Doing Business 2017 Philippines Economy Profile 2017 Philippines Doing Business 2017 Philippines 2 © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2017 Philippines 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with conustruction permits ........................................................................................ 27 Getting electricity ....................................................................................................................... 43 Registering property .................................................................................................................. 51 Getting credit .............................................................................................................................. 63 Protecting minority investors ................................................................................................... 69 Paying taxes ................................................................................................................................ 76 Trading across borders .............................................................................................................. 82 Enforcing contracts .................................................................................................................... 89 Resolving insolvency .................................................................................................................. 96 Labor market regulation ......................................................................................................... 105 Distance to frontier and ease of doing business ranking .................................................... 111 Resources on the Doing Business website ............................................................................ 114 Doing Business 2017 Philippines 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2016 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Philippines. To allow useful comparison, it Doing Business 2017 Philippines 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 Philippines 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 100,699,395 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,540 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 99 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 99* 0 represents the worst performance and 100 the frontier. Change in rank: 0 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 60.4 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 59.53 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.87 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 Philippines THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 Philippines THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Philippines and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2017 Philippines 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Philippines (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Philippines (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2017 Philippines 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Philippines come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 Philippines 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Philippines Best performer globally Philippines DB2017 Philippines DB2016 Indonesia DB2017 Malaysia DB2017 Thailand DB2017 Lao PDR DB2017 Vietnam DB2017 Indicator DB2017 Starting a Business (Rank) 171 164 151 160 112 78 121 1 (New Zealand) Starting a Business (DTF 68.86 68.56 76.43 72.42 83.67 87.01 81.76 99.96 (New Zealand) Score) Procedure – Men 16.0 16.0 11.2 8.0 8.0 5.0 9.0 1.0 (New Zealand) (number) Time – Men (days) 28.0 29.0 24.9 67.0 18.0 25.5 24.0 0.5 (New Zealand) Cost – Men (% of income 15.8 16.1 19.4 4.6 6.2 6.6 4.6 0.0 (Slovenia) per capita) Procedure – Women 16.0 16.0 11.2 8.0 9.0 5.0 9.0 1.0 (New Zealand) (number) Time – Women (days) 28.0 29.0 24.9 67.0 19.0 25.5 24.0 0.5 (New Zealand) Cost – Women (% of 15.8 16.1 19.4 4.6 6.2 6.6 4.6 0.0 (Slovenia) income per capita) Paid-in min. capital (% of 3.1 3.3 0.0 0.0 0.0 0.0 0.0 0.0 (127 Economies*) income per capita) Dealing with Construction 85 103 116 47 13 42 24 1 (New Zealand) Permits (Rank) Doing Business 2017 Philippines 12 Best performer globally Philippines DB2017 Philippines DB2016 Indonesia DB2017 Malaysia DB2017 Thailand DB2017 Lao PDR DB2017 Vietnam DB2017 Indicator DB2017 Dealing with Construction 69.45 67.71 65.73 75.11 81.10 75.65 78.89 87.40 (New Zealand) Permits (DTF Score) Procedures (number) 24.0 24.0 17.0 11.0 15.0 17.0 10.0 7.0 (4 Economies*) Time (days) 98.0 98.0 200.2 83.0 79.0 103.0 166.0 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 1.1 1.1 5.1 0.5 1.4 0.1 0.8 value) Tobago) Building quality control 12.0 11.0 13.0 6.5 13.0 11.0 12.0 15.0 (Luxembourg*) index (0-15) Getting Electricity (Rank) 22 30 49 155 8 37 96 1 (Korea, Rep.) Getting Electricity (DTF 86.90 83.76 80.92 48.67 94.34 83.22 69.11 99.88 (Korea, Rep.) Score) Procedures (number) 4.0 4.0 4.8 6.0 4.0 5.0 5.0 3.0 (15 Economies*) Time (days) 42.0 42.0 57.7 134.0 31.0 37.0 46.0 18.0 (Korea, Rep.*) Cost (% of income per 25.7 28.7 357.0 1408.7 26.6 42.5 1261.3 0.0 (Japan) capita) Reliability of supply and transparency of tariff 6.0 5.0 6.0 1.0 8.0 6.0 3.0 8.0 (26 Economies*) index (0-8) Registering Property 112 109 118 65 40 68 59 1 (New Zealand) (Rank) Registering Property (DTF 57.54 57.53 55.72 68.70 76.29 68.34 70.61 94.46 (New Zealand) Score) Procedures (number) 9.0 9.0 5.0 4.0 8.0 4.0 5.0 1.0 (4 Economies*) Time (days) 35.0 35.0 27.4 53.0 13.0 6.0 57.5 1.0 (3 Economies*) Cost (% of property value) 4.3 4.3 10.8 1.0 3.4 7.4 0.6 0.0 (Saudi Arabia) Doing Business 2017 Philippines 13 Best performer globally Philippines DB2017 Philippines DB2016 Indonesia DB2017 Malaysia DB2017 Thailand DB2017 Lao PDR DB2017 Vietnam DB2017 Indicator DB2017 Quality of the land administration index (0- 12.5 12.5 12.3 9.5 27.5 15.0 14.0 29.0 (Singapore) 30) Getting Credit (Rank) 118 109 62 75 20 82 32 1 (New Zealand) Getting Credit (DTF Score) 40.00 40.00 60.00 55.00 75.00 50.00 70.00 100.00 (New Zealand) Strength of legal rights 3.0 3.0 6.0 6.0 7.0 3.0 7.0 12.0 (3 Economies*) index (0-12) Depth of credit 5.0 5.0 6.0 5.0 8.0 7.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 51.8 10.9 62.4 0.0 41.8 100.0 (3 Economies*) (% of adults) Credit bureau coverage 10.2 14.0 0.0 0.0 76.4 53.0 14.8 100.0 (23 Economies*) (% of adults) Protecting Minority 137 136 70 165 3 27 87 1 (New Zealand*) Investors (Rank) Protecting Minority 41.67 41.67 56.67 35.00 80.00 66.67 53.33 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection index 4.2 4.2 5.7 3.5 8.0 6.7 5.3 8.3 (New Zealand) (0-10) Extent of conflict of interest regulation index 4.0 4.0 5.7 3.3 8.7 8.0 4.3 9.3 (New Zealand) (0-10) Extent of shareholder 4.3 4.3 5.7 3.7 7.3 5.3 6.3 8.3 (Norway) governance index (0-10) 1 (United Arab Paying Taxes (Rank) 115 120 104 146 61 109 167 Emirates) 99.44 (United Arab Paying Taxes (DTF Score) 65.74 62.19 69.25 56.98 79.2 68.68 49.39 Emirates) Doing Business 2017 Philippines 14 Best performer globally Philippines DB2017 Philippines DB2016 Indonesia DB2017 Malaysia DB2017 Thailand DB2017 Lao PDR DB2017 Vietnam DB2017 Indicator DB2017 Payments (number per 3.0 (Hong Kong SAR, 28.0 36.0 43.0 35.0 9.0 21.0 31.0 year) China*) Time (hours per year) 185.6 191.0 221.0 362.0 164.0 266.0 540.0 55.0 (Luxembourg) Total tax rate (% of profit) 42.9 42.9 30.6 26.2 40.0 32.6 39.4 26.1 (32 Economies*) Postfiling index (0-100) 49.8 29.8 64.3 47.3 38.9 98.5 (Estonia) Trading across Borders 95 93 108 120 60 56 93 1 (10 Economies*) (Rank) Trading across Borders 69.39 69.39 65.87 62.98 82.38 84.10 69.92 100.00 (10 Economies*) (DTF Score) Time to export: Border 42 42 53 12 48 51 58 0 (18 Economies*) compliance (hours) Cost to export: Border 456 456 254 73 321 223 309 0 (18 Economies*) compliance (USD) Time to export: Documentary compliance 72 72 61 216 10 11 50 1 (25 Economies*) (hours) Cost to export: Documentary compliance 53 53 139 235 45 97 139 0 (19 Economies*) (USD) Time to import: Border 72 72 99 14 72 50 62 0 (25 Economies*) compliance (hours) Cost to import: Border 580 580 383 153 321 233 392 0 (28 Economies*) compliance (USD) Time to import: Documentary compliance 96 96 133 216 10 4 76 1 (29 Economies*) (hours) Cost to import: Documentary compliance 50 50 164 115 60 43 183 0 (30 Economies*) (USD) Doing Business 2017 Philippines 15 Best performer globally Philippines DB2017 Philippines DB2016 Indonesia DB2017 Malaysia DB2017 Thailand DB2017 Lao PDR DB2017 Vietnam DB2017 Indicator DB2017 Enforcing Contracts 136 136 166 88 42 51 69 1 (Korea, Rep.) (Rank) Enforcing Contracts (DTF 49.24 49.24 38.15 58.07 66.61 64.54 60.22 84.15 (Korea, Rep.) Score) Time (days) 842.0 842.0 471.0 443.0 425.0 440.0 400.0 164.0 (Singapore) Cost (% of claim) 31.0 31.0 115.7 31.6 37.3 19.5 29.0 9.0 (Iceland) Quality of judicial 7.5 7.5 7.8 6.5 12.0 7.5 6.5 15.5 (Australia) processes index (0-18) Resolving Insolvency 56 54 76 169 46 23 125 1 (Finland) (Rank) Resolving Insolvency (DTF 55.24 55.25 46.46 0.00 62.49 77.08 35.08 93.89 (Finland) Score) Recovery rate (cents on 21.3 21.4 31.2 0.0 81.3 67.7 21.6 92.9 (Norway) the dollar) no Time (years) 2.7 2.7 1.9 1.0 1.5 5.0 0.4 (22 Economies*) practice no Cost (% of estate) 32.0 32.0 21.6 10.0 18.0 14.5 1.0 (22 Economies*) practice Strength of insolvency 14.0 14.0 9.5 0.0 6.0 13.0 7.5 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2017 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2017 Philippines 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business city.  The size of the entire office space is For 11 economies the data are also collected for the second largest business city. approximately 929 square meters (10,000 square feet). Doing Business 2017 Philippines 17  Is 100% domestically owned and has five owners,  Does not qualify for investment incentives or none of whom is a legal entity. any special benefits.  Has start-up capital of 10 times income per  Has at least 10 and up to 50 employees one capita month after the commencement of operations, all of them domestic nationals.  Performs general industrial or commercial activities, such as the production or sale to the  Has a turnover of at least 100 times income per public of products or services. The business does capita. not perform foreign trade activities and does not  Has a company deed 10 pages long handle products subject to a special tax regime, for example, liquor or tobacco. It is not using The owners: heavily polluting production processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is not capable of making decisions as an adult. If a proprietor of real estate. there is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per capita.  Are sane, competent, in good health and have no criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 Philippines 18 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Philippines? 2.1) is legally mandatory for both men and women. Most According to data collected by Doing Business, starting a indicator sets refer to a case scenario in the largest business there requires 16.0 procedures , takes 28.0 days, business city of an economy, except for 11 economies for costs 15.8% of income per capita for men, and requires which the data are a population-weighted average of the 16.0 procedures , takes 28.0 days, costs 15.8% of income 2 largest business cities. See the chapter on distance to per capita for women. A requirement of paid-in frontier and ease of doing business ranking at the end of minimum capital of 3.1% of income per capita (figure this profile for more details. Figure 2.1 What it takes to start a business in Philippines Paid-in minimum capital (% of income per capita): 3.1 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue for married women only. Doing Business 2017 Philippines 19 STARTING A BUSINESS Globally, Philippines stands at 171 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in The rankings for comparator economies and the regional Philippines to start a business. Figure 2.2 How Philippines and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Philippines 20 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Philippines (table 2.1)? Table 2.1 How has Philippines made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines eased business startup by setting up a one- DB2011 stop shop at the municipal level. The Philippines made starting a business easier by streamlining communications between the Securities and DB2016 Exchange Commission and the Social Security System and thereby expediting the process of issuing an employer registration number. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Philippines is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Corporation firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: PHP the study of laws, regulations and publicly available 5,000 information on business entry in that economy. City: Quezon city Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Philippines Time to No. Procedure Cost to complete complete Verify and reserve the company name with the Securities and Exchange Commission (SEC) The name search can be done electronically via the SEC's online verification system, but applicants must pay for the reservation fee on site at the SEC. Once the reserved name was approved by the SEC, it costs PHP 40 for the first 30 days. The company name can be reserved 1 day PHP 40 1 for a maximum of 90 days for a fee of PHP 120, which is renewable upon expiration of the period. The reservation certificate is obtained in- person at SEC. Agency: Securities and Exchange Commission Deposit the paid-in minimum capital at the bank According to Section 13 of the Corporation Code, the paid-in minimum capital is 5,000 pesos. Even though a certificate of deposit is not a requirement by the Securities and Exchange Commission (SEC) for company registration, this procedure must be completed in order to abide by the applicable law. 2 1 day no charge The required minimum paid-in capital is reflected in the Articles of Incorporation and supported by the Treasurer's Affidavit as provided under Section 14 of the Corporation Code. SEC requires a Treasurer's Affidavit stating that the deposit has been made in the corporation's treasurer-in-trust account. Agency: Bank Doing Business 2017 Philippines 22 Time to No. Procedure Cost to complete complete Notarize articles of incorporation and treasurer's affidavit at the notary According to Section 14 and 15 of the Corporation Code, articles of incorporation should be notarized before filing with the SEC. Under Section 15 of the Corporation Code, the Treasurer's Affidavit should 3 also be notarized. The 2004 Rules on Notarial Practice require the 1 day PHP 500 presence of the person(s) who executed the document (Articles of Incorporation and Treasurer's Affidavit) before the notary public. Agency: Notary Register the company with the SEC and pre-registration for Taxpayer Identification Number (TIN), Security System (SSS), Philippine Health Insurance Company (PhilHealth), and Home Development Mutual Fund (Pag-ibig Fund). The company can register online through SEC i-Register, but entrepreneurs must pay at the SEC. The following documents are required for SEC registration: a. Company name verification slip; b. Articles of incorporation (notarized) and by-laws; c. Treasurer's affidavit (notarized); d. Statement of assets and liabilities; e. Registration data sheet with particulars on directors, officers, stockholders, and so forth; f. Written undertaking to comply with SEC reporting requirements (notarized); see procedure 4 g. Written undertaking to change corporate name (notarized). 2 days on average details On August 15, 2011, SEC launched the Green Lane Unit (GLU) that provides 1 day registration of applications for stock corporations and partnership. In practice, it takes 1-3 business days to process incorporation papers and obtain SEC approval. The pre-registered Taxpayer Identification Number (TIN) is automatically obtained from the SEC Head Office upon registration. However, the company must still register with the Bureau of Internal Revenue (BIR) in order to identify applicable tax types, pay an annual registration fee, obtain and stamp sales invoices, receipts and the books of accounts. Cost: 1/5 of 1% of the authorized capital stock or the subscription price of the subscribed capital stock (whichever is higher but not less than PHP 1,000) + legal research fee (LRF) equivalent to 1% of filing fee but not less than PHP 10 + PHP 500 By-laws + PHP 150 for registration of Doing Business 2017 Philippines 23 Time to No. Procedure Cost to complete complete stock and transfer book (STB) required for new corporations + PHP 320 STB + PHP 10 legal research fee for the By-laws. Agency: Securities and Exchange Commission Obtain barangay clearance To get the barangay clearance, the following documentary requirements should be submitted to the Barangay: Application form, SEC Certificate of Incorporation and approved articles of incorporation and bylaws, location plan/site map and the contract of lease over the corporation's office. This clearance is obtained from the Barangay where the business is located. Barangay fees vary in each Barangay since they have the 5 discretion to impose their own fees and charges as long as these fees 1 day PHP 500 are reasonable and within the limits set by the Local Government Code and city ordinances. In Quezon City, the fees range from PHP 300 to PHP 1000. The clearance is obtained in one day, provided that the barangay captain is in the office as the captain is the only official authorized to sign. Agency: Barangay Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO) The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the company legal form is a corporation, partnership, or association (PHP 500 or lower). The additional community tax (not to exceed PHP 10,000.00) depends on the assessed value of real property the company owns in the Philippines 1 day PHP 500 6 at the rate of PHP 2.00 for every PHP 5,000.00 and on its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year, at the rate of PHP 2.00 for every PHP 5,000.00. Agency: City Treasurer's Office Obtain the business permit to operate from the BPLO The fees vary depending on the LGU issuing the permit. The rate of license fee imposed in Quezon City is 25% of 1% of the authorized capital stock. Other permits, such as location clearance, fire safety and see procedure 7 6 days inspection certificate, sanitary permit, certificate of electrical inspection, details mechanical permit, and other clearances or certificates required depending on the nature of business, are also imposable. The rate of these fees depends on the nature of business and land area occupied by the proposed corporation. Doing Business 2017 Philippines 24 Time to No. Procedure Cost to complete complete The barangay clearance is a prerequisite for the issuance of business permit to operate. Executive Order No. 17, series of 2011 created the Business-One-Stop- Shop to obtain a business permit. The entire procedure including getting approval for the business permit takes around one to two weeks. Cost: (PHP 2,408.05 business tax (25% of 1% of paid-up capital) + PHP 200 mayor’s permit + PHP 150 sanitary inspection fee + PHP 50 signboard fee + PHP 300 business plate + PHP 100 QCBRB + PHP 545 zoning clearance + PHP 1,300 garbage fee+ PHP 300 FSIC (10% of all regulatory fees)) Agency: Business Permits and Licensing Office Buy special books of account at bookstore Special books of accounts are required for registering with the BIR. The books of accounts are sold at bookstores nationwide. One set of journals consisting of four books (cash receipts account, disbursements account, ledger, general journal) costs about PHP 400. If the company has a computerized accounting system (CAS), it may opt to register its CAS under the procedures laid out in BIR Revenue Memorandum Order Nos. 21-2000 and 29-2002. 1 day PHP 400 8 The BIR Computerized System Evaluation Team is required to inspect and evaluate the company’s CAS within 30 days from receipt of the application form (BIR Form No. 1900) and complete documentary requirements. Agency: Bookstore Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR) After the taxpayer obtains the TIN, the company must pay the annual registration fee of PHP 500 at any duly accredited bank, using payment PHP 100 form BIR Form 0605). (certification fee) and PHP 15 9 All newly formed corporations subject to SEC registration are issued 1 day (documentary pre-generated TIN by SEC-Head Office, which is indicated on their SEC stamp tax, in loose Certificate of Registration. The corporation only has to register its pre- form to be attached generated TIN with the BIR and report all internal revenue taxes that it to Form 2303) expects to be liable for. The requirements for application for COR with the BIR are: a. Duly accomplished and filled-out BIR Form No. 1903 (Application for Doing Business 2017 Philippines 25 Time to No. Procedure Cost to complete complete Registration for Corporations); b. Payment Form (BIR Form No. 0605); c. SEC Certification of Incorporation; d. Articles of Incorporation and By-laws; e. Contract of Lease (with BIR Form No. 2000 and supporting BIR Payment Form as proof of payment of documentary stamp tax on the lease agreement); f. Documentary Stamp Tax Return (BIR Form No. 2000) on the original issuance of shares and Payment Form (for the DST payment); and g. Mayor’s Permit/Business Permit Application (duly stamped received by the Business Licensing Division of the local government of Quezon City). Agency: Bureau of Internal Revenue Pay the registration fee and documentary stamp taxes (DST) at the AAB The rate of documentary stamp tax on original issuance of shares of stock shall be PHP 1.00 for every PHP 200.00 or fractional part thereof, of the par value, of such shares of stock. The documentary stamp tax return shall be filed and the tax paid on or before the fifth (5th) day after the close of the month of approval of see procedure 10 SEC registration. 1 day details Cost: (PHP 500 registration fee + PHP 5,165.345 DST on original issuance of shares of stock. DST on the lease contract is not included in the computation of the cost) Agency: Bureau of Internal Revenue Obtain the authority to print receipts and invoices from the BIR The authority to print receipts and invoices must be secured before printing the sales receipts and invoices. The BIR issued Revenue Regulations No. 18-2012 and it became effective on January 18, 2013. It adopted the online system for authority to print official receipts, sales invoices and other commercial invoices. In this regard, all unused or unissued receipts and invoices which were printed prior to January 18, 2013 will be deemed valid only until June 30, 2013. 1 day no charge 11 To obtain the authority to print receipts and invoices from the BIR, the company must submit the following documents to the Revenue District Office (RDO): a. Duly completed application for authority to print receipts and invoices (BIR Form No. 1906); b. Job order; c. Final and clear sample of receipts and invoices (machine-printed); Doing Business 2017 Philippines 26 Time to No. Procedure Cost to complete complete d. Application for registration (BIR Form No. 1903); and e. Proof of payment of annual registration fee (BIR Form No. 0605). Agency: Bureau of Internal Revenue Print receipts and invoices at the print shop The cost is based on the following specifications of the official receipt: 1/2 bond paper (8 ½ x 5 ½ cm) in duplicate, black print, carbonless. The 12 minimum print volume is 25 booklets. 7 days PHP 3,500 Agency: Bureau of Internal Revenue Have books of accounts and Printer’s Certificate of Delivery (PCD) stamped by the BIR After the printing of receipts and invoices, the printer issues a Printer’s Certificate of Delivery of Receipts and Invoices (PCD) to the company, which must submit this to the appropriate BIR RDO (i.e., the RDO which has jurisdiction over the company’s principal place of business) for registration and stamping within thirty (30) days from issuance. The company must also submit the following documents: a. All required books of accounts; b. VAT registration certificate; 13 c. SEC registration; 1 day no charge d. BIR Form W-5; e. Certified photocopy of the ATP; and f. Notarized taxpayer-user’s sworn statement enumerating the responsibilities and commitments of the taxpayer-user. The company must also submit a copy of the PCD to the BIR RDO having jurisdiction over the printer’s principal place of business. Agency: Bureau of Internal Revenue Final Registration with the Social Security System (SSS) To register with the SSS, the company must submit the following documents: a. Employer registration form (Form R-1); b. Employment report (Form R-1A); * 14 c. List of employees, specifying their birth dates, positions, monthly 1 day no charge salary and date of employment; and d. Articles of incorporation, by-laws and SEC registration. Upon submission of the required documents, the SSS employer and employee numbers will be released. The employees may attend an SSS training seminar after registration. SSS prefers that all members go Doing Business 2017 Philippines 27 Time to No. Procedure Cost to complete complete through such training so that each member is aware of their rights and obligations. Agency: Social Security System Final registration with the Philippine Health Insurance Company (PhilHealth) To register with PhilHealth, the company must submit the following documents: a. Employer data record (Form ER1); b. Report of employee-members (Form ER2); c. SEC registration; d. BIR registration; and * 15 e. Copy of business permit. 1 day no charge Upon submission of the required documents, the company shall get the receiving copy of all the forms as proof of membership until PhilHealth releases the employer and employee numbers within three months. Agency: Philippine Health Insurance Corporation Final registration with Home Development Mutual Fund (Pag-ibig) To register with the HDMF, the corporation must submit the following documents: a. Employer's Data Form (EDF [FPF040]); b. Specimen Signature Form (SSF[FPF170]); c. Copy of SEC Certificate of Incorporation; d. Copy of Approved Articles of Incorporation and By-laws; and 1 day e. Board Resolution or Secretary’s Certificate indicating the duly (simultaneous with * 16 designated Authorized Representative. no charge previous procedure) Upon submission of the complete documents and payment of the first contribution to the fund, the Pag-IBIG will issue the HDMF number and the HDMF Certificate of Registration. Agency: Home Development Mutual Fund * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue for married women only. Doing Business 2017 Philippines 28 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, the building quality completion control index evaluates the quality of building Time required to complete each procedure regulations, the strength of quality control and safety (calendar days) mechanisms, liability and insurance regimes, and professional certification requirements. Does not include time spent gathering information The ranking of economies on the ease of dealing with construction permits is determined by sorting their Each procedure starts on a separate day— though procedures that can be fully distance to frontier scores for dealing with completed online are an exception to this rule construction permits. These scores are the simple average of the distance to frontier scores for each of Procedure considered completed once final the component indicators. document is received To make the data comparable across economies, No prior contact with officials several assumptions about the construction Cost required to complete each procedure (% company, the warehouse project and the utility of warehouse value) connections are used. Official costs only, no bribes Assumptions about the construction company Building quality control index (0-15) The construction company (BuildCo): Sum of the scores of six component indices:  Is a limited liability company (or its legal Quality of building regulations (0-2) equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. For 11 economies the data are also collected for Quality control during construction (0-3) the second largest business city. Quality control after construction (0-3)  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses.  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 Philippines 29 professional experience necessary to obtain  Is valued at 50 times income per capita. construction permits and approvals.  Will be a new construction (there was no previous  Has a licensed architect and a licensed engineer, construction on the land), with no trees, natural both registered with the local association of water sources, natural reserves or historical architects or engineers. BuildCo is not assumed monuments of any kind on the plot. to have any other employees who are technical  Will have complete architectural and technical plans or licensed experts, such as geological or prepared by a licensed architect. If preparation of topographical experts. the plans requires such steps as obtaining further  Has paid all taxes and taken out all necessary documentation or getting prior approvals from insurance applicable to its general business external agencies, these are counted as procedures. activity (for example, accidental insurance for  Will include all technical equipment required to be construction workers and third-person liability). fully operational.  Owns the land on which the warehouse will be  Will take 30 weeks to construct (excluding all delays built and will sell the warehouse upon its due to administrative and regulatory requirements). completion. Assumptions about the warehouse Assumptions about the utility connections The warehouse: The water and sewerage connections:  Will be used for general storage activities, such as storage of books or stationery. The warehouse  Will be 150 meters (492 feet) from the existing will not be used for any goods requiring special water source and sewer tap. If there is no water conditions, such as food, chemicals or delivery infrastructure in the economy, a borehole pharmaceuticals. will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be  Will have two stories, both above ground, with a installed or built. total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor  Will not require water for fire protection reasons; a will be 3 meters (9 feet, 10 inches) high. fire extinguishing system (dry system) will be used instead. If a wet fire protection system is required  Will have road access and be located in the by law, it is assumed that the water demand periurban area of the economy’s largest business specified below also covers the water needed for city (that is, on the fringes of the city but still fire protection. within its official limits). For 11 economies the data are also collected for the second largest  Will have an average water use of 662 liters (175 business city. gallons) a day and an average wastewater flow of 568 liters (150 gallons) a day. Will have a peak  Will not be located in a special economic or water use of 1,325 liters (350 gallons) a day and a industrial zone. peak wastewater flow of 1,136 liters (300 gallons) a  Will be located on a land plot of approximately day. 929 square meters (10,000 square feet) that is  Will have a constant level of water demand and 100% owned by BuildCo and is accurately wastewater flow throughout the year. registered in the cadastre and land registry.  Will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Doing Business 2017 Philippines 30 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Philippines? According to data collected are a population-weighted average of the 2 largest by Doing Business, dealing with construction permits business cities. See the chapter on distance to frontier there requires 24.0 procedures, takes 98.0 days and costs and ease of doing business ranking at the end of this 1.1% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2017 Philippines 31 DEALING WITH CONSTRUCTION PERMITS Globally, Philippines stands at 85 in the ranking of 190 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Philippines to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Philippines and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Philippines 32 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Philippines (table 3.1)? Table 3.1 How has Philippines made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines made construction permitting more DB2011 cumbersome through updated electricity connection costs. The Philippines made dealing with construction permits easier DB2014 by eliminating the requirement to obtain a health certificate. The Philippines made dealing with construction permits easier DB2017 by increasing the transparency of its building regulations. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 33 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Philippines are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction PHP 7,964,584 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Quezon city service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Philippines Time to No. Procedure Cost to complete complete Obtain certified true copy of the land title from the Register of Deeds (RD) The certified true copy of the land title serves as proof of 1 ownership of the land on which the warehouse is to be built. 4 days PHP 209 Agency: Register of Deeds (RD) Obtain lot plan with site map from the geodetic engineer BuildCo must obtain the lot plan with a site map from a geodetic engineer to confirm the location of the land purported to be in the land title. The lot plan with a site map is signed, sealed, and prepared after a meticulous geodetic survey, or at least after an 3 days PHP 1,250 *2 analysis has been conducted of the lot technical description appearing on the title. Agency: Geodetic Engineer Obtain barangay clearance The barangay clearance is generally a requirement for obtaining the locational clearance. The costs for barangay clearances vary as barangays have the discretion to impose their own fees for as long as such fees are reasonable and within the limits imposed by the Local Government Code and city ordinances. 1 day PHP 500 *3 The following documents must be submitted: 1. Transfer certificate of title 2. Blueprint copy of the building plans 3. Authorization from the company 4. Photocopy of IDs of authorized representative Doing Business 2017 Philippines 34 Time to No. Procedure Cost to complete complete 5. Homeowner’s endorsement (if applies) Agency: Barangay Apply for the locational clearance at the City Planning and Development Office (CPDO) The locational clearance is required to ensure that the construction conforms to the city’s Comprehensive Land Use Plan and zoning ordinances. BuildCo must submit the following documents, in addition to the application form: a. Certified true copy of the transfer certificate of title (TCT) b. Real estate tax receipt and bill (current year) c. Lease contract/ward notice, dead of sale, memorandum 4 of agreement or joint venture agreement (if applicable) 1 day no charge d. Authority to sign (corporate secretary’s affidavit) e. Affidavit of consent to construct / special power of attorney f. Barangay clearance g. Location plan h. Architectural plans (2 sets, signed and sealed) i. Site Development Plan showing parking layout j. Long folder Agency: City Planning and Development Office (CPDO) Receive inspection for the locational clearance from the CPDO 5 1 day no charge Agency: City Planning and Development Office (CPDO) Obtain the locational clearance from the CPDO BuildCo pays the locational clearance fee at the City Treasurer's Office (CTO) and obtains the locational clearance at the CPDO. 5 days PHP 1,996 6 Agency: City Planning and Development Office (CPDO) Doing Business 2017 Philippines 35 Time to No. Procedure Cost to complete complete Apply and obtain fire safety evaluation clearance (FSEC) from the local Fire Marshall at the Bureau of Fire Protection (BFP) The City Fire Marshall evaluates one set of plans and specifications submitted by the applicant to ensure that they conform to the fire safety and control requirements of the Fire Code. Three sets of the architectural plans must be stamped and approved by the Quezon City Fire Marshall. 7 7 days PHP 11,055 The following documents must be submitted: 1. Building Plans (5 sets) 2. Bill of Materials 3. Locational Clearance Agency: Quezon City Fire Marshall - Bureau of Fire Protection (BFP) Apply and obtain the building permit and ancillary permits at the Office of the Building Official (OBO) The ancillary permits consist of: • The architectural permit • Civil/structural permit • Electrical permit • Mechanical permit • Sanitary permit • Plumbing permit • Electronics permit •Fire Safety Clearance, Barangay Clearance, bill of materials, ECC, PTR & PRC of professionals The applicant must submit the following requirements: • Certified true copy of Original Certificate of Title (OCT)/TCT on file with the Registry of Deeds • Building permit application form 21 days PHP 43,043 8 • 3 sets of survey plans, design plans, specifications and other related documents (i.e., architectural documents, civil/structural documents, electrical documents, mechanical documents, sanitary documents, plumbing documents, electronics documents, geodetic documents, and clearances from other agencies) • Locational clearance from the CPDO If the sets of documents are complete, an acknowledgement/follow-up slip (AFS) is issued to the applicant. 10 workings after, the applicant will receive a order of payment (OP) is obtained from the Releasing Section of the DBO. Payment is made at the cashier of the Quezon City Treasurer’s Office. The official receipt (O.R.) of the permit fees is then submitted to the Releasing Section of DBO. The building permit will then be issued 5 working after submitting the proof of payment. Doing Business 2017 Philippines 36 Time to No. Procedure Cost to complete complete Based on Articles 26 and 27 of the Revenue Code, the fees are as follows: - Building permit fees: PHP 37,038.5 - Electrical permit: PHP 2,800.6 - Plumbing permit: PHP 1,542 - Excavation/sanitary permit: PHP 1,662 Agency: Office of the Building Official (OBO) Receive inspection from the BFP during construction The BFP conducts an inspection during construction to ensure that the plans and fire safety precautions are observed. 1 day no charge 9 Agency: Bureau of Fire Protection (BFP) Apply for the fire safety inspection certificate (FSIC) at the BFP Once construction has been completed, BuildCo requests the BFP to inspect the site to certify that the required fire safety 10 construction, fire protective and/or warning systems are properly 1 day PHP 4,304 installed and in good working condition. Agency: Bureau of Fire Protection (BFP) Receive final inspection for the FSIC from the BFP 11 1 day no charge Agency: Bureau of Fire Protection (BFP) Obtain the FSIC from the BFP 12 5 days no charge Agency: Bureau of Fire Protection (BFP) Apply for the certificate of final electrical inspection (CFEI) at the OBO The CFEI certifies that a final inspection of the electrical installation has been conducted and that such installation has been completed in accordance with the approved plans and 1 day no charge * 13 specifications on file with the OBO and the provisions of the Philippines Electrical Code. Agency: Office of the Building Official (OBO) Doing Business 2017 Philippines 37 Time to No. Procedure Cost to complete complete Receive final inspection for the CFEI from the OBO 14 1 day no charge Agency: Office of the Building Official (OBO) Obtain the CFEI from the OBO 15 3 days no charge Agency: Office of the Building Official (OBO) Apply for the certificate of occupancy at the OBO In order to apply for a certificate of occupancy, BuildCo must submit the following to the OBO: A. Clearances/Certificates/Legal Documents 1. Fire Safety Inspection Certificate (original + 2 photocopies) 2. Locational Clearance (3 photocopies) 3. Approved Building Permit (3 photocopies, present original if it has no bar code) 4. Approved Sanitary Permit (3 photocopies) 5. Certificate of Electrical Inspection (CEI) or Approved Electrical Permit (3 copies) w/ CEI Application Forms (2 copies) 6. Approved Mechanical Permit (3 photocopies) 7. Corporate Secretary's Certification of Board Resolution Authorizing Signatory (if Corporation/notarized original copy + 2 photocopies) Technical Documents (form must be duly accomplished, wet signed & dry sealed by the professional and signed by the 1 day no charge 16 owner/s) 1. Certificate of Completion (for the Structure/2 copies wet signed and dry sealed) 2. Certificate of Completion of Mechanical & Request for Inspection (especially if under Green Building Ordinance / 2 copies, wet signed & dry sealed) 3. Two (2) photocopies each of valid PRC IDs & current PTRs with seal and specimen signatures of the professional in blue ink. Supporting Document/s (signed and sealed by professionals) 1. Construction Logbook BuildCo must also present the Tax Declaration to the OBO as a condition for the release of the occupancy permit. All documents should be signed and sealed by the architect or engineer who undertook the full-time inspection and supervision of the construction. Doing Business 2017 Philippines 38 Time to No. Procedure Cost to complete complete Agency: Office of the Building Official (OBO) Receive final inspection for the certificate of occupancy from the OBO The OBO conducts a final inspection to check the building based on the certificate of completion, construction logbook, building 17 inspection sheets, and original and as-built plans and 1 day no charge specifications. Agency: Office of the Building Official (OBO) Obtain the certificate of occupancy from the OBO After the OBO has processed the application and conducted the inspection, it then issues an assessment and order of payment. The OBO issues the certificate of occupancy after the applicant 18 days PHP 17,688 18 has paid the corresponding fees. Agency: Office of the Building Official (OBO) Apply for water and sewage connection There are two private water providers for Quezon City. Maynilad services the west zone and Manila Water services the east zone. An inspection takes place within a week and the connection is completed some days after the inspection. The case study assumes that BuildCo will request water from Manila Water as this is the most favorable option. The required documents are: 19 1 day no charge 1. Proof of Ownership 2. Barangay Clearance 3. Company TIN 4. Valid ID 5. Excavation permit (If advised by the implementing Manila Water business center) Agency: Manila Water Receive inspection for water and sewage connection 20 1 day no charge Agency: Manila Water Doing Business 2017 Philippines 39 Time to No. Procedure Cost to complete complete Obtain water and sewage connection 21 21 days PHP 6,855 Agency: Manila Water Apply for the tax declaration of improvement at the City Assessor's Office (CAO) BuildCo must update its official records to include the newly built warehouse for tax purposes. The OBO furnishes the CAO with a copy of the building plan and certificate of occupancy to notify them of the new building construction. BuildCo must submit the floor plan and as-built plan to the CAO. Ordinance No. 2361, series of 2014 entitled: "An Ordinance Requiring All Persons Acquiring Real Property in Quezon City or Making Improvements Thereon to Declare and File a Sworn Statement to the Office of the City Assessor for Real Property Taxation Purposes Such Property Within Sixty (60) Days After Its Acquisition or Upon Completion/Occupancy or Installation of Machineries Whichever Comes First and Imposing Penalties for 1 day no charge * 22 Violation Thereof" was adopted on 23 December 2014. According to the legislation, the filing of the sworn statement declaring the true value of the property must be done within 60 days after: (a) the date of the final deed of sale, contract or other deed of conveyance; or (b) the date of completion or occupancy of the newly constructed building, house or improvements; or (c) the date of completion or occupancy of any expansion, renovation, or additional structures or improvements; or (d) the date of installation of machinery. Any property owner who fails to comply with the new ordinance will be penalized with a fine of PHP 2,000.00. Agency: City Assessor's Office (CAO) Receive inspection from the appraiser of CAO 23 1 day no charge Agency: City Assessor's Office (CAO) Obtain the tax declaration of improvement from the CAO The tax declaration of improvement is released after an appraiser inspects the property. 3 days no charge 24 Agency: City Assessor's Office (CAO) * Takes place simultaneously with another procedure. Doing Business 2017 Philippines 40 Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Philippines 41 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in Philippines Answer Score Building quality control index (0-15) 12.0 Which third-party entities are required by law to verify that the Licensed architect; building plans are in compliance with existing building Licensed engineer. regulations? (0-1) Quality of building regulations index (0-2) 2.0 How accessible are building laws and regulations in your Available online; Free of 1.0 economy? (0-1) charge. List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified in the building regulations or on any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 1.0 Which third-party entities are required by law to verify that the Licensed architect; building plans are in compliance with existing building 1.0 Licensed engineer. regulations? (0-1) Quality control during construction index (0-3) 2.0 Inspections by in-house engineer; Inspections at What types of inspections (if any) are required by law to be various phases; No 1.0 carried out during construction? (0-2) inspections are legally required during construction. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.0 Yes, final inspection is done by government Is there a final inspection required by law to verify that the agency; Yes, in-house building was built in accordance with the approved plans and 2.0 engineer submits regulations? (0-2) report for final inspection. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Doing Business 2017 Philippines 42 Answer Score Liability and insurance regimes index (0-2) 1.0 Architect or engineer; Which parties (if any) are held liable by law for structural flaws or Professional in charge problems in the building once it is in use (Latent Defect Liability of the supervision; 1.0 or Decennial Liability)? (0-1) Construction company; Owner or investor. Which parties (if any) are required by law to obtain an insurance No party is required by policy to cover possible structural flaws or problems in the law to obtain insurance 0.0 building once it is in use (Latent Defect Liability Insurance or . Decennial Insurance)? (0-1) Professional certifications index (0-4) 3.0 Minimum number of years of experience; University degree in What are the qualification requirements for the professional architecture or responsible for verifying that the architectural plans or drawings 2.0 engineering; Being a are in compliance with existing building regulations? (0-2) registered architect or engineer; Passing a certification exam. University degree in engineering, construction or What are the qualification requirements for the professional who construction 1.0 supervises the construction on the ground? (0-2) management; Being a registered architect or engineer; Passing a certification exam. Source: Doing Business database. Doing Business 2017 Philippines 43 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, Doing Business also measures the reliability Time required to complete each procedure of supply and transparency of tariffs index (included (calendar days) in the aggregate distance to frontier score and Is at least 1 calendar day ranking on the ease of doing business) and the price Each procedure starts on a separate day of electricity (omitted from these aggregate measures). The ranking of economies on the ease of Does not include time spent gathering getting electricity is determined by sorting their information distance to frontier scores for getting electricity. Reflects the time spent in practice, with little These scores are the simple average of the distance follow-up and no prior contact with officials to frontier scores for each of the component Cost required to complete each procedure (% indicators. To make the data comparable across of income per capita) economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The warehouse: The reliability of supply and transparency of  Is owned by a local entrepreneur. tariffs index  Is located in the economy’s largest business city. Sum of the scores of six component indices: For 11 economies the data are also collected for Duration and frequency of outages the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new electricity connection is not eligible for a special investment Regulatory monitoring of utilities’ performance promotion regime (offering special subsidization Financial deterrents aimed at limiting outages or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical constraints. Price of electricity (cents per kilowatt-hour)* For example, the property is not near a railway. Price based on monthly bill for commercial  Is a new construction and is being connected to warehouse in case study electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking Doing Business 2017 Philippines 44 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a total  It is assumed that the warehouse operates 30 days surface area of approximately 1,300.6 square a month from 9:00 a.m. to 5:00 p.m. (8 hours a day), meters (14,000 square feet). The plot of land on with equipment utilized at 80% of capacity on which it is built is 929 square meters (10,000 average and that there are no electricity cuts square feet). (assumed for simplicity reasons).  Is used for storage of goods.  The monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 Assumptions about the electricity connection kWh. The electricity connection:  If multiple electricity suppliers exist, the warehouse  Is a permanent one. is served by the cheapest supplier.  Is a three-phase, four-wire Y connection with a  Tariffs effective in March of the current year are subscribed capacity of 140-kilo-volt-ampere used for calculation of the price of electricity for the (kVA) with a power factor of 1, when 1 kVA = 1 warehouse. Although March has 31 days, for kilowatt (kW). calculation purposes only 30 days are used.  Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is either overhead or underground, whichever is more common in the area where the warehouse is located  Requires works that involve the crossing of a 10- meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base. Doing Business 2017 Philippines 45 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 4.0 procedures, which the data are a population-weighted average of the takes 42.0 days and costs 25.7% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Philippines 46 GETTING ELECTRICITY Globally, Philippines stands at 22 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Philippines to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Philippines and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Philippines 47 GETTING ELECTRICITY What are the details? The indicators reported here for Philippines are based on OBTAINING AN ELECTRICITY CONNECTION* a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: MERALCO identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 17.6 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Quezon city distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Philippines Time to No. Procedure Cost to complete complete Submit application to MERALCO and await site inspection MERALCO evaluates the application, and sends engineer to site inspection and inspection of service entrance. Requirements along with application include: Initial requirement to start the Service Application Process - Formal request letter - Complete service application form - Electrical Plan signed & sealed by Professional Electrical Engineer (load schedule, list of loads, single line diagram, location sketch) 1 3 calendar days PHP 0 Other requirements before contracting - Wiring Permit (Original/Meralco Copy for issuance of meter base) - Valid ID card with picture ( Driver's license, GSIS ID, SSS ID, Passport, TIN Card, Firearm's License, Philhealth ID, PRC License, Original NBI Clearance, Pag-ibig ID) - TIN Card / BIR Certificate of Registration - SEC Registration with Articles of Incorporation or DTI Registration - Company's Latest General Information Sheet (GIS) - Secretary's Certificate - Contract of Lease / Transfer Certificate Title (TCT) / Deed of Sale / Condominium Title Certificate (CTC) / Contract to Sell Doing Business 2017 Philippines 48 Time to No. Procedure Cost to complete complete - Depending on the nature of your business and location, a PEZA or BOI Certification for Zero VAT Rating Other requirements before energization -CFEI -Payment of service deposit Agency: MERALCO Receive site visit from MERALCO and await estimate 2 14 calendar days PHP 0 Agency: MERALCO Request and receive inspection certificate from Quezon City Request for Certificate of Electrical Inspection (CEI) from Quezon City. This can be done once the electrical installations are completed and engineer in-charge of installation signs the “Completion Certificate of *3 Electrical Installation” and submitted together with the application for 7 calendar days PHP 7,500 CEI to the City. Agency: Quezon City Submit inspection certificate to MERALCO and await final connection Once a service contract is signed - and the project cost and deposit is paid - MERALCO starts the installation of power service connection and metering. The project cost is shouldered by MERALCO through the Customer Allocation Budget. The security deposit charged can be 4 refunded by the customer, including accumulated interest only upon 25 calendar days PHP 33,408.66 termination of the service contract or if the account is transferred to another owner. Interest rate fluctuates with the current central bank rate and is accrued to the account. Agency: MERALCO * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Philippines 49 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Philippines Answer Score Reliability of supply and transparency of tariff index (0-8) 6.0 Total duration and frequency of outages per customer a year (0-3) 2.0 System average interruption duration index (SAIDI) 3.8 System average interruption frequency index (SAIFI) 2.71 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.0 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 1.0 Does the utility either pay compensation to customers or face fines by Yes the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 0.0 Are effective tariffs available online? Yes Link to the website, if available online http://www.meral Doing Business 2017 Philippines 50 Answer Score co.com.ph/consu mer- information/rates -archive Are customers notified of a change in tariff ahead of the billing cycle? No Price of electricity (US cents per kWh) 17.6 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2017 Philippines 51 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, Doing Business also measures quality of Does not include time spent gathering the land administration system in each economy. information The ranking of economies on the ease of registering property is determined by sorting their distance to Each procedure starts on a separate day— frontier scores for registering property. These scores though procedures that can be fully completed online are an exception to this rule are the simple average of the distance to frontier scores for each of the component indicators. To Procedure considered completed once final make the data comparable across economies, document is received several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are used. Cost required to complete each procedure (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% domestically and privately owned and perform No value added or capital gains taxes included general commercial activities in the economy’s Quality of land administration index (0-30) largest business city.  Have 50 employees each, all of whom are  Has no mortgages attached, has been under the nationals. same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet)  Has a value of 50 times income per capita. The of land and a 10-year-old, 2-story warehouse of 929 sale price equals the value and entire property square meters (10,000 square feet). The warehouse is will be transferred. in good condition and complies with all safety  Is registered in the land registry or cadastre, or standards, building codes and legal requirements. both, and is free of title disputes. There is no heating system.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2017 Philippines 52 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 9.0 which the data are a population-weighted average of the procedures, takes 35.0 days and costs 4.3% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). The score on the quality of frontier and ease of doing business ranking at the end of land administration index is 12.5 this profile for more details. Figure 5.1 What it takes to register property in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Philippines 53 REGISTERING PROPERTY Globally, Philippines stands at 112 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Philippines to transfer property. Figure 5.2 How Philippines and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Philippines 54 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: PHP 7,964,584 notaries and property registries. These procedures are those that apply to a transaction matching the City: Quezon city standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Philippines Time to No. Procedure Cost to complete complete Check against encumbrances and obtain certified true copy of the land title from the Register of Deeds (RD) PHP 209 - PHP 36 for the certification The buyer conducts the search against encumbrances and the seller + PHP 6 for each 1 obtains the true copy of the land title from the Register of Deeds (RD) 4 days additional page (2 additional pages Agency: Register of Deeds needed) + PHP 160.97 IT fee. Prepare the notarized deed of sale and related documents While the deed of sale can be prepared by anyone, it must be executed before and notarized by a notary public. In many instances, the notary public drafts the deed of sale and conducts the whole process on behalf of the parties. In addition to the deed of sale, the Register of Deeds also requires both the buyer and the seller to submit notarized secretary's 1 - 2% property 2 certificates containing the resolution of their board of directors 1 day value for approving the sale. The buyer must also produce a certificate from the notarization Securities and Exchange Commission (SEC) stating that its articles of incorporation have been registered with the SEC. Agency: Notary Obtain tax clearance certificate of real property taxes from the Land PHP 115 (PHP 50 Tax Division of the City Treasurer’s Office (CTO) for tax clearance 2 days for land and for The seller, after paying any arrears, obtains a tax clearance certificate (simultaneous real estate plus 3 from the CTO. The documentation shall include: (1) an original of the with procedure 4) PHP 15 for official receipt evidencing payment by seller of realty taxes; (2) certified documentary true copy of latest tax declarations for each of the land and the warehouse; (3) photocopy of official receipt for payment of real property stamp tax) Doing Business 2017 Philippines 55 Time to No. Procedure Cost to complete complete tax for each of the land and the warehouse for the immediately preceding year. Note: Separate tax clearance for real property tax should be obtained for the land and the warehouse Agency: Real Estate Tax Division of the City Treasurer’s Office PHP 250 (PHP 50 Obtain certified true copy of latest tax declaration and certificate of per RPU "with improvement" from the City Assessor’s Office (CAO) (land(1RPU), Building (1RPU)) + The seller obtains a certified true copy of the latest tax declaration and a 1 day PHP 90 for certificate of "with improvement" from the City Assessor’s Office of (simultaneous certificate of "with *4 Quezon City. with procedure 3) improvement" + PHP 60 (PHP 20 Agency: City Assessor’s Office documentary stamp tax per RPU/document) Pay documentary stamp tax and final capital gains tax for the transfer of real property The seller or the buyer (based on their agreement) files the Documentary Stamp Tax return and Capital Gains Tax return with the authorized agent bank. This is done within 5 days after the close of the month when the taxable document was signed or within 30 days after the sale, whichever is earlier. The taxes are paid at the authorized bank to the account of the Bureau of Internal Revenue. The Creditable Withholding Tax at the rate of 6%. The Documentary Stamp Tax is 1.5% based on selling price or fair market value, whichever is higher. The buyer should file CWT and pay the CWT at the rate stated above no later than 10 days after the end of the month when the withholding tax was withheld, except for taxes withheld in 1.5% of property December for which the deadline is on January 15 of the following year. value 5 1 day (Documentary The documentation shall include: Stamp Tax) • Original copy and photocopy of notarized deed of sale of building (obtained in Procedure 1) • Certified true copy of transfer certificate of title (in the name of seller) • Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) • Photocopy of the latest realty tax receipt • Letter-request • Identification card of the person requesting Agency: Authorized Agent Bank (AAB) Doing Business 2017 Philippines 56 Time to No. Procedure Cost to complete complete Obtain Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) The Certificate Authorizing Registration (CAR) is a certification issued by the BIR that the transfer and conveyance of the property was reported and the taxes due have been fully paid. The taxpayer/applicant must submit the following documents to the BIR: a. Tax identification number (TIN) of seller and buyer; b. Notarized deed of absolute sale/document of transfer, but only photocopied document shall be retained by the BIR; c. Certified true copy of the latest tax declaration issued by the City Assessor’s Office for the land and improvement applicable to the taxable transaction; d. Owner’s copy (for presentation purposes only) and photocopy (for authentication) of the Original Certificate of Title (OCT), or the certified true copy of the Transfer Certificate of Title (TCT); PHP 115 (PHP 100 e. Sworn declaration of “with Improvement” by at least one (1) of the certification fee + 6 transferees, or certificate of “with Improvement” issued by the City 14 days PHP 15 Assessor’s Office. documentary tax) f. Official Receipt issued by the Notary Public who notarized the deed of sale All documents submitted must also include 2 photocopies. The Certificate Authorizing Registration that will be released will be accompanied by the following documents: The Original copy of the Deed of Absolute Sale stamped received by the BIR 2000 (DST) stamped received by the BIR Applicant accomplishes BIR forms 2000-OT and 1706 for DST and CWT respectively, based on the ONETT computation sheets prepared by the BIR ONETT team. The applicant files the DST return and CGT return and pays the taxes at the AAB of the Revenue District Office. Upon receipt of proof of tax payment from the taxpayer/applicant, the BIR immediately issues a claim slip. Agency: Bureau of Internal Revenue (BIR) Doing Business 2017 Philippines 57 Time to No. Procedure Cost to complete complete Pay the transfer tax at the CTO The transfer tax must be paid at the CTO not later than 60 days from the date of execution of the Deed of Absolute Sale or the notarization date thereof, whichever is earlier. The documentation shall include: a. Original copy of the deed of sale b. Tax clearance certificate from the Treasurer’s Office of Quezon City (obtained in Procedure 3); 0.75% of property price (transfer tax) 7 c. Tax declaration from the City Assessor’s Office of Quezon City 1 day + PHP 125 (obtained in procedure 4) ; (certificate of payment) d. Official receipt of the Bureau of Internal Revenue (for documentary stamp tax) (obtained in Procedure 5); e. Certificate Authorizing Registration from the Bureau of Internal Revenue (obtained in Procedure 6); Agency: Real Estate Tax Division of the City Treasurer ’s Office Apply for registration with the Register of Deeds Registration fee consisting of PHP The buyer applies for registration with the Register of Deeds. 8,796 for first PHP 1.700,000 + PHP 90 for every PHP The documentation shall include: 20,000 or fraction thereof in excess a. Copy of deed of absolute sale; of PHP 1.700,000 b. Official receipt evidencing payment of transfer tax; + PHP 199.56 legal research fee (1% c. Certificate Authorizing Registration from the BIR (CAR) including of the registration official receipts for payment of DST and CGT; fee) + PHP 30 10 days judicial form fee + 8 d. Real property tax clearance from the City Treasurer’s Office; PHP 3,104.37 IT fee (PHP 344.93 e. Original copy of owner's duplicate of TCT (in the name of the seller); per document) + PHP 300 primary f. Original or certified true copy of the latest tax declaration; entry fee (PHP 30 per document) + g. Notarized secretary's certificate containing resolution of the board of directors of the seller approving the sale; PHP 480 registration fee for h. Notarized secretary's certificate containing resolution of the board of specific directors of the buyer approving the sale; documents (PHP 120 per i. Articles of incorporation of the buyer and by-laws; and document) + PHP 120 fixed entry fee Doing Business 2017 Philippines 58 Time to No. Procedure Cost to complete complete j. Certificate from the SEC that the articles of incorporation of the buyer for specific have been registered. documents (PHP 30 per document) Agency: Register of Deeds + PHP 40 legal research fee for specific documents (PHP 10 per document) + PHP 60 annotation fee (PHP 30 per document) + PHP 258 fee for issuance of new transfer certificate of title Obtain new tax declaration over the building and the land in the name of buyer from CAO The buyer applies with the CAO for the issuance of a new tax declaration over the building in his name. The documentation shall include: a. Photocopy of notarized deed of sale; b. Copy of latest tax declaration (in the name of seller); 9 2 days no cost c. Tax clearance certificate of real property taxes from the CTO; d. Certificate authorizing registration from the BIR; e. Photocopy of official receipt of transfer tax payment (original copy to be presented); f. The transfer certificate of title (TCT) issued by the RD (in the name of the buyer); Agency: City Assessor’s Office - City Government * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Philippines 59 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2015 and June transparency of information, geographic coverage, 2016, the economy receives a “no practice” mark on the land dispute resolution and equal access to property procedures, time and cost indicators. A “no practice” rights indices. economy receives a score of 0 on the quality of land administration index even if its legal framework includes The index ranges from 0 to 30, with higher values provisions related to land administration. indicating better quality of the land administration system. Table 5.3 Summary of quality of land administration in Philippines Answer Score Quality of the land administration index (0-30) 12.5 Reliability of infrastructure index (0-8) 1.0 What is the institution in charge of immovable property registration? Register of Deeds In what format are the majority of title or deed records kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, No 0.0 mortgages, restrictions and the like)? In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in a computerized format Paper 0.0 (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information No 0.0 system)? Is the information recorded by the immovable property registration Separate agency and the cadastral or mapping agency kept in a single database, 0.0 databases in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or No 0.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 4.0 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 property transaction made publicly available–and if so, how? http://lra.gov.ph/ Link for online access: services/requirem ents/ Doing Business 2017 Philippines 60 Answer Score http://lra.gov.ph/r esources/sample- forms/ Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://lra.gov.ph/ services/fees/ http://lra.gov.ph/ Link for online access: wp- content/uploads/ 2015/07/lrafeesch edule1.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property Yes, online 0.5 ownership within a specific time frame–and if so, how does it communicate the service standard? http://lra.gov.ph/r esources/docume Link for online access: nts/issuances/citi zens-charter/ Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of No 0.0 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2015: Anyone who pays Who is able to consult maps of land plots in the largest business city? 0.5 the official fee Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? http://lra.gov.ph/ wp- Link for online access: content/uploads/ 2015/06/page- 1.pdf Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it Yes, online 0.5 communicate the service standard? Doing Business 2017 Philippines 61 Answer Score http://lra.gov.ph/ wp- Link for online access: content/uploads/ 2015/06/page- 1.pdf Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Geographic coverage index (0–8) 4.0 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally Yes 2.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Land dispute resolution index (0–8) 4.5 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction Yes 0.5 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? Registrar; Notary; If yes, who is responsible for checking the legality of the documents? Lawyer; Interested Parties. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? Registrar; Notary; If yes, who is responsible for verifying the identity of the parties? Lawyer; Interested Parties. Is there a national database to verify the accuracy of identity No 0.0 documents? Doing Business 2017 Philippines 62 Answer Score For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per Regional Trial capita and located in the largest business city, what court would be in Court charge of the case in the first instance? How long does it take on average to obtain a decision from the first- Between 2 and 3 1.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first No 0.0 instance? Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) -1.0 Do unmarried men and unmarried women have equal ownership rights Yes 0.0 to property? Do married men and married women have equal ownership rights to No 1.0 property? Source: Doing Business database. Doing Business 2017 Philippines 63 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in largest lenders with respect to secured transactions through credit bureau as percentage of adult population 2 sets of indicators. The depth of credit information Credit registry coverage (% of adults) index measures rules and practices affecting the coverage, scope and accessibility of credit Number of individuals and firms listed in credit registry as percentage of adult population information available through a credit registry or a credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope Has up to 50 employees. of the secured transactions system, involving a secured borrower and a secured lender and Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable The ranking of economies on the ease of getting credit collateral (for more details on each case, see the Data is determined by sorting their distance to frontier scores Notes section of the Doing Business 2017 report). for getting credit. These scores are the distance to These scenarios assume that the borrower: frontier score for the strength of legal rights index and Is a domestic limited liability company. the depth of credit information index. Has its headquarters and only base of operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2017 Philippines 64 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Philippines stands at 118 in the ranking of 190 and bankruptcy laws in Philippines facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 5.0 on the depth of rankings for comparator economies provide other useful credit information index and a score of 3.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Philippines support lending and scoring at the end of this chapter for details). Higher borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Philippines and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Philippines 65 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Philippines and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Philippines 66 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Philippines (table 6.1)? Table 6.1 How has Philippines made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines improved access to credit information by beginning to distribute both positive and negative information DB2014 and by enacting a data privacy act that guarantees borrowers’ right to access their data. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 67 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders are Philippines are based on detailed information collected gathered through a survey of financial lawyers and in that economy. The data on credit information sharing verified through analysis of laws and regulations as well are collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 3.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable 0 assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 0 movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its 0 assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to 0 the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a 0 maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is 0 unified geographically and by asset type, with an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit information online (for example, 0 through a web interface, a system-to-system connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and 0 searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 1 defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is 0 liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by 1 providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2017 Philippines 68 Strength of legal rights index (0–12) Index score: 3.0 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and 1 private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 5.0 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years No No 0 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 6,307,560 0 Number of firms 217,106 0 Total 6,524,666 0 Total percentage of adult population 10.2 0.0 Source: Doing Business database. Doing Business 2017 Philippines 69 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Ability of minority shareholders to sue and hold Doing Business measures the protection of minority interested directors liable for prejudicial related-party investors from conflicts of interest through one set of transactions; Available legal remedies (damages, indicators and shareholders’ rights in corporate disgorgement of profits, fines, imprisonment, rescission governance through another. The ranking of economies of the transaction) on the strength of minority investor protections is Ease of shareholder suits index (0–10) determined by sorting their distance to frontier scores Access to internal corporate documents; Evidence for protecting minority investors. These scores are the obtainable during trial and allocation of legal expenses simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Extent of conflict of interest regulation index (0– extent of shareholder governance index. To make the 10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of several assumptions about the business and the director liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the Extent of ownership and control index (0-10) economy’s most important stock exchange. If the Governance safeguards protecting shareholders from number of publicly traded companies listed on that undue board control and entrenchment exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that Buyer Extent of corporate transparency index (0-10) is a large private company with multiple Corporate transparency on ownership stakes, shareholders. compensation, audits and financial prospects Extent of shareholder governance index (0–10)  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of Buyer Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate where permitted, even if this is not specifically transparency indices required by law. Strength of minority investor protection index (0–  Has a supervisory board (applicable to economies 10) with a two-tier board system) on which 60% of the Simple average of the extent of conflict of interest shareholder-elected members have been appointed regulation and extent of shareholder governance indices by Mr. James, who is Buyer’s controlling shareholder and a member of Buyer’s board of directors.  Has not adopted any bylaws or articles of association that differ from default minimum standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Doing Business 2017 Philippines 70 relating to corporate governance.  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores.  Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 Philippines 71 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Philippines? The economy has a score of not measure all aspects related to the protection of 4.2 on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Philippines stands at 137 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Philippines and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Philippines 72 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Philippines. Figure 7.2 Summary of the various minority investor protection indices for Philippines and comparator economies. Source: Doing Business database. Doing Business 2017 Philippines 73 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Philippines are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Philippines. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Philippines Answer Score Strength of minority investor protection index (0-10) 4.2 Extent of conflict of interest regulation index (0-10) 4.0 Extent of disclosure index (0-10) 2.0 Which corporate body is legally sufficient to approve the CEO alone 0.0 Buyer-Seller transaction? (0-3) Must Mr. James disclose his conflict of interest to the board No disclosure obligation 0.0 of directors? (0-2) Must Buyer disclose the transaction in published periodic Disclosure on the transaction and 2.0 filings (annual reports)? (0-2) on the conflict of interest Must Buyer immediately disclose the transaction to the No disclosure obligation 0.0 public and/or shareholders? (0-2) Must an external body review the terms of the transaction No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 3.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Not liable 0.0 damage the transaction caused to Buyer? (0-2) Can shareholders hold the other directors liable for the Not liable 0.0 damage the transaction caused to Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer Yes 1.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction Yes 1.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0.0 shareholders? (0-2) Ease of shareholder suits index (0-10) 7.0 Before suing can shareholders representing 10% of Buyer's Yes 1.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses at trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 Doing Business 2017 Philippines 74 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses at trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from At the discretion of the court 0.0 the company? (0-2) Extent of shareholder governance index (0-10) 4.3 Extent of shareholder rights index (0-10) 1.0 Does the sale of 51% of Buyer's assets require shareholder No 0.0 approval? Can shareholders representing 10% of Buyer's share capital No 0.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it No 0.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 external auditor? Are changes to the rights of a class of shares only possible if No 0.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of No 0.0 members? Assuming that Buyer is a limited company, must all Yes 1.0 members consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before No 0.0 selling to a non-member? Extent of ownership and control index (0-10) 5.0 Is it forbidden to appoint the same individual as CEO and No 0.0 chair of the board of directors? Must the board of directors include independent and Yes 1.0 nonexecutive board members? Can shareholders remove members of the board of Yes 1.0 directors without cause before the end of their term? Must the board of directors include a separate audit No 0.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its No 0.0 parent company? Assuming that Buyer is a limited company, is there a Yes 1.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer No 0.0 Doing Business 2017 Philippines 75 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 7.0 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 21 days No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Assuming that Buyer is a limited company, must members Yes 1.0 meet at least once a year? Assuming that Buyer is a limited company, can members No 0.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2017 Philippines 76 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling processes. This case scenario uses a set of financial Collecting information and computing the tax payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time waiting for these processes to be completed. The Preparing separate tax accounting books, if required ranking of economies on the ease of paying taxes is determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are Profit or corporate income tax the simple average of the distance to frontier scores for each of the four component indicators – number Social contributions and labor taxes paid by of tax payments. time, total tax rate and postfiling the employer index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index is the simple average of the distance to frontier Waste collection, vehicle, road and other taxes scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax If onapplies, the postfiling tax audit index is the simple average of the scores for only the The time to complete a corporate income tax two components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2017 Philippines 77 applies, the postfiling index is not included in the ranking of the ease of paying taxes. Assumptions about the corporate income tax audit process: Taxes and mandatory contributions include corporate income tax, turnover tax and all labor  An error in the calculation of the income tax taxes and contributions paid by the company. A liability (for example, use of incorrect tax range of standard deductions and exemptions are depreciation rates, or incorrectly treating an also recorded. expense as tax deductible) leads to an incorrect All financial statement variables are proportional to income tax return and consequently an 2012 income per capita. To make the data underpayment of corporate income tax. comparable across economies, several assumptions  TaxpayerCo. discovered the error and are used. voluntarily notified the tax authority of the error TaxpayerCo is a medium-size business that started in the corporate income tax return. operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. Doing Business 2017 Philippines 78 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax table 8.2 and table 8.3 the end of this chapter for details). obligations and postfiling processes in Philippines—and Most indicator sets refer to a case scenario in the largest how much do firms pay in taxes? Globally, Philippines business city of an economy, except for 11 economies for stands at 115 in the ranking of 190 economies on the which the data are a population-weighted average of the ease of paying taxes (figure 8.1). The rankings for 2 largest business cities. See the chapter on distance to comparator economies and the regional average ranking frontier and ease of doing business ranking at the end of provide other useful information for assessing the tax this profile for more details. compliance burden for businesses in Philippines (see . Figure 8.1 How Philippines and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Philippines 79 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses —such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Philippines (table 8.1)? Table 8.1 How has Philippines made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines made paying taxes easier for companies by DB2014 introducing an electronic filing and payment system for social security contributions. The Philippines made paying taxes easier by introducing an online system for filing and paying health contributions and by DB2017 allowing for the online corporate income tax and VAT returns to be completed offline. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 80 PAYING TAXES What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Quezon city chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in table 8.2, completed during its 2nd year of operation. along with the associated number of payments, time Respondents are asked how much taxes and and tax rate. mandatory contributions the business must pay, how these taxes are filed and paid, how much time The postfiling index is based on four components—the taxpayers spend preparing, filing and paying three time to comply with a VAT or GST refund, the time to major taxes (profit taxes, labor taxes including obtain a VAT or GST refund, the time to comply with a mandatory contributions and consumption taxes) and corporate income tax audit and the time to complete a how much time taxpayers spend complying with corporate income tax audit. These components are postfiling processes and waiting for these processes based on expanded case study assumptions. If only VAT to be completed. (or GST) or corporate income tax applies for an economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate previous Local business tax 1 0.5% year 8.84 turnover P 1,208.70 Employer paid - Social security per gross 1 online 37 6.72 contributions employee salaries per month assessed Real property tax 1 2% property 4.44 value taxable Corporate income tax 1 online 39 30% 20.26 profit Doing Business 2017 Philippines 81 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Health 1.16% to gross 4 online 1.24 insurance 1.19% salaries Employer paid - Housing 2% or P100 gross 12 0.56 development fund per worker salaries Tax on interest 1 online 20% interest 0.51 per Employer paid - Employer's 0 jointly P 30 employee 0.17 compensation per month Environmental tax 1 P 10,000 fixed fee 0.08 Community tax certificate 1 P 10,500 fixed fee 0.08 basic fee + vehicle Vehicle tax 1 0.04 24% weight P 0.5 per insurance small Tax on insurance contracts 1 online 0.00 each P 4 premium amount various contract small Stamp duty 1 online 0.00 rates value amount BIR certificate 0 jointly P 500 fixed fee 0.00 value not Value added tax (VAT) 1 online 110 12% 0.00 added included P 1.5 per number of small Tax on check transactions 1 online 0.00 check checks amount Employee paid - Social security 1.33% to gross 0 jointly 0.00 withheld contributions 2.98% salaries per 1.16% to Employee paid - Payroll tax 0 jointly employee 0.00 withheld 1.19% per month Employee paid - Housing 2% or P 100 gross 0 jointly 0.00 withheld development fund per worker salaries Totals 28.0 185.6 42.9 Source: Doing Business database. Doing Business 2017 Philippines 82 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance to extra costs and delays for exporters and Obtaining, preparing and submitting documents importers, stifling trade potential. during transport, clearance, inspections and port or border handling in origin economy What do the indicators cover? Obtaining, preparing and submitting documents Doing Business records the time and cost required by destination economy and any transit associated with the logistical process of exporting economies and importing goods. Doing Business measures the Covers all documents required by law and in time and cost (excluding tariffs) associated with practice, including electronic submissions of three sets of procedures—documentary information as well as non-shipment-specific compliance, border compliance and domestic documents necessary to complete the trade transport—within the overall process of exporting Border compliance or importing a shipment of goods. The ranking of economies on the ease of trading across borders is Customs clearance and inspections determined by sorting their distance to frontier Inspections by other agencies (if applied to more scores for trading across borders. These scores are than 10% of shipments) the simple average of the distance to frontier Port or border handling scores for the time and cost for documentary compliance and border compliance to export and Processing of documents during clearance, import (domestic transport is not used for inspections and port or border handling. calculating the ranking). Domestic transport Loading and unloading of shipment at warehouse, To make the data comparable across economies, a dry port or border few assumptions are made about the traded goods and the transactions: Transport by most widely used mode between warehouse and terminal or dry port Time Traffic delays and road police checks while Time is measured in hours, and 1 day is 24 hours shipment is en route (for example, 22 days are recorded as 22 × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose Cost that documents are submitted to a customs Insurance cost and informal payments for which no receipt agency at 8:00 a.m., are processed overnight and is issued are excluded from the costs recorded. Costs are can be picked up at 8:00 a.m. the next day. In this reported in U.S. dollars. Contributors are asked to convert case the time for customs clearance would be local currency into U.S. dollars based on the exchange rate recorded as 24 hours because the actual procedure prevailing on the day they answer the questionnaire. took 24 hours. Doing Business 2017 Philippines 83 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest merchandise. business city of the exporting economy to a  The exporting firm is responsible for hiring and paying warehouse in the largest business city of the for a freight forwarder or customs broker (or both) importing economy. For 11 economies the and pays for all costs related to international shipping, data are also collected, under the same case domestic transport, clearance and mandatory study assumptions, for the second largest inspections by customs and other government business city. agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The different traded products. It is assumed that importing firm is responsible for the above costs for each economy imports a standardized imports. shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is shipment are considered to be documents obtained, the largest purchaser of this product. Special prepared and submitted during the export or import products, such as precious metal and gems, process. live animals and pharmaceuticals are excluded  A port or border is defined as a place (seaport, airport from the list of possible export products, or land border crossing) where merchandise can enter however, and the second largest product or leave an economy. category is considered as needed.  Government agencies considered relevant are  A shipment is a unit of trade. Export shipments agencies such as customs, port authorities, road do not necessarily need to be containerized, police, border guards, standardization agencies, while import shipments of auto parts are ministries or departments of agriculture or industry, assumed to be containerized. national security agencies and any other government authorities. Doing Business 2017 Philippines 84 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Philippines stands at 95 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Philippines and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Philippines 85 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Philippines (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Philippines made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines reduced the time and cost to trade by improving its electronic customs systems, adding such DB2011 functions as electronic payments and online submission of declarations. In the Philippines trading across borders became more difficult DB2015 because of a new city ordinance restricting truck traffic in Manila. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 86 TRADING ACROSS BORDERS What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land or some City: Quezon city combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Philippines Philippines East Asia & Pacific Time to export: Border compliance (hours) 42 57 Cost to export: Border compliance (USD) 456 402 Time to export: Documentary compliance (hours) 72 73 Cost to export: Documentary compliance (USD) 53 132 Time to import: Border compliance (hours) 72 71 Cost to import: Border compliance (USD) 580 436 Time to import: Documentary compliance (hours) 96 71 Cost to import: Documentary compliance (USD) 50 128 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Philippines Export Import HS 85 : Electrical machinery and equipment and parts thereof; sound recorders and HS 8708: Parts and accessories Product reproducers, television image of motor vehicles and sound recorders and reproducers, and parts and accessories of such articles Trade partner Hong Kong, China Japan Border Manila port Manila port Distance (km) 18 18 Domestic transport time (hours) 4 4 Domestic transport cost (USD) 381 381 Doing Business 2017 Philippines 87 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export Packing List Invoice Bill of Lading Export License Customs Export Declaration Documents to import Packing List Invoice Bill of Lading Import Permit Customs Import Declaration Certificate of Origin Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 Philippines 88 Figure 9.2 Summary of Philippines on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 Philippines 89 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through a local first-instance court. In addition, Doing Court fees Business measures the quality of judicial processes Enforcement fees index, evaluating whether each economy has Quality of judicial processes index (0-18) adopted a series of good practices that promote quality and efficiency in the court system. The Court structure and proceedings (0-5) ranking of economies on the ease of enforcing Case management (0-6) contracts is determined by sorting their distance to frontier scores. These scores are the simple average Court automation (0-4) of the distance to frontier scores for each of the Alternative dispute resolution (0-3) component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The seller sues the buyer before the court with case study assumes that the court hears an expert on jurisdiction over commercial cases worth 200% of the quality of the goods in dispute. This distinguishes income per capita or $5,000. the case from simple debt enforcement. To make the  The seller requests a pretrial attachment to secure data comparable across economies, Doing Business the claim. uses several assumptions about the case:  The dispute on the quality of the goods requires an expert opinion.  The dispute concerns a lawful transaction  The judge decides in favor of the seller; there is no between two businesses (Seller and Buyer), both appeal. located in the economy’s largest business city. For 11 economies the data are also collected for  The seller enforces the judgment through a public the second largest business city. sale of the buyer’s movable assets.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2017 Philippines 90 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Philippines? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Philippines stands at 136 in the ranking of 190 takes 842.0 days and costs 31.0% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average provide other useful benchmarks for the data are a population-weighted average of the 2 assessing the efficiency of contract enforcement in largest business cities. See the chapter on distance to Philippines. Figure 10.1 How Philippines and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Philippines 91 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for ECONOMY DETAILS Philippines are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case Claim value: PHP 303,197 described above (figure 10.2). The time and cost of resolving the standardized dispute are identified Quezon City through study of the codes of civil procedure and Court name: Metropolitan Trial Court other court regulations, as well as through questionnaires completed by local litigation lawyers City: Quezon city (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Philippines and comparator economies Source: Doing Business database. Doing Business 2017 Philippines 92 Table 10.2 Details on time and cost for enforcing contracts in Philippines East Asia & Pacific Indicator Philippines average Time (days) 842 560 Filing and service 58 Trial and judgment 580 Enforcement of judgment 204 Cost (% of claim) 31.0 49.1 Attorney fees 20.0 Court fees 6.0 Enforcement fees 5.0 Source: Doing Business database. Doing Business 2017 Philippines 93 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Philippines (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Philippines and comparator economies Doing Business 2017 Philippines 94 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in Philippines Answer Score Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (0-5) 3.0 1. Is there a court or division of a court dedicated solely to hearing No 0.0 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in Yes 0.0 court as a man's? Case management (0-6) 1.5 1. Time standards 0.5 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? No 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional Yes circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% No of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; No 0.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 used before the competent court? 5. Are there any electronic case management tools in place within the No 0.0 competent court for use by judges? Doing Business 2017 Philippines 95 Answer Score 6. Are there any electronic case management tools in place within the No 0.0 competent court for use by lawyers? Court automation (0-4) 0.5 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims No 0.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Philippines 96 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the Lawyers’ fees recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recovered by secured creditors through Other related fees reorganization, liquidation or debt enforcement Outcome (foreclosure or receivership) proceedings. To determine the present value of the amount Whether business continues operating as a recovered by creditors, Doing Business uses the going concern or business assets are sold lending rates from the International Monetary Fund, piecemeal supplemented with data from central banks and the Recovery rate for creditors Economist Intelligence Unit. Measures the cents on the dollar recovered To make the data on the time, cost and outcome by secured creditors comparable across economies, several assumptions Outcome for the business (survival or not) about the business and the case are used: determines the maximum value that can be  A hotel located in the largest city (or cities) has recovered 201 employees and 50 suppliers. The hotel Official costs of the insolvency proceedings experiences financial difficulties. are deducted  The value of the hotel is 100% of the income per Depreciation of furniture is taken into capita or the equivalent in local currency of USD account 200,000, whichever is greater. Present value of debt recovered  The hotel has a loan from a domestic bank, Strength of insolvency framework index (0- secured by a mortgage over the hotel’s real 16) estate. The hotel cannot pay back the loan, but makes enough money to operate otherwise. Sum of the scores of four component indices: Commencement of proceedings index (0-3) In addition, Doing Business evaluates the adequacy and integrity of the existing legal framework Management of debtor’s assets index (0-6) applicable to liquidation and reorganization Reorganization proceedings index (0-3) proceedings through the strength of insolvency Creditor participation index (0-4) framework index. The index tests whether economies adopted internationally accepted good practices in management of debtor’s assets, reorganization four areas: commencement of proceedings, proceedings and creditor participation. Doing Business 2017 Philippines 97 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Philippines stands at 56 in the ranking of 190 not measure insolvency proceedings of individuals and economies on the ease of resolving insolvency (figure financial institutions. The data are derived from 11.1). The ranking of economies on the ease of resolving questionnaire responses by local insolvency practitioners insolvency is determined by sorting their distance to and verified through a study of laws and regulations as frontier scores for resolving insolvency. These scores are well as public information on bankruptcy systems. the simple average of the distance to frontier scores for the recovery rate and the strength of insolvency framework index. The resolving insolvency indicator does Figure 11.1 How Philippines and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Philippines 98 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 21.3 cents on the dollar. Most likely in-court insolvency procedure applicable under indicator sets refer to a case scenario in the largest specific case study assumptions. business city of an economy, except for 11 economies for which the data are a population-weighted average of the According to data collected by Doing Business, resolving 2 largest business cities. insolvency takes 2.7 years on average and costs 32.0% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Philippines and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 Philippines 99 Table 11.1 Details of data on efficiency of insolvency proceedings in Philippines Indicator Answer Explanation The most likely procedure applicable to our case study would be a reorganization, which will then be converted into a liquidation. Mirage may use liquidation the reorganization proceeding to gain time, find a new investor, or renegotiate (after an its debt. Insolvency proceedings will therefore start with Mirage (debtor) filing Proceeding attempt at for court-supervised reorganization with the Regional Trial Court. The court will reorganization) appoint a rehabilitation receiver who is in charge of determining the viability of Mirage and preparing a Rehabilitation Plan. However, it is very likely that this plan is not approved, and that the case will be converted into liquidation. The hotel will stop operating and Mirage assets will be sold piecemeal in a Outcome piecemeal sale public auction upon the completion of the liquidation proceeding. A reorganization procedure that is then converted into liquidation will approximately take 2.7 years in total. According to the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the court shall have a maximum period of Time (in 2.7 one (1) year from the date of the filing of the petition to confirm a years) Rehabilitation Plan. If the Rehabilitation plan is not approved, the case will then be converted into liquidation, which can take up to 2 additional years (until the proceeds of the sale are finally distributed among creditors). The costs associated with the case would amount to approximately 32% of the Cost (% of value of the debtor's estate. Cost incurred during the entire insolvency process 32.0 estate) mainly include attorney fees (10%), official receiver fees (10%), liquidator fees (10%) and fees of auctioneers (1-5%). Recovery rate: 21.3 Source: Doing Business database. Doing Business 2017 Philippines 100 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Philippines’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 14.0 out of 16. participation index. The index ranges from 0 to 16, Data on provisions applicable to judicial liquidation and reorganization is based on the current law governing insolvency proceedings in each economy. Figure 11.3 Strength of insolvency framework index (0-16) in Philippines and comparator economies Source: Doing Business database. Doing Business 2017 Philippines 101 Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2017 Philippines 102 Table 11.2 Summary of data for the strength of insolvency framework index in Philippines Answer Score Strength of insolvency framework index (0-16) 14.0 Commencement of proceedings index (0-3) 2.5 (a) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for both 1.0 proceedings? liquidation and reorganization Does the insolvency framework allow a CREDITOR to file for insolvency of N/A 0.5 the debtor? (c) Both (a) and (b) options are What basis for commencement of the insolvency proceedings is allowed available, but 1.0 under the insolvency framework? only one of them needs to be complied with Management of debtor's assets index (0-6) 5.5 Does the insolvency framework allow the continuation of contracts Yes 1.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor Yes 1.0 obtaining credit after commencement of insolvency proceedings? (a) Yes over all pre- Does the insolvency framework assign priority to post-commencement commencement 0.5 credit? creditors, secured or unsecured Reorganization proceedings index (0-3) 3.0 (b) Only creditors whose rights are Which creditors vote on the proposed reorganization plan? 1.0 affected by the proposed plan Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a Yes 1.0 liquidation? Doing Business 2017 Philippines 103 Answer Score Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in Yes 1.0 the same class treated equally? Creditor participation index (0-4) 3.0 Does the insolvency framework require approval by the creditors for Yes 1.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to Yes 1.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Philippines 104 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Philippines (table 11.3)? even viable businesses are liquidated. This is starting to Table 11.3 How has Philippines made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform The Philippines adopted a new insolvency law that provides a DB2012 legal framework for liquidation and reorganization of financially distressed companies. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Philippines 105 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of food retail sector and they apply even to firms employment, specifically as it relates to the areas of that are not party to them. hiring, working hours and redundancy. Doing Business  Abides by every law and regulation but does not also measures several aspects of job quality such as the grant workers more benefits than those availability of maternity leave, paid sick leave and the mandated by law, regulation or (if applicable) equal treatment of men and women at the workplace. collective bargaining agreements. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy).  Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Has 60 employees.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 Philippines 106 LABOR MARKET REGULATION What are the details? The data reported here for Philippines are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Hiring Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 301.1 (US$/month) Ratio of minimum wage to value added per worker 0.6 Source: Doing Business database. Doing Business 2017 Philippines 107 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 10.0 Premium for work on weekly rest day (% of hourly pay) 30.0 Premium for overtime work (% of hourly pay) 25.0 Restrictions on night work? No Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 5.0 Paid annual leave for a worker with 5 years of tenure (working days) 5.0 Paid annual leave for a worker with 10 years of tenure (working days) 5.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 5.0 working days) Source: Doing Business database. Doing Business 2017 Philippines 108 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2017 Philippines 109 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure) Source: Doing Business database. Doing Business 2017 Philippines 110 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in leave receive 100% of wages; (vi) the availability of five 2015. Doing Business 2017 covers eight questions on job fully paid days of sick leave a year; (vii) whether a worker quality (i) whether the law mandates equal remuneration is eligible for an unemployment protection scheme after for work of equal value; (ii) whether the law mandates one year of service; and (viii) the minimum duration of nondiscrimination based on gender in hiring; (iii) the contribution period (in months) required for whether the law mandates paid or unpaid maternity unemployment protection. leave; (iv) the minimum length of paid maternity leave (in . calendar days); (v) whether employees on maternity Job Quality Data Equal remuneration for work of equal value? Yes Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 60.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? No Unemployment protection after one year of employment? No Minimum contribution period for unemployment protection (months)? n.a. Source: Doing Business database. Doing Business 2017 Philippines 111 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 41 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, New Zealand has the smallest number of business, but many need 9 days), the worst performance procedures required (1), and New Zealand the shortest is calculated after the removal of outliers. The definition time to fulfill them (0.5 days). Slovenia has the lowest of outliers is based on the distribution for each cost (0.0), and Australia, Colombia and 111 other component indicator. To simplify the process two rules economies have no paid-in minimum capital were defined: the 95th percentile is used for the requirement (table 14.1 in the Doing Business 2017 indicators with the most dispersed distributions report). (including minimum capital, number of payments to pay taxes, and the time and cost indicators), and the 99th Calculation of the distance to frontier score percentile is used for number of procedures. No outlier is Calculating the distance to frontier score for each removed for component indicators bound by definition economy involves two main steps. In the first step or construction, including legal index scores (such as the individual component indicators are normalized to a depth of credit information index, extent of conflict of common unit where each of the 41 component interest regulation index and strength of insolvency indicators y (except for the total tax rate) is rescaled framework index) and the recovery rate (figure 14.1 in using the linear transformation (worst − y)/(worst − the Doing Business 2017 report). frontier). In this formulation the frontier represents the In the second step for calculating the distance to frontier best performance on the indicator across all economies score, the scores obtained for individual indicators for since 2005 or the third year in which data for the each economy are aggregated through simple averaging indicator were collected. Both the best performance and into one distance to frontier score, first for each topic the worst performance are established every five years and then across all 10 topics: starting a business, dealing based on the Doing Business data for the year in which with construction permits, getting electricity, registering they are established, and remain at that level for the five property, getting credit, protecting minority investors, years regardless of any changes in data in interim years. paying taxes, trading across borders, enforcing contracts Thus an economy may set the frontier for an indicator and resolving insolvency. More complex aggregation methods—such as principal components and unobserved components—yield a ranking nearly Doing Business 2017 Philippines 112 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components 3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2017 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2017 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2017 report). 2 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 3 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2017 Philippines 113 Table 13.1 Weights used in calculating the distance to the most. First, it selects the economies that in 2015/16 frontier scores for economies with 2 cities covered implemented regulatory reforms making it easier to do business in 3 or more of the 10 topics included in this Economy City Weight (%) year’s aggregate distance to frontier score. Twenty-nine Dhaka 78 Bangladesh economies meet this criterion: Algeria; Azerbaijan; Chittagong 22 São Paulo 61 Bahrain; Belarus; Brazil; Brunei Darussalam; Burkina Faso; Brazil Rio de Janeiro 39 Côte d’Ivoire; Georgia; India; Indonesia; Kazakhstan; Shanghai 55 Kenya; Madagascar; Mali; Mauritania; Morocco; Niger; China Beijing 45 Pakistan; Poland; Senegal; Serbia; Singapore; Thailand; Mumbai 47 Togo; Uganda; the United Arab Emirates; Uzbekistan and India Delhi 53 Vanuatu. Second, Doing Business sorts these economies Jakarta 78 Indonesia on the increase in their distance to frontier score from Surabaya 22 Tokyo 65 the previous year using comparable data. Japan Osaka 35 Mexico City 83 Selecting the economies that implemented regulatory Mexico Monterrey 17 reforms in at least three topics and had the biggest Lagos 77 improvements in their distance to frontier scores is Nigeria Kano 23 intended to highlight economies with ongoing, broad- Karachi 65 based reform programs. The improvement in the Pakistan Lahore 35 distance to frontier score is used to identify the top Moscow 70 Russian Federation improvers because this allows a focus on the absolute St. Petersburg 30 improvement—in contrast with the relative improvement New York 60 United States Los Angeles 40 shown by a change in rankings—that economies have made in their regulatory environment for business. Source: United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects, 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking The ease of doing business ranking ranges from 1 to 190. Economies that improved the most across 3 or more The ranking of economies is determined by sorting the Doing Business topics in 2015/16 aggregate distance to frontier scores, rounded to 2 Doing Business 2017 uses a simple method to calculate decimals. which economies improved the ease of doing business Doing Business 2017 Philippines 114 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 190 Contributors http://www.doingbusiness.org/rankings More than 12,500 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 190 economies to the frontier in Methodology regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2017 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2017 Philippines 115