 Cost (% of claim)26.0 Rank113

18 Closing a business: bankruptcy Identifies weaknesses in the bankruptcy law as well as the main procedural & administrative bottlenecks in the bankruptcy process. Indicator Time (years)5.7 Cost (% of estate)38.0 Recovery rate (cents on the dollar) 4.2 Rank147

19 Philippines Reform 1.Starting a business – entry regulation 2.Registering property – property registration 3.Getting credit – access to credit 1.Dealing with licenses – operations regulation 2.Trading across borders – importing & exporting 1.Protecting investors – corporate governance 2.Closing a business - bankruptcy 1.Paying taxes – tax payable & compliance 2.Enforcing contracts – court efficiency 3.Employing workers – labor regulation Get basics right Fully implement quick wins Build on strategic priorities Remain opportunistic

20 Philippines Reform: (1) Get basics right – TARGET NOW Cut the minimum capital req’t Introduce a one-stop shop (e.g. merge procedures, delegate tax registration to company registrar) Allow online start-up Simplify & lower fees Introduce fast-track procedures Make the registry electronic Make the use of notaries optional Expand the range of information available in credit registries Eliminate legal obstacles to sharing credit information Allow all types of assets to be used as collateral Establish unified registries for all collaterals Phils Business Registry (DTI, NCC) SEC & BIR data exchange (pre-registered TIN) (SEC, BIR) Anti-Red Tape Law (June 2007) (ARTTF, PAGC) One Time Tax Transaction (ONETT) project (BIR) LAMP2 project* (DENR) Land Administration and Reform Act (LARA) bill; LEDAC priority* Credit Information System (CIS) bill; LEDAC priority Starting a business Registering property Getting credit Successful reformsPhils reform pipeline *medium-long term reform executive action Immediate/ short- term reforms; high impact.

21 Property registration – doable administrative reforms Procedures Name Order Nr Duration (days) End DayPHP Preparation of the deed of sale and ratification by Notary Public Obtain a certified true copy of latest tax declaration from the Assessor’s Office of Manila21210 Payment of Documentary Stamp Tax and Capital Gains Tax at an authorized bank31352,161 Obtain tax clearance (or Certificate Authorizing Registration) from the Bureau of Internal Revenue Obtain a certificate of updated payments of Real Estate Taxes from the Treasurer’s Office of Manila Payment of transfer tax at the Treasurer’s Office of Manila612026,081 Apply with the Assessor’s Office of Manila for the issuance of a new tax declaration over the building in the name of buyer Apply for registration with the Register of Deeds of Manila ,794

22 Philippines Reform: (2) Fully implement quick wins – TARGET NOW Reduce licensing req’ts Make information easily accessible Introduce online license applications Curb inspections Consolidate project clearances Limit physical inspections Go online Measure delays at the border Shift from cutting tariffs to cutting delays Shorten inland delays One Time Tax Transaction (ONETT) project (BIR) National Single Electronic Window (BOC, NCC) Xray machines for import/export inspection (BOC, NCC) Strong Republic Nautical Highway (SRNH) (DPWH, NCC) Batangas-Clark-Subic Logistics Corridor (NCC) SLEX, STAR, LRT projects (NCC) Dealing w licenses Trading across borders Successful reformsPhils reform pipeline Short-medium term reforms; medium impact.

23 Philippines Reform Agenda: (3) Build on strategic priorities – HIGH IMPACT Anti-trust bill; LEDAC priority Good Corporate Governance Training for BOD (BSP) Judicial Reform Support Project (JRSP) (SC) Open company activities to investor scrutiny Require disinterested shareholder approval Minimize dependence on the courts Shift power to creditors Limit appeals Introduce time limits Use the internet to post decisions & publicize auctions Introduce floating charges Develop the trustee profession Successful reforms Phils reform pipeline Closing a business Protecting investors Medium-long term reforms; high impact.

24 Philippines Reform Agenda: (4) Remain opportunistic – MEDIUM IMPACT National Program Support for Tax Administration Reform (NPSTAR) (BIR) Judicial Reform Support Project (JRSP) (SC) Case management (SC) Specialized commercial courts Introduce online filling Combine taxes Simplify tax administration Reduce tax rates and broaden base Streamline appeals Make the enforcement of judgments faster & cheaper Introduce e-courts Allow flexible working hours Introduce apprentice wages Lower dismissal costs Raise & equalize mandatory retirement ages Enforcing contracts Employing workers Successful reformsPhils reform pipeline Paying taxes Long term reforms; medium impact.

Doing Business 2008 September 26, 2007

26 Doing Business methodology - some basics 1.Gather all the relevant laws, regulations, decrees, fee schedules 2.Follow the entrepreneur from the beginning to the end of a transaction 3.Record every step of the process, and its time and cost 4.The data set for all sets of indicators in Doing Business 2008 are for June The standardized survey uses a simple business case to ensure comparability across countries and over time 6.Assumptions about the legal form of the business, its size, location and the nature of its operations 7.Surveys are administered through local intermediaries

27 “The need to make assumptions” ‘Starting a Business’ Considers SME (between 10 and 50 employees) 100% domestically owned Start-up capital of 10 times income per capita Turnover of at least 100 times income per capita Operates in country’s most populous city Legal form: limited liability company (LLC) Simple business operation – general commercial activity Does not qualify for any special benefits Does not own real estate All requirements to incorporate and commence operations are recorded