A competitive business environment

In addition to the ease of market access, the ease of doing business in a jurisdiction is also a decisive factor for investors. According to the Global Competitiveness Index 2015-2016, the Philippines ranked 47th out of 140 countries, while in the World Bank Doing Business Report 2016,it ranked 103rd out of 189.

*No information available for Brunei Darussalam 167 Myanmar

Source: World Economic Forum (2015). The Global Competitiveness Report 2015-2016, Global rankings.

Source: World Bank (2015). Doing Business 2016, Global rankings.

While the WB Doing Business Report does not take into consideration the ease of doing business in PEZA zones, which serve as a best practice of how to create a competitive and attractive investment environment for foreign investors, and therefore arguably presents a slightly pessimistic view of doing business in the country, it does highlight that outside of PEZA zones, the Philippine business environment still remains challenging.

Creating a competitive business environment will not just benefit foreign investors, it will also support increased efficiency and productivity for all, create a transparent business environment and a level playing field that will benefit every Filipino, from exporters, to MSMEs, to consumers.

Additionally, entrepreneurs and start-up investors that every country wants now, face a ‘doing business’ environment here that encourages them to stay ‘underground’.

There have been noteworthy initiatives in the past years to establish a more competitive business environment, such as the Repeal Project, established by the National Competitive Council in cooperation with the Department of Trade and Industry, which allows an interactive process for businesses to submit recommendations on legislation and administrative orders that is no longer relevant and handicaps the ease of doing business to be considered for repeal.

Another excellent example is the Philippine Competition Law which was enacted by President Aquino on July 21st 2015 and sets a legislative framework to ensure fair market competition, in line with international standards and best practices. Since the enactment of the law, a Philippine Competition Commission (PCC) has subsequently been formed, the former Director-General of NEDA, Mr Arsenio Balisacan, was appointed as Chairperson.

The PCC has already received 47 notifications of mergers / acquisitions and has its hands full at the moment with the US$ 1.5 billion telco deal that appears to cement a duopoly that may not be in the interest of fair competition. We are encouraged by the actions Chairman Balisacan and his co-commissioners take to review the telco deal in the interest of the mission of the CompetitionLaw and of Juan de la Cruz.

Another important factor for overall business competitiveness is a competitive fiscal incentives regime. In 2015, just 5% of total FDI to ASEAN entered the Philippines. As ASEAN Member States continue to develop industrial policies with ever more competitive packages to attract FDI, it is more important than ever that the Philippines increases its competitiveness; especially considering the increased influx of FDI into the region as more and more investors look for alternative investment destinations to China.

Taking into account existing restrictions on foreign ownership, a sound fiscal incentives regime is imperative to attracting a bigger percentage of the FDI coming into the region, which in turn is integral to establishing a sustainable and inclusive economic growth model.

In this context, the new Administration has to implement a comprehensive Income Tax Reforms for individuals and corporations. At 30%,corporate income tax in the Philippines is the highest tax regime on corporations in ASEAN. Notably, among other ASEAN countries, Indonesia applies a corporate income tax ranging from 12.5 to 25% depending on the company’s capital, Thailand 20%, Malaysia 25% and Singapore applies a corporate tax of just 17% of taxable income (source: http://www.business-in-asia.com/asia/taxation_asia.html).

Personal income tax is also a burden for employees and employers alike, as not only is the top tier tax bracket one of the highest in the region, at 32%, but the tax brackets themselves are based on outdated salary levels. In fact, there has been hardly any adjustment since the income brackets were set in 1986, and no adjustment since 1997.