65445 Economy Profile: Philippines © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Philippines 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 26 Getting electricity ....................................................................................................................... 38 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 55 Protecting investors ................................................................................................................... 62 Paying taxes ................................................................................................................................ 72 Trading across borders .............................................................................................................. 80 Enforcing contracts .................................................................................................................... 89 Resolving insolvency .................................................................................................................. 96 Data notes ................................................................................................................................. 102 Resources on the Doing Business website ............................................................................ 107 Doing Business 2012 Philippines 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Philippines. To allow useful comparison, recommends regulatory reforms. The data, along with it also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Philippines 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start 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 Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 93,616,853 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 2,050.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 136 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 134 investors, paying taxes, trading across borders, Change in rank: -2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Philippines 6 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 2012 Philippines 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Philippines and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Philippines 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Philippines ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Philippines 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Philippines come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Philippines 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Philippines Best performer globally Timor-Leste DB2012 Philippines DB2012 Philippines DB2011 Indonesia DB2012 Malaysia DB2012 Thailand DB2012 Lao PDR DB2012 Vietnam DB2012 Indicator DB2012 Starting a Business 158 155 155 89 50 78 157 103 New Zealand (1) (rank) Procedures (number) 15 16 8 7 4 5 10 9 Canada (1)* Time (days) 35 36 45 93 6 29 103 44 New Zealand (1) Cost (% of income per 19.1 22.1 17.9 7.6 16.4 6.2 4.5 10.6 Denmark (0.0)* capita) Paid-in Min. Capital (% 5.2 6.0 46.6 0.0 0.0 0.0 227.3 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 102 98 71 80 113 14 114 67 China (1) (rank) Procedures (number) 30 30 13 23 22 8 19 10 Denmark (5) Time (days) 85 85 158 108 260 157 238 200 Singapore (26)* Cost (% of income per 110.5 127.6 105.3 52.4 7.1 9.5 25.0 109.0 Qatar (1.1) capita) Doing Business 2012 Philippines 11 Best performer globally Timor-Leste DB2012 Philippines DB2012 Philippines DB2011 Indonesia DB2012 Malaysia DB2012 Thailand DB2012 Lao PDR DB2012 Vietnam DB2012 Indicator DB2012 Getting Electricity (rank) 54 57 161 138 59 9 55 135 Iceland (1) Procedures (number) 5 5 7 5 6 4 3 5 Germany (3)* Time (days) 50 50 108 134 51 35 63 142 Germany (17) Cost (% of income per 762.0 895.1 1379.0 2381.6 95.5 77.6 1818.2 1343.0 Japan (0.0) capita) Registering Property 117 109 99 72 59 28 183 47 New Zealand (3) (rank) no Procedures (number) 8 8 6 5 5 2 4 Portugal (1)* practice no Time (days) 39 39 22 98 48 2 57 Portugal (1) practice Cost (% of property no 4.8 4.8 10.8 1.1 3.3 6.3 0.6 Slovak Republic (0.0) value) practice Getting Credit (rank) 126 116 126 166 1 67 159 24 United Kingdom (1)* Strength of legal rights 4 4 3 4 10 5 2 8 New Zealand (10)* index (0-10) Depth of credit 3 3 4 0 6 5 3 5 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 31.8 0.0 49.4 0.0 1.8 29.8 Portugal (86.2) (% of adults) Private bureau coverage 8.2 7.4 0.0 0.0 83.4 41.7 0.0 0.0 New Zealand (100.0)* (% of adults) Protecting Investors 133 131 46 182 4 13 133 166 New Zealand (1) (rank) Doing Business 2012 Philippines 12 Best performer globally Timor-Leste DB2012 Philippines DB2012 Philippines DB2011 Indonesia DB2012 Malaysia DB2012 Thailand DB2012 Lao PDR DB2012 Vietnam DB2012 Indicator DB2012 Extent of disclosure 2 2 10 2 10 10 3 6 France (10)* index (0-10) Extent of director 2 2 5 1 9 7 4 1 Singapore (9)* liability index (0-10) Ease of shareholder suits 8 8 3 2 7 6 5 2 New Zealand (10)* index (0-10) Strength of investor 4.0 4.0 6.0 1.7 8.7 7.7 4.0 3.0 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 136 127 131 123 41 100 31 151 Canada (8) Payments (number per 47 47 51 34 13 23 6 32 Norway (4) year) Time (hours per year) 195 195 266 362 133 264 276 941 Luxembourg (59) Trading Across Borders 51 54 39 168 29 17 89 68 Singapore (1) (rank) Documents to export 7 7 4 9 6 5 6 6 France (2) (number) Hong Kong SAR, Time to export (days) 15 15 17 44 17 14 25 22 China (5)* Cost to export (US$ per 630 630 644 1880 450 625 1010 580 Malaysia (450) container) Documents to import 8 8 7 10 7 5 7 8 France (2) (number) Time to import (days) 14 14 27 46 14 13 26 21 Singapore (4) Cost to import (US$ per 730 730 660 2035 435 750 1015 670 Malaysia (435) container) Doing Business 2012 Philippines 13 Best performer globally Timor-Leste DB2012 Philippines DB2012 Philippines DB2011 Indonesia DB2012 Malaysia DB2012 Thailand DB2012 Lao PDR DB2012 Vietnam DB2012 Indicator DB2012 Enforcing Contracts 112 114 156 110 31 24 183 30 Luxembourg (1) (rank) Time (days) 842 842 570 443 425 479 1285 295 Singapore (150) Cost (% of claim) 26.0 26.0 122.7 31.6 27.5 12.3 163.2 28.5 Bhutan (0.1) Procedures (number) 37 37 40 42 29 36 51 34 Ireland (21)* Resolving Insolvency 163 161 146 183 47 51 183 142 Japan (1) (rank) no no Time (years) 5.7 5.7 5.5 1.5 2.7 5.0 Ireland (0.4) practice practice no no Cost (% of estate) 38 38 18 15 36 15 Singapore (1)* practice practice Recovery rate (cents on 4.7 4.5 13.8 0.0 44.6 43.3 0.0 16.5 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * 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). Source: Doing Business database. Doing Business 2012 Philippines 14 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 Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Philippines 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Philippines? costs 19.1% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 5.2% of income per capita (figure a business there requires 15 procedures, takes 35 days, 2.1). Figure 2.1 What it takes to start a business in Philippines Paid-in minimum capital (% of income per capita): 5.2 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Philippines 16 STARTING A BUSINESS Globally, Philippines stands at 158 in the ranking of and the regional average ranking provide other useful 183 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in 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 2012 Philippines 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Philippines That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Philippines over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 155 158 Procedures (number) 17 17 17 17 17 17 17 16 15 Time (days) 49 49 47 47 47 41 41 36 35 Cost (% of income per 28.6 24.1 23.9 22.2 24.1 22.7 21.6 22.1 19.1 capita) Paid-in Min. Capital (% 2.3 2.2 2.0 1.8 6.9 6.0 5.5 6.0 5.2 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Philippines 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Philippines on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Philippines is keeping up—and where it is paid-in minimum capital required to start a business falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Philippines 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 14 economies in East Asia & Pacific have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Philippines 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Philippines (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Philippines made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. The Philippines eased business startup by setting up a one- DB2011 stop shop at the municipal level. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 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 City: Quezon city firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Corporation professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 5.2 and cost. These 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). Summary of procedures for starting a business in Philippines—and the time and cost Time to No. Procedure Cost to complete complete Verify and reserve the company name with the Securities and Exchange Commission (SEC) The availability of the proposed company name can be verified via the 1 day PHP 40 1 SEC's online verification system at no charge. Reservation of the name, once approved by the SEC, costs Php40/month for the first 30 days. The company name can be reserved for a maximum of 120 days for a fee of PHP 120, which is renewable upon expiration of the period. Deposit paid-up capital in the Authorized Agent Bank (AAB) and obtain bank certificate of deposit 2 The company is required by law to deposit paid-up capital amounting 1 day no charge to at least 6.25% of the authorized capital stock of the corporation. This paid-up capital must not be less than PHP 5,000. Some banks in Manila charge a fee up to PHP 105 for each certificate of deposit. Notarize articles of incorporation and treasurer's affidavit at the notary 3 1 day PHP 500 According to Section 14 and 15 of the Corporation Code, articles of incorporation should be notarized before filing with the SEC. Register the company with the SEC and receive pre-registered (PHP 1,667.99 filing Taxpayer Identification Number (TIN) fee equivalent to 1/5 3 days of 1% of the 4 The company can register online through SEC i-Register but must pay on site at the SEC. The following documents are required for SEC authorized capital registration: stock or the subscription price of Doing Business 2012 Philippines 22 Time to No. Procedure Cost to complete complete a. Company name verification slip; the subscribed capital b. Articles of incorporation (notarized) and by-laws; stock, whichever is c. Treasurer's affidavit (notarized); higher but not less d. Statement of assets and liabilities; than PHP 1,000 + PHP e. Bank certificate of deposit of the paid-in capital; 16.68 legal research f. Authority to verify the bank account; fee (LRF) equivalent g. Registration data sheet with particulars on directors, officers, stockholders, and so forth; to 1% of filing fee but h. Written undertaking to comply with SEC reporting requirements not less than PHP 10 (notarized); + PHP 500 By-laws + i. Written undertaking to change corporate name (notarized). PHP 150 for The SEC Head Office issues pre-registered TINs only if the company’s registration of stock application for registration has been approved. The company must still and transfer book register with the Bureau of Internal Revenue (BIR) in order to identify (STB) required for applicable tax types, pay an annual registration fee, obtain and stamp new corporations + sales invoices, receipts and the books of accounts. PHP 320 STB + PHP 10 registration for SEC bulletin) Obtain barangay clearance This clearance is obtained from the Barangay where the business is located, and is required to obtain the business permit from the city or municipality. Barangay fees vary for each Barangay since they have the discretion to impose their own fees and charges for as long ast these 1 day PHP 500 5 fees are reasonable and within the limits set by the Local Government Code and city ordinances. The fee charged by the Barangay depends on the company's paid-up capital and the land area it occupies - a PHP 500 minimum plus PHP 300 for the Barangay clearance plate. Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO) To obtain a Barangay clearance, a company must obtain a community tax certificate. The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the 6 company legal form is a corporation, partnership, or association (PHP 1 day PHP 500 500 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 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. Obtain the business permit to operate from the BPLO (PHP 2,084.98 business tax (25% of The fees vary depending on the LGU issuing the permit. The rate of 6 days 1% of paid-up capital) 7 license fee imposed in Quezon City is 25% of 1% of the authorized capital stock. Other permits, such as locational clearance, fire safety + PHP 200 mayor’s and inspection certificate, sanitary permit, certificate of electrical permit + PHP 150 inspection, mechanical permit, and other clearances or certificates sanitary inspection Doing Business 2012 Philippines 23 Time to No. Procedure Cost to complete complete required depending on the nature of business, are also imposable. The fee + PHP 50 rate of these fees depends on the nature of business and land area signboard fee + PHP occupied by the proposed corporation. 250 business plate + PHP 100 QCBRB + The barangay clearance is a prerequisite for the issuance of business PHP 545 zoning permit to operate. clearance + PHP 1,300 garbage fee+ PHP 259.5 FSIC (10% of all regulatory fees)) 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. 8 1 day 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. 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. 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 form BIR Form 0605). To register the BIR taxpayer must first accomplish BIR Form 1903 and submit the same together with the required PHP 100 (certification attachments to the Revenue District Office having jurisdiction over the fee) and PHP 15 registered address of the business establishment. Moreover, the BIR (documentary stamp 9 2 days now requires the submission of the tax, in loose form to Authority to Print Receipts (BIR Form 1906) as an additional be attached to Form requirement for registration. 2303) Companies may be assessed various taxes: VAT, a community tax, a local tax, and income tax. When a company registers as a taxpayer, it must indicate in the application the types of taxes it expects to be liable for, including VAT. Pay the registration fee and documentary stamp taxes (DST) at the (PHP 500 registration AAB fee + PHP 4,169.97 DST on original The rate of documentary stamp tax on original issuance of shares of 1 day issuance of shares of 10 stock shall be Php 1.00 for every Php 200.00 or fractional part thereof, stock. DST on the of the par value, of such shares of stock. lease contract is not The documentary stamp tax return shall be filed and the tax paid on or included in the before the fifth (5th) day after the close of the month of approval of computation of the Doing Business 2012 Philippines 24 Time to No. Procedure Cost to complete complete SEC registration. cost) Obtain the authority to print receipts and invoices from the BIR The authority to print receipts and invoices must be secured before the sales receipts and invoices may be printed. The company can ask any authorized printing company to print its official forms, or it can print its own forms (i.e., it uses its computers to print loose-leaf invoice forms) after obtaining a permit from BIR for this purpose. To obtain the authority to print receipts and invoices from the BIR, the company must 11 submit the following documents to the Revenue District Office (RDO): 1 day no charge 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); d. Application for registration (BIR Form No. 1903); and e. Proof of payment of annual registration fee (BIR Form No. 0605). Print receipts and invoices at the print shops 12 The cost is based on the following specifications of the official receipt: 7 days PHP 3,500 1/2 bond paper (8 ½ x 5 ½ cm) in duplicate, black print, carbonless. The minimum print volume is 25 booklets. 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: 13 a. All required books of accounts; 1 day no charge b. VAT registration certificate; c. SEC registration; 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. Register with the Social Security System (SSS) 14 To register with the SSS, the company must submit the following 7 days no charge documents: a. Employer registration form (Form R-1); Doing Business 2012 Philippines 25 Time to No. Procedure Cost to complete complete b. Employment report (Form R-1A); c. List of employees, specifying their birth dates, positions, monthly 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 through such training so that each member is aware of their rights and obligations. Register 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); 15 c. SEC registration; 1 day no charge d. BIR registration; and e. Copy of business permit. 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. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Philippines 26 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 PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Philippines 27 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 30 procedures, takes 85 days build a warehouse in Philippines? According to data and costs 110.5% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Philippines Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Philippines 28 DEALING WITH CONSTRUCTION PERMITS Globally, Philippines stands at 102 in the ranking of ranking provide other useful information for assessing 183 economies on the ease of dealing with how easy it is for an entrepreneur in Philippines to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How Philippines and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Philippines 29 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in Philippines today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Philippines over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 98 102 Procedures (number) 30 30 30 30 30 30 30 Time (days) 85 85 85 85 85 85 85 Cost (% of income per 169.7 153.0 146.0 128.6 116.5 127.6 110.5 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Philippines 30 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Philippines is keeping up— required to deal with construction permits (figure 3.3). and where it is falling behind. These economies may provide a model for Philippines Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Philippines 31 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Philippines 32 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Philippines (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Philippines made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 The Philippines made construction permitting more cumbersome through updated electricity connection costs. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 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 City : Quezon city information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers PHP 19,500,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Philippines —and the time and cost Time to No. Procedure Cost to complete complete Obtain certified true copy of the land title from the Register of Deeds (RD) 1 7 days PHP 160 The certified true copy of the land title serves as proof of ownership of the land on which the warehouse is to be built. * Obtain lot plan with site map from the geodetic engineer The company must obtain the lot plan with site map from a geodetic 2 engineer to confirm the location of the land purported to be in the land 3 days PHP 1,250 title. A lot plan with site map is signed, sealed, and prepared after a meticulous geodetic survey, or at least after an analysis has been conducted of the lot technical description appearing on the title. * Obtain barangay clearance The barangay clearance is generally a requirement for obtaining the 3 locational clearance. The costs for barangay clearances vary as 2 days PHP 300 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. 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 4 ordinances. 1 day PHP 45 The applicant must submit the following requirements: a. Notarized locational clearance application form; b. Barangay clearance; c. Transfer Certificate of Title (TCT); Doing Business 2012 Philippines 34 Time to No. Procedure Cost to complete complete d. Latest real property tax receipt; and e. Architectural plan. Notarize the locational clearance application form at the notary 5 1 day PHP 50 Receive inspection for the locational clearance from the CPDO 6 1 day no charge Obtain the locational clearance from the CPDO 7 5 days PHP 2,926 The applicant pays the locational clearance fee at the City Treasurer's Office (CTO) and obtains the locational clearance at the CPDO. * Apply and obtain Fire Safety Evaluation Clearance (FSEC) from the local Fire Marshall at the Bureau of Fire Protection (BFP) The FSEC is a clearance with a fire safety checklist that enumerates the life and fire safety requirements of the Fire Code. The City Fire Marshall evaluates one set of plans and specifications 7 days PHP 19,500 8 submitted by the applicant to ensure that they conform to the fire safety and control requirements of the Fire Code. The applicant must also submit 3 sets of the Fire and Life Safety Assessment Report (FALAR) 1 (which documents the fire and life safety features of the building) prepared by an architect who is duly certified by the BFP to prepare this report. Apply and obtain the building permit and ancillary permits at the Office of the Building Official (OBO) The ancillary permits consist of: (1) the architectural permit, (2) civil/structural permit, (3) electrical permit, (4) mechanical permit, (5) sanitary permit, (6) plumbing permit, and (7) electronics permit. The applicant must submit the following requirements: a. Certified true copy of Original Certificate of Title (OCT)/TCT on file with the Registry of Deeds; b. Photocopy of tax declaration; c. Building permit application form; 12 days PHP 39,018 9 d. Five (5) 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); and e. Locational clearance from the CPDO. After the building permit application is approved, the building official makes an assessment and issues an order of payment for the company to pay at the CTO. Once the company has paid the building permit fees, it will present the official receipt to the Receiving/Releasing Section of the OBO which will then issue the permit. Doing Business 2012 Philippines 35 Time to No. Procedure Cost to complete complete Receive inspection from the BFP during construction 10 1 day no charge The BFP conducts an inspection during construction to ensure that the plans and fire safety precautions are observed. Receive inspection from the OBO during construction 11 During the construction of the warehouse, the OBO conducts an 1 day no charge inspection to ensure that the construction follows the approved building plans and design. Apply for the Fire Safety Inspection Certificate (FSIC) at the BFP Once construction has been completed, the company requests the BFP to inspect the site to certify that the required fire safety construction, 12 fire protective and/or warning systems are properly installed and in 1 day PHP 3,901 good working condition. The applicant must submit a Fire and Life Safety Assessment Report 2 (which certifies that the construction of the building was in accordance with FALAR 1), prepared by an architect who is duly certified by the BFP to prepare this report. Receive final inspection for the FSIC from the BFP 13 1 day no charge Obtain the FSIC from the BFP 14 5 days no charge * Apply for health certificate at the City Health Office (CHO) 15 1 day no charge * Receive inspection for the health certificate from the CHO 16 1 day no charge * Obtain the health certificate from the CHO 17 5 days PHP 400 * Apply for the Certificate of Final Electrical Inspection (CFEI) at the OBO 18 The CFEI certifies that a final inspection of the electrical installation has 1 day no charge been conducted and that such installation has been completed in accordance with the approved plans and specifications on file with the OBO and the provisions of the Philippine Electrical Code. * Receive final inspection for the CFEI from the OBO 19 1 day no charge * Obtain the CFEI from the OBO 20 1 day no charge Apply for the Certificate of Occupancy at the OBO 21 In applying for a Certificate of Occupancy, the applicant must submit 1 day no charge the following to the OBO: a. Application for Certificate of Occupancy; Doing Business 2012 Philippines 36 Time to No. Procedure Cost to complete complete b. FSIC; c. Health certificate; d. Duly notarized certificate of completion; e. Construction logbook; f. As-built plans and specifications; and g. Building inspection sheet, all signed and sealed by the architect or engineer who undertook the full-time inspection and supervision of the construction. Receive final inspection for the Certificate of Occupancy from the OBO 22 1 day no charge The OBO conducts a final inspection to check the building based on the certificate of completion, construction logbook, building inspection sheets, original and as-built plans and specifications. Obtain the Certificate of Occupancy from the OBO After the OBO has processed the application and conducted the 18 days PHP 32,000 23 inspection, it then issues an assessment and order of payment. The OBO issues the Certificate of Occupancy after the applicant has paid the corresponding fees. Apply for water and sewage connection at Maynilad Water Services, Inc. (Maynilad) or Manila Water Company, Inc. (Manila Water) There are two private water providers for Quezon City. Maynilad 24 services the west zone and Manila Water services the east zone. The 1 day no charge company visits the water company to request the connection and pays PHP 7,455 for Maynilad or PHP 6,855 for Manila Water. Inspection takes place within a week and the connection is effected some days after the inspection. The case study assumes that the company will request water from Manila Water as this is the option favorable to the company. * Receive inspection for water and sewage connection from Maynilad or Manila Water 1 day no charge 25 * Obtain water and sewage connection from Maynilad or Manila Water 21 days PHP 6,855 26 * Obtain telephone connection from the telephone company There are four telephone companies providing landline services in Quezon City. The cost is PHP 1,500 for Philippine Long Distance Co. (PLDT), PHP 749 for Bayantel and PHP 2,500 for Digitel. Globelines 5 days no charge 27 requires proof of financial capability but does not charge any fee. There is a lock-in period of 12 months for PLDT and Globelines, and 30 months for Digitel. Bayantel offers no lock-in period for regular phone line. The case study assumes that the company will request services from Globelines as this is the option favorable to the company. Doing Business 2012 Philippines 37 Time to No. Procedure Cost to complete complete * Apply for the tax declaration of improvement at the City Assessor's Office (CAO) The company must update its official records to include the newly built 1 day no charge 28 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. The company must submit the floor plan and as-built plan to the CAO. * Receive inspection from the Appraiser of CAO The company should request the technical conditions for making the necessary utility connections. At this point, the company also starts negotiations on conditions for the supply of these utilities. Article 34, paragraph 3, subparagraph 3, of the Building Law Act, states the following: ―Depending on the needs, the technical project must include the declarations of suppliers about assuring delivery of the energy, water, heat and gas, and sewage connections; and about the possibility of connecting that building to the water mains, sewage, thermal, gas, energy, and telecommunications networks, and land roads.‖ 29 1 day no charge This step is necessary to ensure compliance of the building project with regulations of the Building Code. Some suppliers require payment for a declaration assuring the delivery of electric power and stating the conditions of connection to the network. One of the Warsaw electric power suppliers requires PLN 146.4 (or PLN 292.8, depending on technical conditions) pre-payment, which is counted toward future payment for concluding an agreement with the supplier. A supplier of electricity has 14 days to ensure delivery of power and indicate the conditions of connection to the network. This time line can be 30 days depending on the technical conditions. In any case, this period is defined by the Ministry of Economy and Labor, which defines the conditions of connecting to electric power networks and of operating and exploiting these networks. * Obtain the tax declaration of improvement from the CAO BuildCo should request the technical conditions for making the necessary utility connections. At this point, the company also starts negotiations on conditions for the supply of these utilities. 30 3 days no charge The Warsaw water authority requires payment for defining the conditions of a connection to the water network (the payment may be up to PLN 100). The connection conditions are defined within 14 days of the request date, and the declaration is sent by mail after another 14 days. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Philippines 38 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Philippines 39 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 50 days and costs 762.0% of income connection in Philippines? According to data collected per capita (figure 4.1). by Doing Business, getting electricity there requires 5 Figure 4.1 What it takes to obtain an electricity connection in Philippines Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Philippines 40 GETTING ELECTRICITY Globally, Philippines stands at 54 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Philippines to 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 2012 Philippines 41 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Philippines on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Philippines and comparator economies Pacific average Global average Timor-Leste East Asia & Philippines Indonesia Malaysia Thailand Lao PDR Vietnam Indicator Rank 54 161 138 59 9 55 135 75 .. Procedures (number) 5 7 5 6 4 3 5 5 5 Time (days) 50 108 134 51 35 63 142 88 111 Cost (% of income per capita) 762.0 1379.0 2381.6 95.5 77.6 1818.2 1343.0 1,079.4 1,942.3 Source: Doing Business database. Doing Business 2012 Philippines 42 GETTING ELECTRICITY What are the details? The indicators reported here for Philippines are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Quezon city utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: MERALCO verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Philippines—and the time and cost Time to No. Procedure Cost to complete complete Submit application to MERALCO and await site inspection No notarization required on approval for any other body. 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) Other requirements to follow on or before contracting 3 calendar days no charge 1 - 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 - Depending on the nature of your business and location, a PEZA or BOI Certification for Zero VAT Rating Doing Business 2012 Philippines 43 Time to No. Procedure Cost to complete complete Other requirements to follow on or before energization -CFEI -Payment of service deposit Receive site visit from MERALCO and await estimate 2 14 calendar days no charge Hire Registered Master Electrician/Registered Electrical Engineer or a Professional Electrical Engineer to conduct inspection and he signs “Completion of Certificate of Electrical Installation" 3 This is done once all electrical installation/internal wiring is complete. 1 calendar day PHP 3,000.0 Owner is required to engage the services of a Registered Master Electrician, Registered Electrical Engineer or a Professional Electrical Engineer to conduct inspections which will be signed by the electrical professional involved. Request and receive Certificate of Electrical Inspection (CEI) from City of Manila Request for Certificate of Electrical Inspection (CEI) from City of Manila. 7 calendar days PHP 7,500.0 4 This can be done once the electrical installations are completed and engineer in-charge of installation signs the ―Completion Certificate of Electrical Installation‖ and submitted together with the application for CEI to the City. Submit Certificate of Inspection to MERALCO and MERALCO completes external connection, meter installation and electricity starts flowing Once Service Contract is signed with Meralco and fees/deposits are signed, Meralco starts installation of power service connection and 25 calendar days PHP 723,503.8 5 metering system necessary for the external connection.The CEI is received by MERALCO, and the meter is released for customer after this. Security deposit charged can be refunded by the customer, including the accumulated interest, only upon the 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. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Philippines 44 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 immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Philippines 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 39 days and costs 4.8% of the Philippines? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Philippines Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Philippines 46 REGISTERING PROPERTY Globally, Philippines stands at 117 in the ranking of and the regional average ranking provide other useful 183 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies 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 2012 Philippines 47 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Philippines That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Philippines over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 109 117 Procedures (number) 8 8 8 8 8 8 8 8 Time (days) 39 39 39 39 39 39 39 39 Cost (% of property value) 4.8 4.8 4.7 4.8 4.8 4.1 4.8 4.8 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Philippines 48 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by on ways to improve the ease of registering property. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the procedures, time or cost Philippines is keeping up—and where it is falling required to complete a property transfer (figure 5.3). behind. These economies may provide a model for Philippines Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Philippines 49 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Philippines 50 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Philippines (table 5.2)? Table 5.2 How has Philippines made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 51 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 City: Quezon city through information collected from local property Property Value: 4,816,106.0 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Philippines—and the time and cost Time to No. Procedure Cost to complete complete 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. 1 - 3% property 1 1 day value for In addition to the deed of sale, the Register of Deeds also requires both notarization the buyer and the seller to submit notarized secretary's certificates containing the resolution of their board of directors approving the sale. The buyer must also produce a certificate from the Securities and Exchange Commission (SEC) stating that its articles of incorporation have been registered with the SEC. PHP 275 (PHP 70 per RPU (land(1RPU), Building (1RPU)) + * Obtain certified true copy of latest tax declaration and certificate PHP 90 for certificate of "with improvement" from the City Assessor’s Office (CAO) of "with 2 1 day improvement" + The seller obtains a certified true copy of the latest tax declaration from PHP 45 (PHP 15 the Assessor’s Office of Manila. documentary stamp tax per RPU/document) * Obtain tax clearance certificate of real property taxes from the PHP 65 (PHP 50 for Land Tax Division of the City Treasurer’s Office (CTO) tax clearance and 3 2 days PHP 15 for The seller, after paying any arrears, obtains a tax clearance certificate documentary stamp from the CTO. tax) The documentation shall include an original of the official receipt Doing Business 2012 Philippines 52 Time to No. Procedure Cost to complete complete evidencing payment by seller of realty taxes. 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 PHP 115 (PHP 100 transaction; certification fee + 4 d. Owner’s copy (for presentation purposes only) and photocopy (for 21 days PHP 15 documentary authentication) of the Original Certificate of Title (OCT), or the certified tax) true copy of the Transfer Certificate of Title (TCT); e. Sworn declaration of ―with Improvement‖ by at least one (1) of the transferees, or certificate of ―with Improvement‖ issued by the City Assessor’s Office. 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 Original Copies of the BIR Return Forms 1706 (CGT) and 2000 (DST) stamped received by the BIR Pay documentary stamp tax and final capital gains tax for the transfer of real property The seller files the Documentary Stamp Tax return and Capital Gains Tax return with the authorized agent bank in the Revenue District of Manila. 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 1.5% of property 5 Bureau of Internal Revenue. The Capital Gains Tax is 6% of capital gains 1 day value (Documentary based on selling price, fair market value or zonal value, whichever is Stamp Tax) higher. The Documentary Stamp Tax is 1.5% based on selling price or fair market value, whichever is higher. The seller may opt to have the taxing authority assess and compute the Capital Gains Tax and the Documentary Stamp Tax prior to payment to ensure accuracy of the amount of taxes due. Doing Business 2012 Philippines 53 Time to No. Procedure Cost to complete complete The documentation shall include: 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 Prior to payment, 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 CWT return and pays the taxes at the AAB of the Revenue District Office. Payment must be made through either a manager’s check or cashier’s check within 5 days after the close of the month when the taxable document was signed or within 30 days from the sale, whichever is earlier. Upon receipt of proof of tax payment from the taxpayer/applicant, the BIR immediately issues a claim slip. Pay the transfer tax at the CTO The transfer tax must be paid at the CTO. The documentation shall include: 0.75% of property a. Certificate Authorizing Registration from the Bureau of Internal price (transfer tax) + 6 Revenue (obtained in Procedure 4); 1 day PHP 125 (certificate b. Tax clearance certificate from the Treasurer’s Office of Manila of payment) (obtained in Procedure 5); c. Official receipt of the Bureau of Internal Revenue (for documentary stamp tax) (obtained in Procedure 4). Apply for registration with the Register of Deeds Registration fee The buyer applies for registration with the Register of Deeds. The consisting of PHP documentation shall include: 8,796 for first PHP 1,700,000 + PHP 90 a. Copy of deed of absolute sale; for every PHP 20,000 b. Official receipt evidencing payment of transfer tax; or fraction thereof in c. Certificate Authorizing Registration from the BIR (CAR) including excess of PHP 7 official receipts for payment of DST and CWT; About 10 days 1,700,000 + PHP d. Real property tax clearance from the City Treasurer’s Office; 199.56 legal research e. Original copy of owner's duplicate of TCT (in the name of the seller); fee (1% of the f. Original or certified true copy of the latest tax declaration; g. Notarized secretary's certificate containing resolution of the board of registration fee) + directors of the seller approving the sale; PHP 30 judicial form h. Notarized secretary's certificate containing resolution of the board of fee + PHP 2,419.2 IT directors of the buyer approving the sale; fee (PHP i. Articles of incorporation of the buyer and by-laws; and Doing Business 2012 Philippines 54 Time to No. Procedure Cost to complete complete j. Certificate from the SEC that the articles of incorporation of the buyer have been registered. 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 (obtained in Procedure 1); b. Copy of latest tax declaration (in the name of seller) (obtained in 8 Procedure 2); 2 days no cost c. Tax clearance certificate of real property taxes from the CTO (obtained in Procedure 3); d. Certificate authorizing registration from the BIR (obtained in Procedure 4); e. Photocopy of official receipt of transfer tax payment (original copy to be presented) (obtained in Procedure 6); and f. The transfer certificate of title (TCT) issued by the RD (in the name of the buyer) (obtained in Procedure 7). * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Philippines 55 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 the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Philippines 56 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Philippines stands at 126 in the ranking of collateral and bankruptcy laws in Philippines facilitate 183 economies on the ease of getting credit (figure access to credit? The economy has a score of 3 on the 6.1). The rankings for comparator economies and the depth of credit information index and a score of 4 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Philippines support lending and scores indicate more credit information and stronger borrowing. 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 2012 Philippines 57 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Philippines support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Philippines over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 116 126 Strength of legal rights 4 4 4 4 4 4 4 4 index (0-10) Depth of credit 3 3 3 3 3 3 3 3 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 3.4 3.7 4.8 5.5 5.4 6.1 7.4 8.2 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Philippines 58 GETTING CREDIT One way to put an economy’s getting credit indicators index for Philippines in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Philippines 59 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Philippines (table 6.2)? Table 6.2 How has Philippines made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. Access to credit was enhanced with a new credit information DB2010 act that regulates the operations and services of a credit information system. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 60 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Philippines are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Philippines East Asia & Indicator Philippines OECD high income Pacific Strength of legal rights index (0-10) 4 7 7 Depth of credit information index (0-6) 3 2 5 Public registry coverage (% of adults) 0.0 10.3 9.5 Private bureau coverage (% of adults) 8.2 18.1 63.9 Strength of legal rights index (0–10) Index score: 4 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No 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 No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to 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 No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Philippines 61 Strength of legal rights index (0–10) Index score: 4 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 3 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect No No 0 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms .. 0 Number of individuals .. 0 Source: Doing Business database. Doing Business 2012 Philippines 62 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Philippines 63 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Philippines? index (figure 7.1). While the indicator does not The economy has a score of 4.0 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy’s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Philippines stands at 133 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Philippines and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Philippines 64 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Philippines protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Philippines over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 131 133 Extent of disclosure 2 2 2 2 2 2 2 index (0-10) Extent of director 2 2 2 2 2 2 2 liability index (0-10) Ease of shareholder 8 8 8 8 8 8 8 suits index (0-10) Strength of investor 4.0 4.0 4.0 4.0 4.0 4.0 4.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Philippines 65 PROTECTING INVESTORS But the overall ranking on the strength of investor director liability and ease of shareholder suits indices protection index tells only part of the story. Economies may also be revealing (figure 7.2). Equally interesting may offer strong protections in some areas but not may be the changes over time in the regional average others. So the scores recorded over time for scores for those indices. Philippines on the extent of disclosure, extent of Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Philippines 66 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Philippines 67 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Philippines (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Philippines strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 68 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Philippines are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Philippines. Summary of scoring for the protecting investors indicators in Philippines East Asia & Indicator Philippines OECD high income Pacific Extent of disclosure index (0-10) 2 5 6 Extent of director liability index (0-10) 2 5 5 Ease of shareholder suits index (0-10) 8 6 7 Strength of investor protection index (0-10) 4.0 5.4 6.0 Score Extent of disclosure index (0-10) 2 What corporate body provides legally sufficient approval for the transaction? 0 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 0 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 0 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Philippines 69 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 1 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 4.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Philippines 70 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Philippines 71 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Philippines 72 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Philippines 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Philippines stands at 136 in the ranking of taxes in Philippines—and how much do firms pay in 183 economies on the ease of paying taxes (figure 8.1). taxes? On average, firms make 47 tax payments a year, The rankings for comparator economies and the spend 195 hours a year filing, preparing and paying regional average ranking provide other useful taxes and pay total taxes amounting to 21.0% of profit information for assessing the tax compliance burden (see the summary at the end of this chapter for for businesses in Philippines. details). Figure 8.1 How Philippines and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Philippines 74 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how of the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Philippines today, data over time show which aspects for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Philippines over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 127 136 Payments (number per 48 48 47 47 47 47 47 year) Time (hours per year) 195 195 195 195 195 195 195 Total tax rate (% profit) 49.8 50.2 51.3 49.4 49.4 45.8 46.5 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Philippines 75 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Philippines is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Philippines Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Philippines 76 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Philippines 77 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Philippines (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Philippines made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. The corporate income tax rate was cut from 35 percent to 30 DB2010 percent of profit. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 78 PAYING TAXES What are the details? The indicators reported here for Philippines are based that the company completed during the year. on a standard set of taxes and contributions that Respondents are asked how much in taxes and would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Philippines East Asia & Indicator Philippines OECD high income Pacific Payments (number per year) 47 25 13 Time (hours per year) 195 215 186 Profit tax (%) 21.0 16.8 15.4 Labor tax and contributions (%) 11.3 10.7 24.0 Other taxes (%) 14.2 6.9 3.2 Total tax rate (% profit) 46.5 34.5 42.7 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 taxable Corporate income tax 1 online filing 37 30.0% 21 profits previous Local business tax 1 0 0.50% year 8.8 turnover Employer paid - Social 7.02% to gross 12 38 7.6 security contributions 7.45% salaries assessed Real property tax 1 0 2.00% property 4.2 value Employer paid - Health 1.12157%- gross 12 0 1.7 insurance 1.24615% salaries Doing Business 2012 Philippines 79 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 2% or PHP Employer paid - Housing gross 12 0 100 per 1.7 development fund salaries worker Tax on interest 1 0 20.00% interest 0.5 fixed fee Community tax certificate 1 0 (PHP 0.3 10,500) Environmental tax 1 0 PHP 10,000 0.2 per Employer paid - Employer's 0 paid jointly 0 PHP 10 employee 0.2 compensation per month basic fee + vehicle's Vehicle tax 1 0 0.1 24% weight fixed fee BIR certificate 0 paid jointly 0 0 (PHP 500) PHP 1.5 per number of Tax on check transactions 1 0 0 check checks P 0.5 per insurance Tax on insurance contracts 1 0 0 small amount each P 4 premium various contract Stamp duty 1 0 0 small amount rates value Value added tax (VAT) 1 online filing 120 12.0% value added 0 not included Totals 47 195 46.5 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Philippines 80 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Philippines 81 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Philippines? Globally, Philippines stands at 51 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 7 (figure 9.1). The rankings for comparator economies documents, takes 15 days and costs $630. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 14 days and costs $730 (see the summary of in Philippines to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Philippines and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Philippines 82 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Philippines That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Philippines over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 54 51 Documents to export 7 7 7 7 7 7 7 (number) Time to export (days) 17 17 17 16 16 15 15 Cost to export (US$ per 755 755 755 771 771 630 630 container) Documents to import 8 8 8 8 8 8 8 (number) Time to import (days) 18 18 18 16 16 14 14 Cost to import (US$ per 800 800 800 819 819 730 730 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost Philippines is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for Philippines on Doing Business 2012 Philippines 83 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Philippines 84 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Philippines 85 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Philippines 86 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 tools to facilitate trade—including single windows, Business recorded in Philippines (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Philippines made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No 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. DB2010 No reform. The risk management and electronic data interchange DB2009 system for customs were upgraded, reducing the time to import. 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. Source: Doing Business database. Doing Business 2012 Philippines 87 TRADING ACROSS BORDERS What are the details? The indicators reported here for Philippines are based freight forwarders, shipping lines, customs brokers, on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Philippines East Asia & Indicator Philippines OECD high income Pacific Documents to export (number) 7 6 4 Time to export (days) 15 22 10 Cost to export (US$ per container) 630 906 1,032 Documents to import (number) 8 7 5 Time to import (days) 14 23 11 Cost to import (US$ per container) 730 954 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 8 150 Customs clearance and technical control 2 85 Ports and terminal handling 3 225 Inland transportation and handling 2 170 Totals 15 630 Procedures to import Time (days) Cost (US$) Documents preparation 8 160 Customs clearance and technical control 2 185 Ports and terminal handling 3 200 Inland transportation and handling 1 185 Totals 14 730 Doing Business 2012 Philippines 88 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Customs export declaration Cargo release order Commercial Invoice Certificate of origin Certificate of origin Commercial invoice Packing List Customs import declaration Technical standard/health certificate Packing list Terminal handling receipts Technical standard/health certificate Terminal handling receipts Doing Business 2012 Philippines 89 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Philippines 90 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Philippines stands at 112 in the ranking of dispute through the courts in Philippines? According 183 economies on the ease of enforcing contracts to data collected by Doing Business, enforcing a (figure 10.1). The rankings for comparator economies contract requires 37 procedures, takes 842 days and and the regional average ranking provide other useful costs 26.0% of the value of the claim (see the summary benchmarks for assessing the efficiency of contract at the end of this chapter for details). enforcement in Philippines. Figure 10.1 How Philippines and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Philippines 91 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in where the potential for improvement is greatest (table Philippines today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Philippines over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 114 112 Time (days) 982 862 842 842 842 842 842 842 842 Cost (% of claim) 24.8 24.8 24.8 26.0 26.0 26.0 26.0 26.0 26.0 Procedures (number) 37 37 37 37 37 37 37 37 37 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Philippines 92 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Philippines on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Philippines is keeping up— cost required to enforce a contract through the courts and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Philippines 93 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Philippines 94 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Philippines (table 10.2)? Table 10.2 How has Philippines made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 95 ENFORCING CONTRACTS What are the details? The indicators reported here for Philippines are based regulations, as well as through surveys completed by on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in Philippines—and the time and cost East Asia & Indicator Philippines OECD high income Pacific Time (days) 842 518.71 518.03 Filing and service 58 Trial and judgment 580 Enforcement of judgment 204 Cost (% of claim) 26 47.79 19.71 Attorney cost (% of claim) 10 Court cost (% of claim) 6 Enforcement Cost (% of claim) 10 Procedures (number) 37 36.75 31.42 Source: Doing Business database. Doing Business 2012 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 Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Philippines 97 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Philippines stands at 163 in the ranking of characterize the top-performing economies. How 183 economies on the ease of resolving insolvency efficient are insolvency proceedings in Philippines? (figure 11.1). The rankings for comparator economies According to data collected by Doing Business, and the regional average ranking provide other useful resolving insolvency takes 5.7 years on average and benchmarks for assessing the efficiency of insolvency costs 38% of the debtor’s estate. The average recovery proceedings in Philippines. rate is 4.7 cents on the dollar. Figure 11.1 How Philippines and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Philippines 98 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Philippines help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Philippines over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 161 163 Time (years) 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 Cost (% of estate) 38 38 38 38 38 38 38 38 38 Recovery rate (cents on 4.3 3.8 4.1 4.0 4.2 4.4 4.4 4.5 4.7 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Philippines 99 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Philippines is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Philippines Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Philippines 100 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Philippines 101 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 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Philippines made resolving insolvency easier—or not? By Doing Business report year DB Year Reform The Philippines adopted a new insolvency law that provides DB2012 a legal framework for liquidation and reorganization of financially distressed companies. DB2011 No reform. Reorganization procedures were promoted by introducing DB2010 prepackaged reorganizations and regulating the receiver profession. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Philippines 102 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Philippines 103 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Philippines 104 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Philippines 105 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Philippines 106 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Philippines 107 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Philippines 108