IF YOU WANTED to start a business in the city of Manila, you would have to spend about two months (52 days) completing 15 required procedures. In contrast, starting a business in Taguig takes just about half that time (27 days) to complete the same number of procedures. In Davao City, you would need 42 days to complete 23 procedures.
According to the “Doing Business in the Philippines 2008” report of the International Finance Corporation (IFC), this is more than the number of steps required to start a business anywhere else in the world.
On the other hand, if you wanted to construct a warehouse in Davao City, it would take you only two months (60 days) to complete all construction-related procedures, three months less than the average for Metro Manila cities. This makes Davao among the 10 fastest cities in the world (6th fastest, according to the IFC report) to complete construction-related requirements. In Manila, where the procedures take the longest, you would need all of 203 days.
National and local
Philippine cities stand out in IFC’s global comparison for the high number of procedures to start a business, ranging from 15 to 23. In contrast, cities in East Asia and the Pacific average only nine. Eleven of the procedures are national requirements, thus uniform across all cities. These include verification of uniqueness of the company name and registration with the Securities and Exchange Commission (SEC), along with procedures to register the company for taxes, social security and health care.
It is in the number of required local procedures where Philippine cities vary widely, ranging from only four in Taguig and Marikina, up to 12 in Davao. In the first two, the business permit is obtained simply by visiting the Business Permit and Licensing Office and paying the fees at the City Treasurer’s Office.
Inspections are done when the business is already up and running. In Tanauan, business owners must deal with four additional offices—the city’s local engineering and health departments, the Philippine National Police, and the Bureau of Fire Protection—and must wait for two inspections before even starting operations.
Redundant or unnecessary
There is clearly much scope for reducing these procedures. Some of the 11 nationally-mandated requirements are arguably redundant or unnecessary. For example, entrepreneurs are required to buy specialized books of accounts, obtain authorization to print official receipts, and then have the printed receipts stamped by the Bureau of Internal Revenue (BIR).
Newly registering entrepreneurs quickly discover that BIR employees are themselves engaged directly or indirectly in the business of printing receipts—and patronizing them often proves to be the easiest way to get over with this requirement.
All this is supposedly to minimize tax evasion. And yet the registration and stamping of books and receipts is an outdated requirement in an age where enterprises have largely turned to electronic means of accounting.
Besides, Filipino companies are among the most ingenious in finding ways to hide revenue from the tax authorities, with or without stamped books and receipts. Portugal, for one, did away with mandatory registration of company books last year. IFC reports that 89 percent of countries no longer require this procedure.
In light of all this, it is no surprise that Taguig has seen a rapid rise in business activity and local income in recent years. Progressive mayors understand that it is in their city’s (or town’s) interest—and that of their citizens—to foster a business-friendly environment in their locality.
The most successful mayors are those who know how to “sell” their city to business investors, and put the least impediments to setting up and operating a business within their respective territories.
Unfortunately, some mayors still behave as if prospective business locators owe them a favor, rather than the other way around. Recently, a mayor in the south was accused of having attempted to extort money from a Korean company. Whether true or not, one can expect that other prospective investors would now think twice about setting up business in that particular locality.
SMEs too
It is not only the large businesses that count. Mayors ought to appreciate that small, including micro, enterprises are equally worth attracting and encouraging, as they ultimately translate into more jobs, and more income, both for the citizens and for the local treasury.
And yet one of the difficulties with the 2002 Barangay Micro Business Enterprises (BMBE) Law that provides incentives to small businesses is that local governments have little interest in promoting it. An entrepreneur colleague once tried to inquire with her city hall on how to avail of the BMBE Law incentives—only to discover that it appeared to be one of the best-kept “secrets” in city hall; hardly any city employee knew about it!
Tell me how business-friendly your city (or town is), and I’ll tell you how progressive it must be.
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