Uneasy business: is Philippines the No. 1 choice?

(Second of two parts)

“Philippines is best country to invest in, says report” – said one headline. This is based on rankings released by US News and World Report. How did the Philippines go from being 56th in the world in competitiveness (out of 137 countries, according to the 2017 World Economic Forum Global Competitive Index) and 113th in ease of doing business (out of 190 countries, according to the World Bank’s Doing Business 2018), to be the No. 1 investment choice? The answer is, that really did not happen.

Feel-good stories are good for the soul, but we would rather be served with the truth, starting with acceptance of the facts and having a fighting chance for improvement.

The study and model that were used to score and rank countries were developed by Y&R’s BAV Group and The Wharton School. The survey involved people from different walks of life – not merely focused on CEOs or investment decision makers. More importantly, according to their website, the survey is “based on how global perceptions define countries in terms of a number of qualitative characteristics, impressions that have the potential to drive trade, travel and investment and directly affect national economies. The report covers perceptions of 80 nations.” And scores were “correlated to 2014 gross domestic product purchasing power parity per capita.” And that data were “correlated to predicted growth of the metric from 2014 to 2020.” Because of the timing of, and respondents to the survey, today, in 2018, this is as good as fake news, from our view.

We continue with our examples from the first four in last week’s column of what makes doing business uneasy:

5. If it’s not a rule of law, the environment will look unstable. Let’s take a recent example. The President makes an ineffective veto or insufficient erasure on the Tax Reform for Acceleration and Inclusion (TRAIN) bill. Despite the line veto, other parts of the TRAIN law still contain the special 15 percent tax rate for qualified employees of registered ROHQs. Without any further change in law, the government issued rules to remove the incentive. This shortcut disturbs the order – that is, the separation of functions between the legislative and the executive branches. Separation casts instability. The sad thing is, it could have easily been corrected using the constitutional and legal way.

6. The ploy of the deliberate red tape/delay. There is only one objective of deliberate delay in processing. Case in point is the experience of my foreign-owned client who’s trying to expand operations nationwide by opening branches in Luzon, Visayas, and Mindanao. Foreign corporations, especially, cannot play these games so they suffer. Sometimes, they just concede. Perhaps deliberate red tape should be made into a crime under special law, with an express lane for complaints with the Department of Justice (DOJ).

7. Honor thy contract. It is not uncommon for bidders, foreign or local conglomerates alike, to labor, spend, and be awarded the contract only to learn that there are issues with the project sites that prevent them from operating. What’s worse, some are able to undertake the project and have problems getting paid by the government agency that contracted them. This is the reverse of building trust and enticing private investments in the next project.

8. Don’t impose requirements that you cannot process. Case in point: It is understandable that the BIR may not have enough lawyers to process all requests for rulings within reasonable time. If so, then many of these rulings should not be required by the Bureau. Instead of this requisite, post-audit should be used. Publish the documents that should be kept by the taxpayer and that must be presented during the audit. Documents that support the cost of the asset in a tax-free exchange, or about tax residency of the foreign party in availing tax treaty protection, are few examples among many.

9. Create platforms to collect information online, and integrate these platforms. An example: an entity may be required to submit financial data to the Board of Investments, then to the BIR, then to the local government, all in relation to its incentive availment. Through a common platform, only one submission will be required, thus no documents will be lost or require refiling, and there will be greater transparency as well. Easier for both business and the government.

10. Beware of Trojan horses presented as trade agreements. The preferential trade terms enjoyed by businesses from that foreign country, our trade partner, via bilateral trade agreements make the playing field uneven and disincentivizes the rest. Our foreign counterparts may provide aid or pledges, but they recoup them quite well from the advantages enjoyed by their businessmen doing business in the Philippines. Special trade agreements create unfair domestic competition versus those not parties to it.

The above issues are mostly solvable by human will. And by enforcing ethical practices, these will be unraveled. The economic effects will help not only the physical infrastructure, but the family infrastructure as well. With more quality jobs, fewer Filipinos will need to go out of the country to seek the means to support their families. They can be together here. There is nothing about business that does not directly impact on the happiness of our people.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Tax Committee and the vice chairman of EMERGE (Educated Marginalized Entrepreneurs Resource Generation) program, of the Management Association of the Philippines (MAP). Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.