Doing Business 2016 Philippines 100820 Economy Profile 2016 Philippines Doing Business 2016 Philippines 2 © 2016 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 Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 Philippines 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 27 Getting electricity ....................................................................................................................... 42 Registering property .................................................................................................................. 50 Getting credit .............................................................................................................................. 62 Protecting minority investors ................................................................................................... 68 Paying taxes ................................................................................................................................ 74 Trading across borders .............................................................................................................. 79 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 93 Labor market regulation ......................................................................................................... 101 Distance to frontier and ease of doing business ranking .................................................... 107 Resources on the Doing Business website ............................................................................ 111 Doing Business 2016 Philippines 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2015 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2014). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2016 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 189 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 47 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2016 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2016, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Philippines. To allow useful comparison, it Doing Business 2016 Philippines 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 Philippines 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 100,096,496 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,440 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 103 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 97* 0 represents the worst performance and 100 the frontier. Change in rank: -6 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 60.07 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 59.94 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.13 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2016 Philippines THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 Philippines THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Philippines and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 Philippines 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Philippines (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Philippines (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2016 Philippines 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Philippines come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 Philippines 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Philippines Best performer globally Philippines DB2016 Philippines DB2015 Indonesia DB2016 Malaysia DB2016 Thailand DB2016 Lao PDR DB2016 Vietnam DB2016 Indicator DB2016 Starting a Business (rank) 165 157 173 153 14 96 119 New Zealand (1) Starting a Business (DTF 68.56 67.23 66.04 73.81 95.34 85.07 81.25 New Zealand (99.96) Score) Procedures (number) 16.0 16.0 13.0 6.0 3.0 6.0 10.0 New Zealand (1.00)* Time (days) 29.0 34.0 47.8 73.0 4.0 27.5 20.0 New Zealand (0.50) Cost (% of income per 16.1 16.6 19.9 4.9 6.7 6.4 4.9 Slovenia (0.00) capita) Paid-in min. capital (% of 3.3 3.6 31.0 0.0 0.0 0.0 0.0 105 Economies (0.00)* income per capita) Dealing with Construction 99 94 107 42 15 39 12 Singapore (1) Permits (rank) Dealing with Construction 67.71 67.6 66.68 75.06 81.1 75.64 82.21 Singapore (92.97) Permits (DTF Score) Procedures (number) 24.0 24.0 17.0 11.0 15.0 17.0 10.0 5 Economies (7.00)* Time (days) 98.0 98.0 210.2 83.0 79.0 103.0 166.0 Singapore (26.00) Doing Business 2016 Philippines 12 Best performer globally Philippines DB2016 Philippines DB2015 Indonesia DB2016 Malaysia DB2016 Thailand DB2016 Lao PDR DB2016 Vietnam DB2016 Indicator DB2016 Cost (% of warehouse 1.1 1.2 3.8 0.5 1.4 0.1 0.8 Qatar (0.00) value) Building quality control 11.0 11.0 13.0 6.5 13.0 11.0 14.0 New Zealand (15.00) index (0-15) Getting Electricity (rank) 19 21 46 158 13 11 108 Korea, Rep. (1) Getting Electricity (DTF 86.89 86.88 80.73 45.19 90.05 90.5 63.34 Korea, Rep. (99.88) Score) Procedures (number) 4.0 4.0 5.0 6.0 5.0 4.0 6.0 14 Economies (3.00)* Time (days) 42.0 42.0 79.0 134.0 32.0 37.0 59.0 Korea, Rep. (18.00)* Cost (% of income per 28.7 31.4 383.0 1,522.6 30.7 45.9 1,322.6 Japan (0.00) capita) Reliability of supply and transparency of tariff 6.0 6.0 7.0 0.0 8.0 7.0 3.0 18 Economies (8.00)* index (0-8) Registering Property 112 110 131 66 38 57 58 New Zealand (1) (rank) Registering Property (DTF 57.53 57.52 52.41 68.7 76.32 71.33 70.6 New Zealand (94.46) Score) Procedures (number) 9.0 9.0 5.0 4.0 8.0 3.0 5.0 4 Economies (1.00)* Time (days) 35.0 35.0 27.4 53.0 13.0 3.0 57.5 3 Economies (1.00)* Cost (% of property value) 4.3 4.3 10.8 1.1 3.3 6.3 0.6 Saudi Arabia (0.00) Quality of the land administration index (0- 12.5 12.5 8.3 9.5 27.5 13.5 14.0 3 Economies (28.50)* 30) Getting Credit (rank) 109 105 70 70 28 97 28 New Zealand (1) Doing Business 2016 Philippines 13 Best performer globally Philippines DB2016 Philippines DB2015 Indonesia DB2016 Malaysia DB2016 Thailand DB2016 Lao PDR DB2016 Vietnam DB2016 Indicator DB2016 Getting Credit (DTF Score) 40 40 55 55 70 45 70 New Zealand (100) Strength of legal rights 3.0 3.0 5.0 6.0 7.0 3.0 7.0 3 Economies (12.00)* index (0-12) Depth of credit 5.0 5.0 6.0 5.0 7.0 6.0 7.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 0.0 0.0 48.5 5.1 57.0 0.0 41.5 Portugal (100.00) (% of adults) Credit bureau coverage 14.0 11.3 0.0 0.0 77.1 60.2 6.9 22 Economies (100.00)* (% of adults) Protecting Minority 155 154 88 178 4 36 122 Singapore (1)* Investors (rank) Protecting Minority 38.33 38.33 53.33 31.67 78.33 63.33 45 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection index 3.8 3.8 5.3 3.2 7.8 6.3 4.5 3 Economies (8.30)* (0-10) Extent of conflict of interest regulation index 4.0 4.0 5.7 3.3 8.7 7.7 3.7 Singapore (9.30)* (0-10) Extent of shareholder 3.7 3.7 5.0 3.0 7.0 5.0 5.3 4 Economies (8.00)* governance index (0-10) United Arab Emirates Paying Taxes (rank) 126 125 148 127 31 70 168 (1)* United Arab Emirates Paying Taxes (DTF Score) 66.23 66.46 60.46 66.1 84.31 77.7 45.41 (99.44)* Payments (number per Hong Kong SAR, China 36.0 36.0 54.0 35.0 13.0 22.0 30.0 year) (3.00)* Time (hours per year) 193.0 193.0 234.0 362.0 118.0 264.0 770.0 Luxembourg (55.00) Doing Business 2016 Philippines 14 Best performer globally Philippines DB2016 Philippines DB2015 Indonesia DB2016 Malaysia DB2016 Thailand DB2016 Lao PDR DB2016 Vietnam DB2016 Indicator DB2016 Total tax rate (% of profit) 42.9 42.5 29.7 25.3 40.0 27.5 39.4 Ireland (25.90) Trading Across Borders 95 94 105 108 49 56 99 Denmark (1)* (rank) Trading Across Borders 69.39 69.39 64.75 64.09 86.74 84.1 67.15 Denmark (100)* (DTF Score) Time to export: Border 42 42 39 3 20 51 57 15 Economies (0.00)* compliance (hours) Cost to export: Border 456 456 254 73 321 223 309 18 Economies (0.00)* compliance (USD) Time to export: Documentary compliance 72 72 72 216 10 11 83 Jordan (0.00) (hours) Cost to export: Documentary compliance 53 53 170 235 45 97 139 20 Economies (0.00)* (USD) Time to import: Border 72 72 99 5 24 50 64 19 Economies (0.00)* compliance (hours) Cost to import: Border 580 580 383 153 321 233 268 28 Economies (0.00)* compliance (USD) Time to import: Documentary compliance 96 96 144 216 10 4 106 21 Economies (1.00)* (hours) Cost to import: Documentary compliance 50 50 160 115 60 43 183 30 Economies (0.00)* (USD) Enforcing Contracts (rank) 140 139 170 92 44 57 74 Singapore (1) Enforcing Contracts (DTF 49.24 49.24 35.37 58.07 66.61 62.69 60.22 Singapore (84.91) Score) Time (days) 842.0 842.0 471.0 443.0 425.0 440.0 400.0 Singapore (150.00) Doing Business 2016 Philippines 15 Best performer globally Philippines DB2016 Philippines DB2015 Indonesia DB2016 Malaysia DB2016 Thailand DB2016 Lao PDR DB2016 Vietnam DB2016 Indicator DB2016 Cost (% of claim) 31.0 31.0 115.7 31.6 37.3 19.5 29.0 Iceland (9.00) Quality of judicial 7.5 7.5 6.3 6.5 12.0 6.5 6.5 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 53 50 77 189 45 49 123 Finland (1) (rank) Resolving Insolvency (DTF 56.81 56.74 46.48 0 62.49 58.84 35.83 Finland (93.81) Score) Recovery rate (cents on 21.4 21.2 31.2 0.0 81.3 42.5 20.1 Japan (92.90) the dollar) no Time (years) 2.7 2.7 1.9 1.0 2.7 5.0 Ireland (0.40) practice no Cost (% of estate) 32.0 32.0 21.6 10.0 36.0 14.5 Norway (1.00) practice Outcome (0 as piecemeal no sale and 1 as going 0 0 0 1 1 0 practice concern) Strength of insolvency 14.5 14.5 9.5 0.0 6.0 11.5 8.0 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2016 Philippines 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 Philippines 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Philippines? the largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 16.00 procedures, takes 29.00 average of the 2 largest business cities. See the chapter days, costs 16.10% of income per capita and requires on distance to frontier and ease of doing business paid-in minimum capital of 3.30% of income per capita ranking at the end of this profile for more details. (figure 2.1). Most indicator sets refer to a case scenario in Figure 2.1 What it takes to start a business in Philippines Paid-in minimum capital (% of income per capita): 3.30 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Philippines 18 STARTING A BUSINESS Globally, Philippines stands at 165 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in The rankings for comparator economies and the regional Philippines to start a business. Figure 2.2 How Philippines and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Philippines 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Philippines (table 2.1)? Table 2.1 How has Philippines made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The Philippines eased business startup by setting up a one- DB2011 stop shop at the municipal level. The Philippines made starting a business easier by streamlining communications between the Securities and DB2016 Exchange Commission and the Social Security System and thereby expediting the process of issuing an employer registration number. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Philippines is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Corporation firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: PHP the study of laws, regulations and publicly available 5,000 information on business entry in that economy. City: Quezon city Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Philippines Time to No. Procedure Cost to complete complete Verify and reserve the company name with the Securities and Exchange Commission (SEC) The name search can be done electronically via the SEC's online verification system, but applicants must pay for the reservation fee on site at the SEC. Once the reserved name was approved by the SEC, it costs PHP 40 for the first 30 days. The company name can be reserved 1 day PHP 40 1 for a maximum of 90 days for a fee of PHP 120, which is renewable upon expiration of the period. The reservation certificate is obtained in- person at SEC. Agency: Securities and Exchange Commission Deposit the paid-in minimum capital at the bank According to Section 13 of the Corporation Code, the paid-in minimum capital is 5,000 pesos. Even though a certificate of deposit is not a requirement by the Securities and Exchange Commission (SEC) for company registration, this procedure must be completed in order to abide by the applicable law. 2 The required minimum paid-in capital is reflected in the Articles of 1 day no charge Incorporation and supported by the Treasurer's Affidavit as provided under Section 14 of the Corporation Code. SEC requires a Treasurer's Affidavit stating that the deposit has been made in the corporation's treasurer-in-trust account. Agency: Bank Doing Business 2016 Philippines 21 Time to No. Procedure Cost to complete complete Notarize articles of incorporation and treasurer's affidavit at the notary According to Section 14 and 15 of the Corporation Code, articles of incorporation should be notarized before filing with the SEC. Under Section 15 of the Corporation Code, the Treasurer's Affidavit should 3 also be notarized. The 2004 Rules on Notarial Practice require the 1 day PHP 500 presence of the person(s) who executed the document (Articles of Incorporation and Treasurer's Affidavit) before the notary public. Agency: Notary Register the company with the SEC and receive pre-registered Taxpayer Identification Number (TIN) The company can register online through SEC i-Register, but entrepreneurs must pay at the SEC. The following documents are required for SEC registration: a. Company name verification slip; b. Articles of incorporation (notarized) and by-laws; c. Treasurer's affidavit (notarized); d. Statement of assets and liabilities; e. Registration data sheet with particulars on directors, officers, stockholders, and so forth; f. Written undertaking to comply with SEC reporting requirements (notarized); g. Written undertaking to change corporate name (notarized). On August 15, 2011, SEC launched the Green Lane Unit (GLU) that provides 1 day registration of applications for stock corporations and see procedure 4 partnership. In practice, it takes 1-3 business days to process 2 days on average details incorporation papers and obtain SEC approval. The pre-registered Taxpayer Identification Number (TIN) is automatically obtained from the SEC Head Office upon registration. However, the company must still register with the Bureau of Internal Revenue (BIR) in order to identify applicable tax types, pay an annual registration fee, obtain and stamp sales invoices, receipts and the books of accounts. Cost: 1/5 of 1% of the authorized capital stock or the subscription price of the subscribed capital stock (whichever is higher but not less than PHP 1,000) + legal research fee (LRF) equivalent to 1% of filing fee but not less than PHP 10 + PHP 500 By-laws + PHP 150 for registration of stock and transfer book (STB) required for new corporations + PHP 320 STB + PHP 10 legal research fee for the By-laws. Agency: Securities and Exchange Commission Doing Business 2016 Philippines 22 Time to No. Procedure Cost to complete complete Obtain barangay clearance To get the barangay clearance, the following documentary requirements should be submitted to the Barangay: Application form, SEC Certificate of Incorporation and approved articles of incorporation and bylaws, location plan/site map and the contract of lease over the corporation's office. This clearance is obtained from the Barangay where the business is located. Barangay fees vary in each Barangay since they have the 5 discretion to impose their own fees and charges as long as these fees 1 day PHP 500 are reasonable and within the limits set by the Local Government Code and city ordinances. In Quezon City, the fees range from PHP 300 to PHP 1000. The clearance is obtained in one day, provided that the barangay captain is in the office as the captain is the only official authorized to sign. Agency: Barangay Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO) The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the company legal form is a corporation, partnership, or association (PHP 500 or lower). The additional community tax (not to exceed PHP 10,000.00) depends on the assessed value of real property the company owns in the Philippines 1 day PHP 500 6 at the rate of PHP 2.00 for every PHP 5,000.00 and on its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year, at the rate of PHP 2.00 for every PHP 5,000.00. Agency: City Treasurer's Office Obtain the business permit to operate from the BPLO The fees vary depending on the LGU issuing the permit. The rate of license fee imposed in Quezon City is 25% of 1% of the authorized capital stock. Other permits, such as location clearance, fire safety and inspection certificate, sanitary permit, certificate of electrical inspection, mechanical permit, and other clearances or certificates required depending on the nature of business, are also imposable. The rate of see procedure 7 6 days these fees depends on the nature of business and land area occupied details by the proposed corporation. The barangay clearance is a prerequisite for the issuance of business permit to operate. Executive Order No. 17, series of 2011 created the Business-One-Stop- Shop to obtain a business permit. The entire procedure including Doing Business 2016 Philippines 23 Time to No. Procedure Cost to complete complete getting approval for the business permit takes around one to two weeks. Cost: (PHP 2,408.05 business tax (25% of 1% of paid-up capital) + PHP 200 mayor’s permit + PHP 150 sanitary inspection fee + PHP 50 signboard fee + PHP 300 business plate + PHP 100 QCBRB + PHP 545 zoning clearance + PHP 1,300 garbage fee+ PHP 300 FSIC (10% of all regulatory fees)) Agency: Business Permits and Licensing Office Buy special books of account at bookstore Special books of accounts are required for registering with the BIR. The books of accounts are sold at bookstores nationwide. One set of journals consisting of four books (cash receipts account, disbursements account, ledger, general journal) costs about PHP 400. If the company has a computerized accounting system (CAS), it may opt to register its CAS under the procedures laid out in BIR Revenue Memorandum Order Nos. 21-2000 and 29-2002. 1 day PHP 400 8 The BIR Computerized System Evaluation Team is required to inspect and evaluate the company’s CAS within 30 days from receipt of the application form (BIR Form No. 1900) and complete documentary requirements. Agency: Bookstore Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR) After the taxpayer obtains the TIN, the company must pay the annual registration fee of PHP 500 at any duly accredited bank, using payment form BIR Form 0605). All newly formed corporations subject to SEC registration are issued PHP 100 pre-generated TIN by SEC-Head Office, which is indicated on their SEC (certification fee) Certificate of Registration. The corporation only has to register its pre- and PHP 15 9 generated TIN with the BIR and report all internal revenue taxes that it 1 day (documentary expects to be liable for. stamp tax, in loose form to be attached The requirements for application for COR with the BIR are: to Form 2303) a. Duly accomplished and filled-out BIR Form No. 1903 (Application for Registration for Corporations); b. Payment Form (BIR Form No. 0605); c. SEC Certification of Incorporation; d. Articles of Incorporation and By-laws; e. Contract of Lease (with BIR Form No. 2000 and supporting BIR Payment Form as proof of payment of documentary stamp tax on the Doing Business 2016 Philippines 24 Time to No. Procedure Cost to complete complete lease agreement); f. Documentary Stamp Tax Return (BIR Form No. 2000) on the original issuance of shares and Payment Form (for the DST payment); and g. Mayor’s Permit/Business Permit Application (duly stamped received by the Business Licensing Division of the local government of Quezon City). Agency: Bureau of Internal Revenue Pay the registration fee and documentary stamp taxes (DST) at the AAB The rate of documentary stamp tax on original issuance of shares of stock shall be PHP 1.00 for every PHP 200.00 or fractional part thereof, of the par value, of such shares of stock. The documentary stamp tax return shall be filed and the tax paid on or before the fifth (5th) day after the close of the month of approval of see procedure 10 SEC registration. 1 day details Cost: (PHP 500 registration fee + PHP 5,165.345 DST on original issuance of shares of stock. DST on the lease contract is not included in the computation of the cost) Agency: Bureau of Internal Revenue Obtain the authority to print receipts and invoices from the BIR The authority to print receipts and invoices must be secured before printing the sales receipts and invoices. The BIR issued Revenue Regulations No. 18-2012 and it became effective on January 18, 2013. It adopted the online system for authority to print official receipts, sales invoices and other commercial invoices. In this regard, all unused or unissued receipts and invoices which were printed prior to January 18, 2013 will be deemed valid only until June 30, 2013. To obtain the authority to print receipts and invoices from the BIR, the company must submit the following documents to the Revenue District 1 day no charge 11 Office (RDO): a. Duly completed application for authority to print receipts and invoices (BIR Form No. 1906); b. Job order; c. Final and clear sample of receipts and invoices (machine-printed); d. Application for registration (BIR Form No. 1903); and e. Proof of payment of annual registration fee (BIR Form No. 0605). Agency: Bureau of Internal Revenue Doing Business 2016 Philippines 25 Time to No. Procedure Cost to complete complete Print receipts and invoices at the print shop The cost is based on the following specifications of the official receipt: 1/2 bond paper (8 ½ x 5 ½ cm) in duplicate, black print, carbonless. The 12 minimum print volume is 25 booklets. 7 days PHP 3,500 Agency: Bureau of Internal Revenue Have books of accounts and Printer’s Certificate of Delivery (PCD) stamped by the BIR After the printing of receipts and invoices, the printer issues a Printer’s Certificate of Delivery of Receipts and Invoices (PCD) to the company, which must submit this to the appropriate BIR RDO (i.e., the RDO which has jurisdiction over the company’s principal place of business) for registration and stamping within thirty (30) days from issuance. The company must also submit the following documents: a. All required books of accounts; b. VAT registration certificate; 13 c. SEC registration; 1 day no charge d. BIR Form W-5; e. Certified photocopy of the ATP; and f. Notarized taxpayer-user’s sworn statement enumerating the responsibilities and commitments of the taxpayer-user. The company must also submit a copy of the PCD to the BIR RDO having jurisdiction over the printer’s principal place of business. Agency: Bureau of Internal Revenue Register with the Social Security System (SSS) To register with the SSS, the company must submit the following documents: a. Employer registration form (Form R-1); b. Employment report (Form R-1A); 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. 14 2 days no charge 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. Agency: Social Security System Doing Business 2016 Philippines 26 Time to No. Procedure Cost to complete complete 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); c. SEC registration; d. BIR registration; and 15 e. Copy of business permit. 1 day no charge Upon submission of the required documents, the company shall get the receiving copy of all the forms as proof of membership until PhilHealth releases the employer and employee numbers within three months. Agency: Philippine Health Insurance Corporation * Register with Home Development Mutual Fund (Pag-ibig) To register with the HDMF, the corporation must submit the following documents: a. Employer's Data Form (EDF [FPF040]); b. Specimen Signature Form (SSF[FPF170]); c. Copy of SEC Certificate of Incorporation; d. Copy of Approved Articles of Incorporation and By-laws; and 1 day e. Board Resolution or Secretary’s Certificate indicating the duly (simultaneous with 16 designated Authorized Representative. no charge previous procedure) Upon submission of the complete documents and payment of the first contribution to the fund, the Pag-IBIG will issue the HDMF number and the HDMF Certificate of Registration. Agency: Home Development Mutual Fund * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Philippines 27 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 Philippines 28 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 Philippines 29 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Philippines? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 24.00 procedures, takes 98.00 days and frontier and ease of doing business ranking at the end of costs 1.10% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2016 Philippines 30 DEALING WITH CONSTRUCTION PERMITS Globally, Philippines stands at 99 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Philippines to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Philippines and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Philippines 31 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Philippines (table 3.1)? Table 3.1 How has Philippines made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The Philippines made construction permitting more DB2011 cumbersome through updated electricity connection costs. The Philippines made dealing with construction permits easier DB2014 by eliminating the requirement to obtain a health certificate. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 32 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Philippines are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction PHP 7,579,923 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Quezon city service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Philippines Time to No. Procedure Cost to complete complete Obtain certified true copy of the land title from the Register of Deeds (RD) The certified true copy of the land title serves as proof of 1 ownership of the land on which the warehouse is to be built. 4 days PHP 209 Agency: Register of Deeds (RD) * Obtain lot plan with site map from the geodetic engineer BuildCo must obtain the lot plan with a site map from a geodetic engineer to confirm the location of the land purported to be in the land title. The lot plan with a site map is signed, sealed, and prepared after a meticulous geodetic survey, or at least after an 3 days PHP 1,250 2 analysis has been conducted of the lot technical description appearing on the title. Agency: Geodetic Engineer * Obtain barangay clearance The barangay clearance is generally a requirement for obtaining the locational clearance. The costs for barangay clearances vary as barangays have the discretion to impose their own fees for as long as such fees are reasonable and within the limits imposed by the Local Government Code and city ordinances. 1 day PHP 500 3 The following documents must be submitted: 1. Transfer certificate of title 2. Blueprint copy of the building plans 3. Authorization from the company 4. Photocopy of IDs of authorized representative Doing Business 2016 Philippines 33 Time to No. Procedure Cost to complete complete 5. Homeowner’s endorsement (if applies) Agency: Barangay Apply for the locational clearance at the City Planning and Development Office (CPDO) The locational clearance is required to ensure that the construction conforms to the city’s Comprehensive Land Use Plan and zoning ordinances. BuildCo must submit the following documents, in addition to the application form: a. Certified true copy of the transfer certificate of title (TCT) b. Real estate tax receipt and bill (current year) c. Lease contract/ward notice, dead of sale, memorandum 4 of agreement or joint venture agreement (if applicable) 1 day no charge d. Authority to sign (corporate secretary’s affidavit) e. Affidavit of consent to construct / special power of attorney f. Barangay clearance g. Location plan h. Architectural plans (2 sets, signed and sealed) i. Site Development Plan showing parking layout j. Long folder Agency: City Planning and Development Office (CPDO) Receive inspection for the locational clearance from the CPDO 5 1 day no charge Agency: City Planning and Development Office (CPDO) Obtain the locational clearance from the CPDO BuildCo pays the locational clearance fee at the City Treasurer's Office (CTO) and obtains the locational clearance at the CPDO. 5 days PHP 1,996 6 Agency: City Planning and Development Office (CPDO) Doing Business 2016 Philippines 34 Time to No. Procedure Cost to complete complete Apply and obtain fire safety evaluation clearance (FSEC) from the local Fire Marshall at the Bureau of Fire Protection (BFP) The City Fire Marshall evaluates one set of plans and specifications submitted by the applicant to ensure that they conform to the fire safety and control requirements of the Fire Code. Three sets of the architectural plans must be stamped and approved by the Quezon City Fire Marshall. 7 7 days PHP 11,055 The following documents must be submitted: 1. Building Plans (5 sets) 2. Bill of Materials 3. Locational Clearance Agency: Quezon City Fire Marshall - Bureau of Fire Protection (BFP) Apply and obtain the building permit and ancillary permits at the Office of the Building Official (OBO) The ancillary permits consist of: • The architectural permit • Civil/structural permit • Electrical permit • Mechanical permit • Sanitary permit • Plumbing permit • Electronics permit •Fire Safety Clearance, Barangay Clearance, bill of materials, ECC, PTR & PRC of professionals The applicant must submit the following requirements: • Certified true copy of Original Certificate of Title (OCT)/TCT on file with the Registry of Deeds • Building permit application form 21 days PHP 43,043 8 • 3 sets of survey plans, design plans, specifications and other related documents (i.e., architectural documents, civil/structural documents, electrical documents, mechanical documents, sanitary documents, plumbing documents, electronics documents, geodetic documents, and clearances from other agencies) • Locational clearance from the CPDO If the sets of documents are complete, an acknowledgement/follow-up slip (AFS) is issued to the applicant. 10 workings after, the applicant will receive a order of payment (OP) is obtained from the Releasing Section of the DBO. Payment is made at the cashier of the Quezon City Treasurer’s Office. The official receipt (O.R.) of the permit fees is then submitted to the Releasing Section of DBO. The building permit will then be issued 5 working after submitting the proof of payment. Doing Business 2016 Philippines 35 Time to No. Procedure Cost to complete complete Based on Articles 26 and 27 of the Revenue Code, the fees are as follows: - Building permit fees: PHP 37,038.5 - Electrical permit: PHP 2,800.6 - Plumbing permit: PHP 1,542 - Excavation/sanitary permit: PHP 1,662 Agency: Office of the Building Official (OBO) Receive inspection from the BFP during construction The BFP conducts an inspection during construction to ensure that the plans and fire safety precautions are observed. 1 day no charge 9 Agency: Bureau of Fire Protection (BFP) Apply for the fire safety inspection certificate (FSIC) at the BFP Once construction has been completed, BuildCo requests the BFP to inspect the site to certify that the required fire safety 10 construction, fire protective and/or warning systems are properly 1 day PHP 4,304 installed and in good working condition. Agency: Bureau of Fire Protection (BFP) Receive final inspection for the FSIC from the BFP 11 1 day no charge Agency: Bureau of Fire Protection (BFP) Obtain the FSIC from the BFP 12 5 days no charge Agency: Bureau of Fire Protection (BFP) * Apply for the certificate of final electrical inspection (CFEI) at the OBO The CFEI certifies that a final inspection of the electrical installation has been conducted and that such installation has been completed in accordance with the approved plans and 1 day no charge 13 specifications on file with the OBO and the provisions of the Philippines Electrical Code. Agency: Office of the Building Official (OBO) Doing Business 2016 Philippines 36 Time to No. Procedure Cost to complete complete Receive final inspection for the CFEI from the OBO 14 1 day no charge Agency: Office of the Building Official (OBO) Obtain the CFEI from the OBO 15 3 days no charge Agency: Office of the Building Official (OBO) Apply for the certificate of occupancy at the OBO In order to apply for a certificate of occupancy, BuildCo must submit the following to the OBO: A. Clearances/Certificates/Legal Documents 1. Fire Safety Inspection Certificate (original + 2 photocopies) 2. Locational Clearance (3 photocopies) 3. Approved Building Permit (3 photocopies, present original if it has no bar code) 4. Approved Sanitary Permit (3 photocopies) 5. Certificate of Electrical Inspection (CEI) or Approved Electrical Permit (3 copies) w/ CEI Application Forms (2 copies) 6. Approved Mechanical Permit (3 photocopies) 7. Corporate Secretary's Certification of Board Resolution Authorizing Signatory (if Corporation/notarized original copy + 2 photocopies) Technical Documents (form must be duly accomplished, wet signed & dry sealed by the professional and signed by the 1 day no charge 16 owner/s) 1. Certificate of Completion (for the Structure/2 copies wet signed and dry sealed) 2. Certificate of Completion of Mechanical & Request for Inspection (especially if under Green Building Ordinance / 2 copies, wet signed & dry sealed) 3. Two (2) photocopies each of valid PRC IDs & current PTRs with seal and specimen signatures of the professional in blue ink. Supporting Document/s (signed and sealed by professionals) 1. Construction Logbook BuildCo must also present the Tax Declaration to the OBO as a condition for the release of the occupancy permit. All documents should be signed and sealed by the architect or engineer who undertook the full-time inspection and supervision of the construction. Doing Business 2016 Philippines 37 Time to No. Procedure Cost to complete complete Agency: Office of the Building Official (OBO) Receive final inspection for the certificate of occupancy from the OBO The OBO conducts a final inspection to check the building based on the certificate of completion, construction logbook, building 17 inspection sheets, and original and as-built plans and 1 day no charge specifications. Agency: Office of the Building Official (OBO) Obtain the certificate of occupancy from the OBO After the OBO has processed the application and conducted the inspection, it then issues an assessment and order of payment. The OBO issues the certificate of occupancy after the applicant 18 days PHP 17,688 18 has paid the corresponding fees. Agency: Office of the Building Official (OBO) Apply for water and sewage connection There are two private water providers for Quezon City. Maynilad services the west zone and Manila Water services the east zone. An inspection takes place within a week and the connection is completed some days after the inspection. The case study assumes that BuildCo will request water from Manila Water as this is the most favorable option. The required documents are: 19 1 day no charge 1. Proof of Ownership 2. Barangay Clearance 3. Company TIN 4. Valid ID 5. Excavation permit (If advised by the implementing Manila Water business center) Agency: Manila Water Receive inspection for water and sewage connection 20 1 day no charge Agency: Manila Water Doing Business 2016 Philippines 38 Time to No. Procedure Cost to complete complete Obtain water and sewage connection 21 21 days PHP 6,855 Agency: Manila Water * Apply for the tax declaration of improvement at the City Assessor's Office (CAO) BuildCo must update its official records to include the newly built warehouse for tax purposes. The OBO furnishes the CAO with a copy of the building plan and certificate of occupancy to notify them of the new building construction. BuildCo must submit the floor plan and as-built plan to the CAO. Ordinance No. 2361, series of 2014 entitled: "An Ordinance Requiring All Persons Acquiring Real Property in Quezon City or Making Improvements Thereon to Declare and File a Sworn Statement to the Office of the City Assessor for Real Property Taxation Purposes Such Property Within Sixty (60) Days After Its Acquisition or Upon Completion/Occupancy or Installation of Machineries Whichever Comes First and Imposing Penalties for 1 day no charge 22 Violation Thereof" was adopted on 23 December 2014. According to the legislation, the filing of the sworn statement declaring the true value of the property must be done within 60 days after: (a) the date of the final deed of sale, contract or other deed of conveyance; or (b) the date of completion or occupancy of the newly constructed building, house or improvements; or (c) the date of completion or occupancy of any expansion, renovation, or additional structures or improvements; or (d) the date of installation of machinery. Any property owner who fails to comply with the new ordinance will be penalized with a fine of PHP 2,000.00. Agency: City Assessor's Office (CAO) Receive inspection from the appraiser of CAO 23 1 day no charge Agency: City Assessor's Office (CAO) Obtain the tax declaration of improvement from the CAO The tax declaration of improvement is released after an appraiser inspects the property. 3 days no charge 24 Agency: City Assessor's Office (CAO) * Takes place simultaneously with another procedure. Doing Business 2016 Philippines 39 Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Philippines 40 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in Philippines Answer Score Building quality control index (0-15) 11.00 Quality of building regulations index (0-2) 1.00 In what way are the building regulations (including the building Available online; Free of code) or any regulations dealing with construction permits made 1.0 charge. available? (0-1) Which requirements for obtaining a building permit are clearly List of required specified by the building regulations or by any accessible website, documents; Fees to be 0.0 brochure or pamphlet? (0-1) paid. Quality control before construction index (0-1) 1.00 Who is part of the committee or team that reviews and approves Licensed architect; building permit applications in the relevant permit-issuing 1.0 Licensed engineer. agency? (0-1) Quality control during construction index (0-3) 2.00 What types of inspections (if any) are required by law to be Inspections by in-house 1.0 carried out during construction? (0-2) engineer. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.00 Yes, final inspection is done by government Is there a final inspection required by law to verify that the agency; Yes, in-house building was built in accordance with the approved plans and 2.0 engineer submits regulations? (0-2) report for final inspection. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Liability and insurance regimes index (0-2) 1.00 Architect or engineer; Which parties (if any) are held liable by law for structural flaws or Professional in charge 1.0 problems in the building once it is in use? (0-1) of the supervision; Construction company; Doing Business 2016 Philippines 41 Answer Score Owner or investor. Which parties (if any) are required by law to obtain an insurance No party is required by policy to cover possible structural flaws or problems in the law to obtain insurance 0.0 building once it is in use? (0-1) . Professional certifications index (0-4) 3.00 Minimum number of years of experience; University degree in What are the qualification requirements for the professional architecture or responsible for verifying that the architectural plans or drawings 2.0 engineering; Being a are in compliance with existing building regulations? (0-2) registered architect or engineer; Passing a certification exam. University degree in engineering, construction or What are the qualification requirements for the professional who construction 1.0 supervises the construction on the ground? (0-2) management; Being a registered architect or engineer; Passing a certification exam. Source: Doing Business database. Doing Business 2016 Philippines 42 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 Philippines 43 Assumptions about the monthly consumption The warehouse (continued):  It is assumed that the warehouse operates 8 hours a day for 30 days a month, with  Has two stories, both above ground, with a equipment utilized at 80% of capacity on total surface area of approximately 1,300.6 average, and that there are no electricity cuts square meters (14,000 square feet). The (assumed for simplicity). The subscribed plot of land on which it is built is 929 capacity of the warehouse is 140 kVA, with a square meters (10,000 square feet). power factor of 1 (1 kVA = 1 kW). The  Is used for storage of goods. monthly energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). Assumptions about the electricity connection  If multiple electricity suppliers exist, the The electricity connection: warehouse is served by the cheapest supplier.  Is a permanent one.  Tariffs effective in March of the current year  Is a three-phase, four-wire Y, 140-kilovolt- are used for calculation of the price of ampere (kVA) (subscribed capacity) electricity for the warehouse. connection (where the voltage is 120/208 V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 Philippines 44 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 4.00 which the data are a population-weighted average of the procedures, takes 42.00 days and costs 28.70% of 2 largest business cities. See the chapter on distance to income per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Philippines 45 GETTING ELECTRICITY Globally, Philippines stands at 19 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Philippines to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Philippines and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Philippines 46 GETTING ELECTRICITY What are the details? The indicators reported here for Philippines are based on OBTAINING AN ELECTRICITY CONNECTION* a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: MERALCO identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 19 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Quezon city distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Philippines Time to No. Procedure Cost to complete complete Submit application to MERALCO and await site inspection MERALCO evaluates the application, and sends engineer to site inspection and inspection of service entrance. Requirements along with application include: Initial requirement to start the Service Application Process - Formal request letter - Complete service application form - Electrical Plan signed & sealed by Professional Electrical Engineer (load schedule, list of loads, single line diagram, location sketch) 1 3 calendar days PHP 0 Other requirements to follow on or before contracting - Wiring Permit (Original/Meralco Copy for issuance of meter base) - Valid ID card with picture ( Driver's license, GSIS ID, SSS ID, Passport, TIN Card, Firearm's License, Philhealth ID, PRC License, Original NBI Clearance, Pag-ibig ID) - TIN Card / BIR Certificate of Registration - SEC Registration with Articles of Incorporation or DTI Registration - Company's Latest General Information Sheet (GIS) - Secretary's Certificate - Contract of Lease / Transfer Certificate Title (TCT) / Deed of Sale / Doing Business 2016 Philippines 47 Time to No. Procedure Cost to complete complete 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 Other requirements to follow on or before energization -CFEI -Payment of service deposit Agency: MERALCO Receive site visit from MERALCO and await estimate 2 14 calendar days PHP 0 Agency: MERALCO * Request and receive inspection certificate from Quezon City Request for Certificate of Electrical Inspection (CEI) from Quezon City. This can be done once the electrical installations are completed and engineer in-charge of installation signs the “Completion Certificate of 3 Electrical Installation” and submitted together with the application for 7 calendar days PHP 7,500 CEI to the City. Agency: Quezon City Submit inspection certificate to MERALCO and await final connection Once Service Contract is signed with MERALCO and project cost and deposit paid, MERALCO starts installation of power service connection and metering necessary for external connection. Project cost is shouldered by MERALCO through the Customer Allocation Budget. 4 Security deposit charged can be refunded by the customer, including 25 calendar days PHP 36,012.28 accumulated interest only upon termination of the service contract or if the account is transferred to another owner. Interest rate fluctuates with the current central bank rate and is accrued to the account. Agency: MERALCO * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Philippines 48 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Philippines Answer Score Reliability of supply and transparency of tariff index (0-8) 6.00 Total duration and frequency of outages per customer a year (0-3) 1.00 System average interruption duration index (SAIDI) 5.8 System average interruption frequency index (SAIFI) 3.2 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.00 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 1.00 Does the utility either pay compensation to customers or face fines by Yes the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 Are effective tariffs available online? Yes Link to the website, if available online www.meralco.co Doing Business 2016 Philippines 49 Answer Score m.ph Are customers notified of a change in tariff ahead of the billing cycle? Yes Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2016 Philippines 50 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square 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 and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Philippines 51 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 9.00 which the data are a population-weighted average of the procedures, takes 35.00 days and costs 4.30% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Philippines Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Philippines 52 REGISTERING PROPERTY Globally, Philippines stands at 112 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Philippines to transfer property. Figure 5.2 How Philippines and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Philippines 53 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: PHP 7,579,923 notaries and property registries. These procedures are those that apply to a transaction matching the City: Quezon city standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Philippines Time to No. Procedure Cost to complete complete Check against encumbrances and obtain certified true copy of the land title from the Register of Deeds (RD) PHP 209 - PHP 36 for the certification The buyer conducts the search against encumbrances and the seller + PHP 6 for each 1 obtains the true copy of the land title from the Register of Deeds (RD) 4 days additional page (2 additional pages Agency: Register of Deeds needed) + PHP 160.97 IT fee. Prepare the notarized deed of sale and related documents While the deed of sale can be prepared by anyone, it must be executed before and notarized by a notary public. In many instances, the notary public drafts the deed of sale and conducts the whole process on behalf of the parties. In addition to the deed of sale, the Register of Deeds also requires both the buyer and the seller to submit notarized secretary's 1 - 2% property 2 certificates containing the resolution of their board of directors 1 day value for approving the sale. The buyer must also produce a certificate from the notarization Securities and Exchange Commission (SEC) stating that its articles of incorporation have been registered with the SEC. Agency: Notary Obtain tax clearance certificate of real property taxes from the Land PHP 115 (PHP 50 Tax Division of the City Treasurer’s Office (CTO) for tax clearance 2 days for land and for The seller, after paying any arrears, obtains a tax clearance certificate (simultaneous real estate plus 3 from the CTO. The documentation shall include: (1) an original of the with procedure 4) PHP 15 for official receipt evidencing payment by seller of realty taxes; (2) certified documentary true copy of latest tax declarations for each of the land and the warehouse; (3) photocopy of official receipt for payment of real property stamp tax) Doing Business 2016 Philippines 54 Time to No. Procedure Cost to complete complete tax for each of the land and the warehouse for the immediately preceding year. Note: Separate tax clearance for real property tax should be obtained for the land and the warehouse Agency: Real Estate Tax Division of the City Treasurer’s Office PHP 250 (PHP 50 per RPU * Obtain certified true copy of latest tax declaration and certificate of "with improvement" from the City Assessor’s Office (CAO) (land(1RPU), Building (1RPU)) + The seller obtains a certified true copy of the latest tax declaration from 1 day PHP 90 for 4 the Assessor’s Office of Quezon City. (simultaneous certificate of "with with procedure 3) improvement" + Agency: Assessor’s Office PHP 60 (PHP 20 documentary stamp tax per RPU/document) Pay documentary stamp tax and final capital gains tax for the transfer of real property The seller or the buyer (based on their agreement) files the Documentary Stamp Tax return and Capital Gains Tax return with the authorized agent bank. This is done within 5 days after the close of the month when the taxable document was signed or within 30 days after the sale, whichever is earlier. The taxes are paid at the authorized bank to the account of the Bureau of Internal Revenue. The Creditable Withholding Tax at the rate of 6%. The Documentary Stamp Tax is 1.5% based on selling price or fair market value, whichever is higher. The buyer should file CWT and pay the CWT at the rate stated above no later than 10 days after the end of the month when the withholding tax was withheld, except for taxes withheld in 1.5% of property December for which the deadline is on January 15 of the following year. value 5 1 day (Documentary The documentation shall include: Stamp Tax) • Original copy and photocopy of notarized deed of sale of building (obtained in Procedure 1) • Certified true copy of transfer certificate of title (in the name of seller) • Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) • Photocopy of the latest realty tax receipt • Letter-request • Identification card of the person requesting Agency: Authorized Agent Bank (AAB) Doing Business 2016 Philippines 55 Time to No. Procedure Cost to complete complete Obtain Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) The Certificate Authorizing Registration (CAR) is a certification issued by the BIR that the transfer and conveyance of the property was reported and the taxes due have been fully paid. The taxpayer/applicant must submit the following documents to the BIR: a. Tax identification number (TIN) of seller and buyer; b. Notarized deed of absolute sale/document of transfer, but only photocopied document shall be retained by the BIR; c. Certified true copy of the latest tax declaration issued by the City Assessor’s Office for the land and improvement applicable to the taxable transaction; d. Owner’s copy (for presentation purposes only) and photocopy (for authentication) of the Original Certificate of Title (OCT), or the certified true copy of the Transfer Certificate of Title (TCT); PHP 115 (PHP 100 e. Sworn declaration of “with Improvement” by at least one (1) of the certification fee + 6 transferees, or certificate of “with Improvement” issued by the City 14 days PHP 15 Assessor’s Office. documentary tax) All documents submitted must also include 2 photocopies. The Certificate Authorizing Registration that will be released will be accompanied by the following documents: The Original copy of the Deed of Absolute Sale stamped received by the BIR 2000 (DST) stamped received by the BIR Applicant accomplishes BIR forms 2000-OT and 1706 for DST and CWT respectively, based on the ONETT computation sheets prepared by the BIR ONETT team. The applicant files the DST return and CGT return and pays the taxes at the AAB of the Revenue District Office. Upon receipt of proof of tax payment from the taxpayer/applicant, the BIR immediately issues a claim slip. Agency: Bureau of Internal Revenue (BIR) Pay the transfer tax at the CTO The transfer tax must be paid at the CTO not later than 60 days from the date of execution of the Deed of Absolute Sale or the notarization date thereof, whichever is earlier. The documentation shall include: a. 0.75% of property Certificate Authorizing Registration from the Bureau of Internal Revenue price (transfer tax) (obtained in Procedure 5); b. Tax clearance certificate from the 1 day + PHP 125 7 Treasurer’s Office of Quezon City (obtained in Procedure 3); c. Official (certificate of receipt of the Bureau of Internal Revenue (for documentary stamp tax) payment) (obtained in Procedure 4). Agency: Real Estate Tax Division of the City Treasurer’s Office Doing Business 2016 Philippines 56 Time to No. Procedure Cost to complete complete Registration fee consisting of PHP 8,796 for first PHP 1.700,000 + PHP 90 for every PHP 20,000 or fraction thereof in excess of PHP 1.700,000 + PHP 199.56 legal research fee (1% of the registration Apply for registration with the Register of Deeds fee) + PHP 30 The buyer applies for registration with the Register of Deeds. judicial form fee + PHP 3,104.37 IT The documentation shall include: fee (PHP 344.93 a. Copy of deed of absolute sale; per document) + b. Official receipt evidencing payment of transfer tax; PHP 300 primary c. Certificate Authorizing Registration from the BIR (CAR) including entry fee (PHP 30 official receipts for payment of DST and CGT; per document) + d. Real property tax clearance from the City Treasurer’s Office; PHP 480 e. Original copy of owner's duplicate of TCT (in the name of the seller); registration fee for 8 f. Original or certified true copy of the latest tax declaration; 10 days specific g. Notarized secretary's certificate containing resolution of the board of documents (PHP directors of the seller approving the sale; 120 per h. Notarized secretary's certificate containing resolution of the board of directors of the buyer approving the sale; document) + PHP i. Articles of incorporation of the buyer and by-laws; and 120 fixed entry fee j. Certificate from the SEC that the articles of incorporation of the buyer for specific have been registered. documents (PHP 30 per document) Agency: Register of Deeds + PHP 40 legal research fee for specific documents (PHP 10 per document) + PHP 60 annotation fee (PHP 30 per document) + PHP 258 fee for issuance of new transfer certificate of title Doing Business 2016 Philippines 57 Time to No. Procedure Cost to complete complete Obtain new tax declaration over the building and the land in the name of buyer from CAO The buyer applies with the CAO for the issuance of a new tax declaration over the building in his name. The documentation shall include: a. Photocopy of notarized deed of sale; b. Copy of latest tax declaration (in the name of seller); 9 c. Tax clearance certificate of real property taxes from the CTO; 2 days no cost d. Certificate authorizing registration from the BIR; e. Photocopy of official receipt of transfer tax payment (original copy to be presented); and f. The transfer certificate of title (TCT) issued by the RD (in the name of the buyer). Agency: Assessor’s Office - City Government * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Philippines 58 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Philippines Answer Score Quality of the land administration index (0-30) 12.50 Reliability of infrastructure index (0-8) 1.00 What is the institution in charge of immovable property registration? Register of Deeds In what format are the majority of title or deed records kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, No 0.0 mortgages, restrictions and the like)? Land Registration Institution in charge of the plans showing legal boundaries in the Agency, Bureau largest business city: of Lands In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in a computerized format Paper 0.0 (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information No 0.0 system)? Is the information recorded by the immovable property registration Separate agency and the cadastral or mapping agency kept in a single database, 0.0 databases in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or No 0.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 3.00 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 Doing Business 2016 Philippines 59 Answer Score property transaction made publicly available–and if so, how? http://www.lra.go v.ph/files/mandoc rl.pdf Link for online access: http://www.lra.go v.ph/files/sampfo rmsdocs.htm Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://www.lra.go v.ph/files/lrafeesc Link for online access: hedule1.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property Yes, online 0.5 ownership within a specific time frame–and if so, how does it communicate the service standard? http://www.lra.go Link for online access: v.ph/files/citchard .pdf Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of No 0.0 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2014: Anyone who pays Who is able to consult maps of land plots in the largest business city? 0.5 the official fee Is the applicable fee schedule for accessing maps of land plots made No 0.0 publicly available—and if so, how? Link for online access: Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it No 0.0 communicate the service standard? Link for online access: Doing Business 2016 Philippines 60 Answer Score Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 4.00 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally Yes 2.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Land dispute resolution index (0–8) 4.50 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction Yes 0.5 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? Registrar; Notary; If yes, who is responsible for checking the legality of the documents? Lawyer; Interested parties. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? Registrar; Notary; If yes, who is responsible for verifying the identity of the parties? Lawyer; Interested parties. Is there a national database to verify the accuracy of identity No 0.0 documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per Regional Trial capita and located in the largest business city, what court would be in Court charge of the case in the first instance? Doing Business 2016 Philippines 61 Answer Score How long does it take on average to obtain a decision from the first- Between 2 and 3 1.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first No 0.0 instance? Number of land disputes in the largest business city in 2014: Source: Doing Business database. Doing Business 2016 Philippines 62 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2016 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Philippines 63 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Philippines stands at 109 in the ranking of 189 and bankruptcy laws in Philippines facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 5.00 on the depth of rankings for comparator economies provide other useful credit information index and a score of 3.00 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Philippines support lending and scoring at the end of this chapter for details). Higher borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Philippines and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Philippines 64 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Philippines and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Philippines 65 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Philippines (table 6.1)? Table 6.1 How has Philippines made getting credit easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The Philippines improved access to credit information by beginning to distribute both positive and negative information DB2014 and by enacting a data privacy act that guarantees borrowers’ right to access their data. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 66 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders are Philippines are based on detailed information collected gathered through a survey of financial lawyers and in that economy. The data on credit information sharing verified through analysis of laws and regulations as well are collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 3.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? 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 its No assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to No the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a No maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is No unified geographically and by asset type, with an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? No Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by Yes providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and Yes private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Doing Business 2016 Philippines 67 Depth of credit information index (0–8) Credit bureau Credit registry Index score: 5.00 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years No No 0 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of firms 197,187 0 Number of individuals 8,500,098 0 Total 8,697,285 0 Total percentage of adult population 14.00 0.00 Source: Doing Business database. Doing Business 2016 Philippines 68 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related-party governance through another. The ranking of economies transactions; Available legal remedies (damages, on the strength of minority investor protections is disgorgement of profits, fines, imprisonment, determined by sorting their distance to frontier scores rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index (0– another company he owns. 10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 Philippines 69 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Philippines? The economy has a score of not measure all aspects related to the protection of 3.80 on the strength of minority investor protection minority investors, a higher ranking does indicate that an index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, Philippines stands at 155 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Philippines and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Philippines 70 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Philippines. Figure 7.2 Summary of the various minority investor protection indices for Philippines and comparator economies. Source: Doing Business database. Doing Business 2016 Philippines 71 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Philippines are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2016 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Philippines. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Philippines Answer Score Strength of minority investor protection index (0-10) 3.80 Extent of conflict of interest regulation index (0-10) 4.00 Extent of disclosure index (0-10) 2.00 Which corporate body can provide legally sufficient CEO alone 0.0 approval for the Buyer-Seller transaction? (0-3) Is disclosure by the interested director to the board of No disclosure obligation 0.0 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2.0 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public No disclosure obligation 0.0 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 3.00 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1.0 1) Can shareholders hold the interested director liable for the Not liable 0.0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Not liable 0.0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1.0 plaintiff? (0-1) Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 plaintiff? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0.0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 7.00 Before filing suit, can shareholders owning 10% of the Yes 1.0 Doing Business 2016 Philippines 72 company’s share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from At the discretion of the court 0.0 the company? (0-2) Extent of shareholder governance index (0-10) 3.70 Extent of shareholder rights index (0-10) 1.00 Does the sale of 51% of Buyer’s assets require shareholder No 0.0 approval? Can shareholders representing 10% of Buyer’s share capital No 0.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it No 0.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 external auditor? Must changes to the voting rights of a class of shares be No 0.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an No 0.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new Yes 1.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer No 0.0 issues new shares? Extent of ownership and control index (0-10) 4.00 Is the CEO prohibited from also being chair of the board of No 0.0 directors? Must the board of directors include independent and Yes 1.0 nonexecutive board members? Can shareholders remove members of Buyer’s board of Yes 1.0 directors without cause before the end of their term? Must Buyer’s board of directors include a separate audit No 0.0 committee? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its No 0.0 parent company? Doing Business 2016 Philippines 73 Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without Yes 1.0 cause before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the No 0.0 declaration date? Extent of corporate transparency index (0-10) 6.00 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the No 0.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2016 Philippines 74 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, Using a case scenario, Doing Business records the sales tax or goods and service tax) taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 Philippines 75 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with average of the 2 largest business cities. See the chapter taxes in Philippines—and how much do firms pay in on distance to frontier and ease of doing business taxes? On average, firms make 36.00 tax payments a ranking at the end of this profile for more details. year, spend 193.00 hours a year filing, preparing and Globally, Philippines stands at 126 in the ranking of 189 paying taxes and pay total taxes amounting to 42.90% of economies on the ease of paying taxes (figure 8.1). The profit (see the summary at the end of this chapter for rankings for comparator economies and the regional details). Most indicator sets refer to a case scenario in average ranking provide other useful information for the largest business city of an economy, except for 11 assessing the tax compliance burden for businesses in economies for which the data are a population-weighted Philippines. Figure 8.1 How Philippines and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Philippines 76 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Philippines (table 8.1)? Table 8.1 How has Philippines made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The Philippines made paying taxes easier for companies by DB2014 introducing an electronic filing and payment system for social security contributions. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 77 PAYING TAXES What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Quezon city chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 42 0.3 20.26 profit previous Local business tax 1 0.005 year 8.84 turnover P1,208.70 Employer paid - Social security per gross 1 online 38 6.72 contributions employee salaries per month assessed Real property tax 1 0.02 property 4.44 value Employer paid - Health 1.16% to gross 12 online 1.24 insurance 1.19% salaries Employer paid - Housing 2% or P100 gross 12 online 0.56 development fund per worker salaries Tax on interest 1 online 0.2 interest 0.51 per Employer paid - Employer's 0 jointly P 30 employee 0.17 compensation per month Community tax certificate 1 P 10,500 fixed fee 0.08 Doing Business 2016 Philippines 78 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 Environmental tax 1 P 10,000 fixed fee 0.08 basic fee + vehicle Vehicle tax 1 0.04 24% weight BIR certificate 0 jointly P 500 fixed fee 0 value not Value added tax (VAT) 1 online 113 0.12 0 added included P 1.5 per number of small Tax on check transactions 1 online 0 check checks amount P 0.5 per insurance small Tax on insurance contracts 1 online 0 each P 4 premium amount various contract small Stamp duty 1 online 0 rates value amount Employee paid - Social security 1.33% to gross 0 jointly 0 withheld contributions 2.98% salaries per 1.16% to Employee paid - Payroll tax 0 jointly employee 0 withheld 1.19% per month Employee paid - Housing 2% or P 100 gross 0 jointly 0 withheld development fund per worker salaries Totals 36.00 193.00 42.90 Source: Doing Business database. Doing Business 2016 Philippines 79 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (US$) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, transit and destination and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (US$) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are * Although Doing Business collects and publishes data on the recorded as 22 × 24 = 528 hours). If time and cost for domestic transport, it does not use these customs clearance takes 7.5 hours, the data in calculating the distance to frontier score for trading data are recorded as is. Alternatively, across borders or the ranking on the ease of trading across suppose that documents are submitted borders. to a customs agency at 8:00 a.m., are Cost processed overnight and can be picked up at 8:00 a.m. the next day. In this case  Insurance cost and informal payments for which the time for customs clearance would be no receipt is issued are excluded from the costs recorded as 24 hours because the actual recorded. Costs are reported in U.S. dollars. procedure took 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 Philippines 80 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to be Doing Business, it is assumed that a shipment greater than shipping cost based on volume. travels from a warehouse in the largest  If government fees are determined by the value business city of the exporting economy to a of the shipment, the value is assumed to be warehouse in the largest business city of the $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs different traded products. It is assumed that broker (or both) and pays for all costs related to each economy imports a standardized international shipping, domestic transport, shipment of 15 metric tons of containerized clearance and mandatory inspections by auto parts (HS 8708) from its natural import customs and other government agencies, port partner—the economy from which it imports or border handling, documentary compliance the largest value (price times quantity) of auto fees and the like for exports. The importing firm parts. It is assumed that each economy is responsible for the above costs for imports. exports the product of its comparative  The mode of transport is the one most widely advantage (defined by the largest export used for the chosen export or import product value) to its natural export partner—the and the trading partner, as is the seaport, economy that is the largest purchaser of this airport or land border crossing. product. Precious metal and gems, live animals and pharmaceuticals are excluded  All electronic submissions of information from the list of possible export products, requested by any government agency in however, and the second largest product connection with the shipment are considered to category is considered as needed. be documents obtained, prepared and submitted during the export or import process.  To identify the trading partners and export product for each economy, Doing Business  A port or border is defined as a place (seaport, collected data on trade flows for the most airport or land border crossing) where recent four-year period from international merchandise can enter or leave an economy. databases such as the United Nations  Government agencies considered relevant are Commodity Trade Statistics Database (UN agencies such as customs, port authorities, road Comtrade). For economies for which trade police, border guards, standardization agencies, flow data were not available, data from ministries or departments of agriculture or ancillary government sources (various industry, national security agencies and any ministries and departments) and World Bank other government authorities. Group country offices were used to identify the export product and natural trading partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 Philippines 81 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Philippines stands at 95 in the ranking of 189 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Philippines and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Philippines 82 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Philippines (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Philippines made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The Philippines reduced the time and cost to trade by improving its electronic customs systems, adding such DB2011 functions as electronic payments and online submission of declarations. In the Philippines trading across borders became more difficult DB2015 because of a new city ordinance restricting truck traffic in Manila. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some City: Quezon city combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Philippines Philippines East Asia & Pacific Time to export: Border compliance (hours) 42 51 Cost to export: Border compliance (USD) 456 396 Time to export: Documentary compliance (hours) 72 75 Cost to export: Documentary compliance (USD) 53 167 Time to import: Border compliance (hours) 72 59 Cost to import: Border compliance (USD) 580 421 Time to import: Documentary compliance (hours) 96 70 Cost to import: Documentary compliance (USD) 50 148 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Philippines Export Import HS 85 : Electrical machinery and equipment and parts thereof; sound recorders and HS 8708: Parts and accessories Product reproducers, television image of motor vehicles and sound recorders and reproducers, and parts and accessories of such articles Trade partner Hong Kong, China Japan Border Manila port Manila port Distance (km) 18 18 Domestic transport time (hours) 4 4 Domestic transport cost (USD) 381 381 Doing Business 2016 Philippines 84 Export Import Domestic transport speed (km/hour) 4.8 4.8 Domestic transport cost per distance (USD/km) 21.1 21.1 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export Bill of lading Commercial invoice Customs Export Declaration Export License Packing list Documents to import Bill of lading Certificate of origin (Japan and Philippines' Agreement) Commercial invoice Customs Import Declaration Import Permit Packing list Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 Philippines 85 Figure 9.2 Summary of Philippines on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2016 Philippines 86 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 Philippines 87 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Philippines? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Philippines stands at 140 in the ranking of 189 takes 842.00 days and costs 31.00% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average ranking provide other useful the data are a population-weighted average of the 2 benchmarks for assessing the efficiency of contract largest business cities. See the chapter on distance to enforcement in Philippines. Figure 10.1 How Philippines and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Philippines 88 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for ECONOMY DETAILS Philippines are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case Quezon City described above (figure 10.2). The time and cost of Court name: Metropolitan Trial Court resolving the standardized dispute are identified through study of the codes of civil procedure and City: Quezon city other court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Philippines and comparator economies Source: Doing Business database. Doing Business 2016 Philippines 89 Table 10.2 Details on time and cost for enforcing contracts in Philippines East Asia & Pacific Indicator Philippines average Time (days) 842 554 Filing and service 58 Trial and judgment 580 Enforcement of judgment 204 Cost (% of claim) 31.0 48.8 Attorney fees (% of claim) 20.0 Court fees (% of claim) 6.0 Enforcement fees (% of claim) 5.0 Source: Doing Business database. Doing Business 2016 Philippines 90 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Philippines. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Philippines and comparator economies Source: Doing Business database. Doing Business 2016 Philippines 91 Table 10.3 Details of the quality of judicial processes index in Philippines Answer Score Quality of judicial processes index (0-18) 7.50 Court structure and proceedings (0-5) 3.0 1. Is there a court or division of a court dedicated solely to hearing No 0.0 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes 0.5 Case management (0-6) 1.5 1. Time standards 0.5 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? No 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional Yes circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% No of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; No 0.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 used before the competent court? 5. Are there any electronic case management tools in place within the No 0.0 competent court for use by judges? 6. Are there any electronic case management tools in place within the No 0.0 competent court for use by lawyers? Court automation (0-4) 0.5 Doing Business 2016 Philippines 92 Answer Score 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims No 0.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Philippines 93 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicators do not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 Philippines 94 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving The resolving insolvency indicators are based on detailed insolvency takes 2.70 years on average and costs 32.00% information collected through questionnaires completed of the debtor’s estate, with the most likely outcome by insolvency experts, including lawyers, practitioners being that the company will be sold as piecemeal sale. (administrators, trustees), accountants and judges. Data The average recovery rate is 21.40 cents on the dollar. on the time, cost and outcome refer to the most likely in- Most indicator sets refer to a case scenario in the largest court insolvency procedure applicable under specific business city of an economy, except for 11 economies for case study assumptions. Data on provisions applicable to which the data are a population-weighted average of the judicial liquidation and reorganization is based on the 2 largest business cities. current law governing insolvency proceedings in each Globally, Philippines stands at 53 in the ranking of 189 economy. economies on the ease of resolving insolvency (figure 11.1). Figure 11.1 How Philippines and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Philippines 95 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Philippines and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 Philippines 96 Table 11.1 Details of data on efficiency of insolvency proceedings in Philippines Indicator Answer Explanation The most likely procedure applicable to our case study would be a reorganization, which will then be converted into a liquidation. Mirage may use liquidation the reorganization proceeding to gain time, find a new investor, or renegotiate (after an its debt. Insolvency proceedings will therefore start with Mirage (debtor) filing Proceedin attempt at for court-supervised reorganization with the Regional Trial Court. The court will g reorganization) appoint a rehabilitation receiver who is in charge of determining the viability of Mirage and preparing a Rehabilitation Plan. However, it is very likely that this plan is not approved, and that the case will be converted into liquidation. The hotel will stop operating and Mirage assets will be sold piecemeal in a public Outcome piecemeal sale auction upon the completion of the liquidation proceeding. A reorganization procedure that is then converted into liquidation will approximately take 2.7 years in total. According to the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the court shall have a maximum period of one Time (in 2.7 (1) year from the date of the filing of the petition to confirm a Rehabilitation years) Plan. If the Rehabilitation plan is not approved, the case will then be converted into liquidation, which can take up to 2 additional years (until the proceeds of the sale are finally distributed among creditors). The costs associated with the case would amount to approximately 32% of the Cost (% of value of the debtor's estate. Cost incurred during the entire insolvency process 32.0 estate) mainly include attorney fees (10%), official receiver fees (10%), liquidator fees (10%) and fees of auctioneers (1-5%). Recovery rate: 21.40 Source: Doing Business database. Doing Business 2016 Philippines 97 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 from DB2011 to DB2016 DB year Reform The Philippines adopted a new insolvency law that provides a DB2012 legal framework for liquidation and reorganization of financially distressed companies. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Philippines 98 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Philippines’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 14.50 out of 16. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Philippines and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 Philippines 99 Table 11.3 Summary of data for the strength of insolvency framework index in Philippines Answer Score Strength of insolvency framework index (0-16) 14.50 Commencement of proceedings index (0-3) 3.00 (a) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for both 1.0 proceedings? liquidation and reorganization (a) Yes, a creditor Does the insolvency framework allow a CREDITOR to file for insolvency of may file for both 1.0 the debtor? liquidation and reorganization (c) Both (a) and (b) options are What basis for commencement of the insolvency proceedings is allowed available, but 1.0 under the insolvency framework? only one of them needs to be complied with Management of debtor's assets index (0-6) 5.50 Does the insolvency framework allow the continuation of contracts Yes 1.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor Yes 1.0 obtaining credit after commencement of insolvency proceedings? (a) Yes over all pre- Does the insolvency framework assign priority to post-commencement commencement 0.5 credit? creditors, secured or unsecured Reorganization proceedings index (0-3) 3.00 (b) Only creditors whose rights are Which creditors vote on the proposed reorganization plan? 1.0 affected by the proposed plan Does the insolvency framework require that dissenting creditors in Yes 1.0 reorganization receive at least as much as what they would obtain in a Doing Business 2016 Philippines 100 Answer Score liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in Yes 1.0 the same class treated equally? Creditor participation index (0-4) 3.00 Does the insolvency framework require approval by the creditors for Yes 1.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to Yes 1.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 Philippines 101 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 Philippines 102 LABOR MARKET REGULATION What are the details? The data reported here for Philippines are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Hiring Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 297.8 (US$/month) Ratio of minimum wage to value added per worker 0.6 Incentives for employing workers under age 25? No Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Philippines 103 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 10.0 Premium for work on weekly rest day (% of hourly pay) 30.0 Premium for overtime work (% of hourly pay) 25.0 Restrictions on night work? 0.0 Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? 0.0 Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 5.0 Paid annual leave for a worker with 5 years of tenure (working days) 5.0 Paid annual leave for a worker with 10 years of tenure (working days) 5.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 5.0 working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Philippines 104 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2016 Philippines 105 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure) Source: Doing Business database. Doing Business 2016 Philippines 106 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Job Quality Data Equal remuneration for work of equal value? Yes Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 60.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? No On-the-job training? No Unemployment protection after one year of employment? No Minimum contribution period for unemployment protection (months)? n.a. Can employee create or join union? Yes Administrative or judicial relief for infringement of employees' rights? Yes Labor inspection system? Yes Source: Doing Business database. Doing Business 2016 Philippines 107 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate (figure 14.1). indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 Philippines 108 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 Philippines 109 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 Philippines 110 Doing Business 2016 Philippines 111 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 Philippines 112