Doing Business 2020 Philippines Economy Profile Philippines Page 1 Doing Business 2020 Philippines Economy Profile of Philippines Doing Business 2020 Indicators (in order of appearance in the document) Starting a business Procedures, time, cost and paid-in minimum capital to start a limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a warehouse and the quality control and safety mechanisms in the construction permitting system Getting electricity Procedures, time and cost to get connected to the electrical grid, and the reliability of the electricity supply and the transparency of tariffs Registering property Procedures, time and cost to transfer a property and the quality of the land administration system Getting credit Movable collateral laws and credit information systems Protecting minority investors Minority shareholders’ rights in related-party transactions and in corporate governance Paying taxes Payments, time, total tax and contribution rate for a firm to comply with all tax regulations as well as postfiling processes Trading across borders Time and cost to export the product of comparative advantage and import auto parts Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Employing workers Flexibility in employment regulation and redundancy cost Page 2 Doing Business 2020 Philippines About Doing Business The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for 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. Doing Business also measures features of employing workers. Although Doing Business does not present rankings of economies on the employing workers indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business, it does present the data for these indicators. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy. In addition, Doing Business offers detailed subnational studies, which exhaustively cover business regulation and reform in different cities and regions within a nation. These studies provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the economy or region and with the 190 economies that Doing Business has ranked. The first Doing Business study, published in 2003, covered 5 indicator sets and 133 economies. This year’s study covers 11 indicator sets and 190 economies. Most indicator sets refer to a case scenario in the largest business city of each economy, except for 11 economies that have a population of more than 100 million as of 2013 (Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation and the United States) where Doing Business also collected data for the second largest business city. The data for these 11 economies are a population-weighted average for the 2 largest business cities. The project has benefited from feedback from governments, academics, practitioners and reviewers. The initial goal remains: to provide an objective basis for understanding and improving the regulatory environment for business around the world. To learn more about Doing Business please visit doingbusiness.org Page 3 Doing Business 2020 Philippines Ease of Doing Business in Region East Asia & Pacific DB RANK DB SCORE Philippines Income Category Lower middle income Population 106,651,922 95 62.8 City Covered Quezon city Rankings on Doing Business topics - Philippines 32 65 72 85 95 113 120 132 152 171 Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving a with Electricity Property Credit Minority Taxes across Contracts Insolvency Business Construction Investors Borders Permits Topic Scores 71.3 70.0 87.4 57.6 40.0 60.0 72.6 68.4 46.0 55.1 Starting a Business (rank) 171 Getting Credit (rank) 132 Trading across Borders (rank) 113 Score of starting a business (0-100) 71.3 Score of getting credit (0-100) 40.0 Score of trading across borders (0-100) 68.4 Procedures (number) 13 Strength of legal rights index (0-12) 1 Time to export Time (days) 33 Depth of credit information index (0-8) 7 Documentary compliance (hours) 36 Cost (number) 23.3 Credit registry coverage (% of adults) 0.0 Border compliance (hours) 42 Paid-in min. capital (% of income per capita) 0.0 Credit bureau coverage (% of adults) 13.5 Cost to export Documentary compliance (USD) 53 Dealing with Construction Permits (rank) 85 Protecting Minority Investors (rank) 72 Border compliance (USD) 456 Score of dealing with construction permits (0-100) 70.0 Score of protecting minority investors (0-100) 60.0 Time to export Procedures (number) 22 Extent of disclosure index (0-10) 9.0 Documentary compliance (hours) 96 Time (days) 120 Extent of director liability index (0-10) 4.0 Border compliance (hours) 120 Cost (% of warehouse value) 2.3 Ease of shareholder suits index (0-10) 7.0 Cost to export Building quality control index (0-15) 13.0 Extent of shareholder rights index (0-6) 1.0 Documentary compliance (USD) 68 Extent of ownership and control index (0-7) 5.0 Border compliance (USD) 690 Getting Electricity (rank) 32 Extent of corporate transparency index (0-7) 4.0 Score of getting electricity (0-100) 87.4 Enforcing Contracts (rank) 152 Procedures (number) 4 Paying Taxes (rank) 95 Score of enforcing contracts (0-100) 46.0 Time (days) 37 Score of paying taxes (0-100) 72.6 Time (days) 962 Cost (% of income per capita) 24.3 Payments (number per year) 13 Cost (% of claim value) 31.0 Reliability of supply and transparency of tariff index (0-8) 6 Time (hours per year) 171 Quality of judicial processes index (0-18) 7.5 Total tax and contribution rate (% of profit) 43.1 Registering Property (rank) 120 Postfiling index (0-100) 50.0 Resolving Insolvency (rank) 65 Score of registering property (0-100) 57.6 Score of resolving insolvency (0-100) 55.1 Procedures (number) 9 Recovery rate (cents on the dollar) 21.1 Time (days) 35 Time (years) 2.7 Cost (% of property value) 4.3 Cost (% of estate) 32.0 Quality of the land administration index (0-30) 12.5 Outcome (0 as piecemeal sale and 1 as going 0 concern) Strength of insolvency framework index (0-16) 14.0 Page 4 Doing Business 2020 Philippines Starting a Business This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business city. To make the data comparable across 190 economies, Doing Business uses a standardized business that is 100% domestically owned, has start-up capital equivalent to 10 times the income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people one month after the commencement of operations, all of whom are domestic nationals. Starting a Business considers two types of local limited liability companies that are identical in all aspects, except that one company is owned by 5 married women and the other by 5 married men. The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally start and formally operate a company To make the data comparable across economies, several assumptions about the business and the (number) procedures are used. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. • Preregistration (for example, name verification or reservation, notarization) The business: • Registration in the economy’s largest business city -Is a limited liability company (or its legal equivalent). If there is more than one type of limited • Postregistration (for example, social security registration, liability company in the economy, the limited liability form most common among domestic firms is company seal) chosen. Information on the most common form is obtained from incorporation lawyers or the statistical office. • Obtaining approval from spouse to start a business or to leave -Operates in the economy’s largest business city. For 11 economies the data are also collected for the home to register the company the second largest business city. • Obtaining any gender specific document for company -Performs general industrial or commercial activities such as the production or sale to the public of registration and operation or national identification card goods or services. The business does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. It is not using heavily Time required to complete each procedure (calendar days) polluting production processes. • Does not include time spent gathering information -Does not qualify for investment incentives or any special benefits. -Is 100% domestically owned. • Each procedure starts on a separate day (2 procedures cannot -Has five business owners, none of whom is a legal entity. One business owner holds 30% of the start on the same day) company shares, two owners have 20% of shares each, and two owners have 15% of shares • Procedures fully completed online are recorded as ½ day each. -Is managed by one local director. • Procedure is considered completed once final document is -Has between 10 and 50 employees one month after the commencement of operations, all of them received domestic nationals. • No prior contact with officials -Has start-up capital of 10 times income per capita. -Has an estimated turnover of at least 100 times income per capita. Cost required to complete each procedure (% of income per -Leases the commercial plant or offices and is not a proprietor of real estate. capita) -Has an annual lease for the office space equivalent to one income per capita. • Official costs only, no bribes -Is in an office space of approximately 929 square meters (10,000 square feet). -Has a company deed that is 10 pages long. • No professional fees unless services required by law or commonly used in practice The owners: Paid-in minimum capital (% of income per capita) -Have reached the legal age of majority and are capable of making decisions as an adult. If there • Funds deposited in a bank or with third party before registration is no legal age of majority, they are assumed to be 30 years old. or up to 3 months after incorporation -Are in good health and have no criminal record. -Are married, the marriage is monogamous and registered with the authorities. -Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Page 5 Doing Business 2020 Philippines Starting a Business - Philippines Standardized Company Legal form Corporation Paid-in minimum capital requirement No minimum City Covered Quezon city Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Procedure – Men (number) 13 6.5 4.9 1 (2 Economies) Time – Men (days) 33 25.6 9.2 0.5 (New Zealand) Cost – Men (% of income per capita) 23.3 17.4 3.0 0.0 (2 Economies) Procedure – Women (number) 13 6.6 4.9 1 (2 Economies) Time – Women (days) 33 25.7 9.2 0.5 (New Zealand) Cost – Women (% of income per capita) 23.3 17.4 3.0 0.0 (2 Economies) Paid-in min. capital (% of income per capita) 0.0 3.5 7.6 0.0 (120 Economies) Figure – Starting a Business in Philippines – Score 29.4 67.3 88.4 100.0 Procedures Time Cost Paid-in min. capital Figure – Starting a Business in Philippines and comparator economies – Ranking and Score DB 2020 Starting a Business Score 0 100 92.4: Thailand (Rank: 47) 83.9: Regional Average (East Asia & Pacific) 83.3: Malaysia (Rank: 126) 81.2: Indonesia (Rank: 140) 71.3: Philippines (Rank: 171) 62.7: Lao PDR (Rank: 181) Note: The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. Page 6 Doing Business 2020 Philippines Figure – Starting a Business in Philippines – Procedure, Time and Cost Time (days) Cost (% of income per capita) 12 30 Cost (% of income per capita) 10 25 8 Time (days) 20 6 15 4 10 5 2 0 0 1 2 *3 4 *5 *6 7 8 9 * 10 * 11 * 12 13 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 7 Doing Business 2020 Philippines Details – Starting a Business in Philippines – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Notarize articles of incorporation and treasurer's affidavit at the notary 1 day PHP 500 Agency : 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 also be notarized. The 2004 Rules on Notarial Practice require the presence of the person(s) who executed the document (Articles of Incorporation and Treasurer's Affidavit) before the notary public. 2 Apply for company incorporation and pre-registration for Taxpayer Identification Number 2 weeks included in procedure 3 (TIN), Social Security System (SSS), Philippine Health Insurance Company (PhilHealth) and Home Development Mutual Fund (Pag-ibig Fund) Agency : Securities and Exchange Commission There are three options for applying for incorporation: regular process (paper form), fast-track process (online form), and LEAP (express process recently introduced). Most companies use regular process for incorporation as online system for fast-track process does not always work, and LEAP is a newly introduced and not yet popular option. To apply for company incorporation, the business fill in an application form. The availability of the company name can be verified by filing the application. The following documents are required for SEC registration: a. Application form; b. Articles of incorporation (notarized) and by-laws; c. Written undertaking to change corporate name (notarized). Once the documents are received, SEC reviews and pre-approves application. After initial review, a payment order is issued and the applicant must pay the required fees and provide the proof of payment. After payment, there is a waiting time to prepare incorporation certificate and supporting documents, which then need to be collected by the applicant at SEC. The pre-registered Taxpayer Identification Number (TIN) is automatically obtained from SEC upon incorporation. However, the company must still register with the Bureau of Internal Revenue (BIR) in order to identify the applicable taxes, pay an annual registration fee and obtain an approval to print invoices and receipts. The company will also obtain a pre-registration with the Social Security System (SSS), the Philippine Health Insurance Company (PhilHealth) and the Home Development Mutual Fund (Pag-ibig Fund). 3 Pay the registration fees 1 day (simultaneous with see procedure details Agency : Securities and Exchange Commission previous procedure) Once the business founder has applied for company incorporation online, SEC will issue the payment fees. The applicant must pay the name approval and registration fees at a bank and provide the proof of payment to the system. The costs to register a company are as follows: - PHP 100 for name verification fee; - Filing fee of 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 1,000 for registration of bylaws; - PHP 150 + 320 for registration of stock and transfer book (STB) required for new corporations; - PHP 10 legal research fee for the bylaws. Page 8 Doing Business 2020 Philippines 4 Obtain a business permit 6 days see procedure details Agency : Quezon City One-Stop Shop at the Business Permits and Licensing Office The founders of a new company must obtain a business permit from the local Municipality. 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 imposed. The rate of these fees depends on the nature of business and land area occupied by the proposed corporation. Applicable fees: Business city tax: 25% of 1% of paid-up capital Mayor’s permit: PHP 5,000 (warehouse, fixed rate) sanitary fee: PHP 150 building inspection fee: PHP 50 electrical inspection fee: PHP 20 plumbing inspection fee: PHP 7 signboard fee PHP 50 business plate/sticker: PHP 250 zoning clearance: PHP 345 QCBRB: PHP 100 garbage fee: PHP 2,600 per quarter (for the case study) application fee: PHP 250 CTC (Community Tax Certificate): PHP 500 Fire Safety RA: PHP 718.20 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 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. 5 Receive inspection 1 day no charge Agency : An inspection is commonly conducted in practice prior to issuing a business permit. 6 Obtain barangay clearance 1 day PHP 500 for barangay Agency : Barangay (Local Authority) clearance The company's founders must obtain a clearance and pay the annual community tax at the local Barangay (neighborhood). To obtain the Barangay clearance, the following documentary requirements should be submitted: Application form, SEC Certificate of Incorporation and approved articles of incorporation and bylaws, location plan/site map and the lease over the corporation's office. The clearance is obtained from the Barangay where the business is located. Barangay fees vary in each Barangay since they have the discretion to impose their own fees and charges as long as these fees 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. 7 Buy special books of account at bookstore 1 day PHP 400 Agency : 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. 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. Page 9 Doing Business 2020 Philippines 8 Apply for Certificate of Registration (COR), TIN and approval to print receipts and invoices 3 days see procedure details Agency : Bureau of Internal Revenue All newly formed corporations subject to SEC registration are issued pre-generated TIN, which is indicated on their SEC Certificate of Registration. The corporation only has to register its pre- generated TIN with the Bureau of Internal Revenue (BIR) and report all internal revenue taxes that it expects to be liable for. The requirements for application for Certificate of Registration (COR) with the BIR are: 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 bylaws; e. Contract of Lease (with BIR Form No. 2000 and supporting BIR Payment Form as proof of payment of documentary stamp tax on the lease agreement); f. Documentary Stamp Tax Return (BIR Form No. 2000) on the original issuance of shares and Payment Form (for the DST payment); and g. Mayor’s Permit/Business Permit Application (duly stamped received by the Business Licensing Division of the local government of Quezon City). At the moment of tax registration, the company also requires the authority to print receipts and pays the relevant fees, which are as follows: - PHP 100 (certification fee) and PHP 30 (documentary stamp tax for the certification, in loose form to be attached to Form 2303); - PHP 500 for the annual registration fee; - PHP 2.00 on every PHP 200 of the company's capital, for the documentary stamp tax on original issuance of shares of stock; - The documentary stamp tax on the lease contract is not included in the computation of the costs. 9 Print receipts and invoices at the print shop 7 days PHP 3,500 Agency : Bureau of Internal Revenue 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 minimum print volume is 25 booklets. Final Registration with the Social Security System (SSS) 1 day (simultaneous with no charge 10 Agency : Social Security System previous procedure) 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. 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. 11 Final registration with the Philippine Health Insurance Company (PhilHealth) 1 day (simultaneous with no charge Agency : Philippine Health Insurance Corporation previous procedure) 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 e. Copy of business permit. Upon submission of the required documents, the company shall get the receiving copy of all the forms as proof of membership until PhilHealth releases the employer and employee numbers within three months. Final registration with Home Development Mutual Fund (Pag-ibig) 1 day (simultaneous with no charge 12 Agency : Home Development Mutual Fund previous procedure) 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 e. Board Resolution or Secretary’s Certificate indicating the duly designated Authorized Representative. 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. Page 10 Doing Business 2020 Philippines 13 Submit the Printer’s Certificate of Delivery of Receipts and Invoices (PCD) and a sworn 1 day no charge statement to the BIR Agency : Bureau of Internal Revenue 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; c. SEC registration; d. BIR Form W-5; e. Certified photocopy of the ATP; and f. Notarized taxpayer-user’s sworn statement enumerating the responsibilities and commitments of the taxpayer-user. The company must also submit a copy of the PCD to the BIR RDO having jurisdiction over the printer’s principal place of business. Takes place simultaneously with previous procedure. Page 11 Doing Business 2020 Philippines Dealing with Construction Permits This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The most recent round of data collection was completed in May 2019. See the methodology for more information What the indicators measure Case study assumptions Procedures to legally build a warehouse (number) To make the data comparable across economies, several assumptions about the construction company, the warehouse project and the utility connections are used. • Submitting all relevant documents and obtaining all necessary clearances, licenses, permits and certificates The construction company (BuildCo): • Submitting all required notifications and receiving all necessary - Is a limited liability company (or its legal equivalent) and operates in the economy’s largest inspections business city. For 11 economies the data are also collected for the second largest business city. • Obtaining utility connections for water and sewerage - Is 100% domestically and privately owned; has five owners, none of whom is a legal entity. Has a licensed architect and a licensed engineer, both registered with the local association of architects • Registering and selling the warehouse after its completion or engineers. BuildCo is not assumed to have any other employees who are technical or licensed Time required to complete each procedure (calendar days) experts, such as geological or topographical experts. - Owns the land on which the warehouse will be built and will sell the warehouse upon its • Does not include time spent gathering information completion. • Each procedure starts on a separate day—though procedures The warehouse: that can be fully completed online are an exception to this rule - Will be used for general storage activities, such as storage of books or stationery. • Procedure is considered completed once final document is received - Will have two stories, both above ground, with a total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor will be 3 meters (9 feet, 10 inches) high and will be • No prior contact with officials located on a land plot of approximately 929 square meters (10,000 square feet) that is 100% owned by BuildCo, and the warehouse is valued at 50 times income per capita. Cost required to complete each procedure (% of income per - Will have complete architectural and technical plans prepared by a licensed architect. If capita) preparation of the plans requires such steps as obtaining further documentation or getting prior • Official costs only, no bribes approvals from external agencies, these are counted as procedures. - Will take 30 weeks to construct (excluding all delays due to administrative and regulatory Building quality control index (0-15) requirements). • Quality of building regulations (0-2) The water and sewerage connections: • Quality control before construction (0-1) - Will be 150 meters (492 feet) from the existing water source and sewer tap. If there is no water • Quality control during construction (0-3) delivery infrastructure in the economy, a borehole will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be installed or built. • Quality control after construction (0-3) - Will have an average water use of 662 liters (175 gallons) a day and an average wastewater flow • Liability and insurance regimes (0-2) of 568 liters (150 gallons) a day. Will have a peak water use of 1,325 liters (350 gallons) a day and • Professional certifications (0-4) a peak wastewater flow of 1,136 liters (300 gallons) a day. - Will have a constant level of water demand and wastewater flow throughout the year; will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Page 12 Doing Business 2020 Philippines Dealing with Construction Permits - Philippines Standardized Warehouse Estimated value of warehouse PHP 9,794,149.30 City Covered Quezon city Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Procedures (number) 22 14.8 12.7 None in 2018/19 Time (days) 120 132.3 152.3 None in 2018/19 Cost (% of warehouse value) 2.3 3.2 1.5 None in 2018/19 Building quality control index (0-15) 13.0 9.4 11.6 15.0 (6 Economies) Figure – Dealing with Construction Permits in Philippines – Score 32.0 72.9 88.3 86.7 Procedures Time Cost Building quality control index Figure – Dealing with Construction Permits in Philippines and comparator economies – Ranking and Score DB 2020 Dealing with Construction Permits Score 0 100 89.9: Malaysia (Rank: 2) 77.3: Thailand (Rank: 34) 70.0: Regional Average (East Asia & Pacific) 70.0: Philippines (Rank: 85) 68.3: Lao PDR (Rank: 99) 66.8: Indonesia (Rank: 110) Note: The ranking of economies on the ease of dealing with construction permits is determined by sorting their scores for dealing with construction permits. These scores are the simple average of the scores for each of the component indicators. Page 13 Doing Business 2020 Philippines Figure – Dealing with Construction Permits in Philippines – Procedure, Time and Cost Time (days) Cost (% of warehouse value) 120 0.8 0.7 100 Cost (% of warehouse value) 0.6 80 Time (days) 0.5 60 0.4 0.3 40 0.2 20 0.1 0 0 1 *2 *3 *4 *5 *6 7 8 9 10 11 12 13 14 15 16 17 18 19 * 20 21 22 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 14 Doing Business 2020 Philippines Figure – Dealing with Construction Permits in Philippines and comparator economies – Measure of Quality 16 13.8 14 13.0 13.0 11.0 Index score 12 10 9.4 8 6.5 6 4 2 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Details – Dealing with Construction Permits in Philippines – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Obtain a Geotechnical study / Soil test 15 days PHP 70,000 Agency : Private firms BuildCo will request a soil boring test for the structural calculations for the foundation. While the soil test is not required by law, it is done in practice as it is used for the structural calculations for the foundation and it is commonly submitted as a supporting document for a building permit application. 2 Obtain a Topographical / Geodetic Survey 13 days PHP 35,000 Agency : Private firms Topographic Surveys are used to identify and map the contours of the land plot. Its purpose is to serve as a base map for the design of a building. It also shows the boundary lines and is used by designers to accurately show the required setbacks. It is used for the site plan, which is a mandatory requirement for all construction. 3 Obtain lot plan with site map from the geodetic engineer 10 days PHP 20,000 Agency : 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 analysis has been conducted of the lot technical description appearing on the title. 4 Obtain certified true copy of the land title from the Register of Deeds (RD) 4 days PHP 235 Agency : Register of Deeds (RD) The certified true copy of the land title serves as proof of ownership of the land on which the warehouse is to be built. In order to obtain the copy, BuildCo must visit the Registry of Deeds to fill out an application and show an ID card. After paying a processing fee, a receipt is produced which is presented when returning to collect the Certified True Copy of the Land Title. 5 Obtain barangay clearance 1 day PHP 500 Agency : Barangay The barangay clearance is not formally a requirement to secure a building permit but it is common industry practice in order to avoid an objection of the Barangay which could delay or stop the construction project. 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. The following documents must be submitted: 1. Certified true copy of the land title 2. Blueprint copy of the building plans 3. Authorization from the company 4. Photocopy of IDs of authorized representative Page 15 Doing Business 2020 Philippines 6 Apply for the locational clearance at the City Planning and Development Office (CPDO) 1 day PHP 200 Agency : City Planning and Development Office (CPDO) at the Quezon City One Stop Shop The locational clearance is required to ensure that the construction conforms to the city’s Comprehensive Land Use Plan and zoning ordinances. By virtue of E.O. 11, S-2017 the Quezon City One Stop Shop for Construction Permits receives and processes the locational clearance. BuildCo must submit the following documents, in addition to the application form: 1. Two (2) Original copies of Accomplished Form for Locational Clearance; 2. Two (2) Original copies of Lot Plan (for new structure/signed & sealed by a Geodetic Engineer). An additional three (3) sets of photocopies must be submitted prior to the release of the clearance; and 3. Two (2) Original copies of Architectural Plan (B.P. 344 –Accessibility Law compliance, if applicable; Site Development Plan (showing parking layout). An additional three (3) sets of photocopies must be submitted prior to the release of the clearance. The following legal documents and clearances are submitted simultaneously with the foregoing documents: 1. Certified True Copy of the land title; 2. Tax Clearance or Real Property Tax Receipt & Bill; 3. Tax Declaration of the Property; 4. If applicable: Deed of Absolute Sale, Lease Contract/Award Notice, Deed of Assignment or Donation, Memorandum of Agreement or Joint Venture Agreement; 5. Duly Notarized Authorization of Representative; and 6. Authority to Sign (Corporate Secretary's Affidavit) 7 Receive inspection for the locational clearance from the CPDO 1 day no charge Agency : City Planning and Development Office (CPDO) 8 Obtain the locational clearance from the CPDO 22 days PHP 13,006 Agency : City Planning and Development Office (CPDO) BuildCo obtains the order of payment at the releasing section if the application is compliant with the Zoning Ordinance of 2016, the Fire Code of the Philippines and the National Building Code of the Philippines. Buildo will then obtain the locational clearance at the CPDO and claim the permits, clearances, sticker and official receipts at the Releasing Section. 9 Apply and obtain fire safety evaluation clearance (FSEC) from the local Fire Marshall at the 7 days PHP 11,055 Bureau of Fire Protection (BFP) Agency : Quezon City Fire Marshall - 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. The following documents must be submitted: 1. Two (2) sets of Original copies of accomplished Application Form for Fire Safety Evaluation Clearance; 2. Two (2) Original copies of Fire Protection Plan, (if applicable); and 3. Two (2) Original copies of Cost Estimate/Bill of Materials This is submitted simultaneously with the requirements for the applications for Locational Clearance, Building and Ancillary Permits. 10 Apply and obtain the building permit and ancillary permits at the Office of the Building 21 days PHP 43,043 Official (OBO) Agency : Office of the Building Official (OBO) Buildco must submit one (1) set of each of the following documents: 1. Building Permit Application Form (Notarized); 2. Sanitary/Plumbing Permit Application Form; 3. Electrical Permit Application Form; 4. Mechanical Permit Application Form; 5. Electronics Permit Application Form; 6. Photocopies of valid PRC IDs & current PTRs with dry seal and 3 specimen signatures of the professionals As well as two (2) sets of the following documents: 1. Structural Plan (with PRC ID & PTR of the Civil Engineer who signed the plans); 2. Sanitary/Plumbing Plans; 3. Electrical Plans; 4. Mechanical Plans 5. Electronics Plan One (1) set of the following supporting documents: 1. Project Specifications 2. Structural Analysis and Design Computation (if involving structural members) Page 16 Doing Business 2020 Philippines 11 Apply for the fire safety inspection certificate (FSIC) at the BFP 1 day PHP 4,304 Agency : Bureau of Fire Protection (BFP) Once construction has been completed, BuildCo requests the BFP to inspect the site to certify that the required fire safety construction, fire protective and/or warning systems are properly installed and in good working condition. 12 Receive final inspection for the FSIC from the BFP 1 day no charge Agency : Bureau of Fire Protection (BFP) 13 Obtain the FSIC from the BFP 5 days no charge Agency : Bureau of Fire Protection (BFP) 14 Apply for the certificate of occupancy at the OBO 1 day no charge Agency : Office of the Building Official (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 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. 15 Receive final inspection for the certificate of occupancy from the OBO 1 day no charge Agency : Office of the Building Official (OBO) The OBO conducts a final inspection to check the building based on the certificate of completion, construction logbook, building inspection sheets, and original and as-built plans and specifications. 16 Obtain the certificate of occupancy from the OBO 18 days PHP 17,688 Agency : Office of the Building Official (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 has paid the corresponding fees. 17 Apply for water and sewage connection 1 day no charge Agency : Manila Water 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, in addition to the application form, are: 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) 18 Receive inspection for water and sewage connection 1 day no charge Agency : Manila Water 19 Obtain water and sewage connection 21 days PHP 15,000 Agency : Manila Water Page 17 Doing Business 2020 Philippines Apply for the tax declaration of improvement at the City Assessor's Office (CAO) 1 day no charge 20 Agency : 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 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. 21 Receive inspection from the appraiser of CAO 1 day no charge Agency : City Assessor's Office (CAO) 22 Obtain the tax declaration of improvement from the CAO 3 days no charge Agency : City Assessor's Office (CAO) The tax declaration of improvement is released after an appraiser inspects the property. Takes place simultaneously with previous procedure. Page 18 Doing Business 2020 Philippines Details – Dealing with Construction Permits in Philippines – Measure of Quality Answer Score Building quality control index (0-15) 13.0 Quality of building regulations index (0-2) 2.0 How accessible are building laws and regulations in your economy? (0-1) Available online; Free 1.0 of charge. Which requirements for obtaining a building permit are clearly specified in the building regulations or on any List of required 1.0 accessible website, brochure or pamphlet? (0-1) documents; Fees to be paid; Required preapprovals. Quality control before construction index (0-1) 1.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing Licensed architect; 1.0 building regulations? (0-1) Licensed engineer. Quality control during construction index (0-3) 2.0 What types of inspections (if any) are required by law to be carried out during construction? (0-2) Inspections by in- 1.0 house engineer; Inspections at various phases. Do legally mandated inspections occur in practice during construction? (0-1) Mandatory 1.0 inspections are always done in practice. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the building was built in accordance with the approved Yes, final inspection 2.0 plans and regulations? (0-2) is done by government agency; Yes, in-house engineer submits report for final inspection. Do legally mandated final inspections occur in practice? (0-1) Final inspection 1.0 always occurs in practice. Liability and insurance regimes index (0-2) 2.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use Architect or engineer; 1.0 (Latent Defect Liability or Decennial Liability)? (0-1) Professional in charge of the supervision; Construction company; Owner or investor. Which parties (if any) are required by law to obtain an insurance policy to cover possible structural flaws or No party is required 1.0 problems in the building once it is in use (Latent Defect Liability Insurance or Decennial Insurance)? (0-1) by law to obtain insurance . Professional certifications index (0-4) 3.0 What are the qualification requirements for the professional responsible for verifying that the architectural plans Minimum number of 2.0 or drawings are in compliance with existing building regulations? (0-2) years of experience; University degree in architecture or engineering; Being a registered architect or engineer; Passing a certification exam. Page 19 Doing Business 2020 Philippines What are the qualification requirements for the professional who supervises the construction on the ground? (0- University degree in 1.0 2) engineering, construction or construction management; Being a registered architect or engineer; Passing a certification exam. Page 20 Doing Business 2020 Philippines Getting Electricity This topic measures the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. Additionally, the reliability of supply and transparency of tariffs index measures reliability of supply, transparency of tariffs and the price of electricity. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to obtain an electricity connection (number) To make the data comparable across economies, several assumptions about the warehouse, the electricity connection and the monthly consumption are used. • Submitting all relevant documents and obtaining all necessary clearances and permits The warehouse: • Completing all required notifications and receiving all necessary - Is owned by a local entrepreneur and is used for storage of goods. inspections - Is located in the economy’s largest business city. For 11 economies the data are also collected for • Obtaining external installation works and possibly purchasing the second largest business city. material for these works - Is located in an area where similar warehouses are typically located and is in an area with no physical constraints. For example, the property is not near a railway. • Concluding any necessary supply contract and obtaining final - Is a new construction and is being connected to electricity for the first time. supply - Has two stories with a total surface area of approximately 1,300.6 square meters (14,000 square Time required to complete each procedure (calendar days) feet). The plot of land on which it is built is 929 square meters (10,000 square feet). • Is at least 1 calendar day The electricity connection: • Each procedure starts on a separate day - Is a permanent one with a three-phase, four-wire Y connection with a subscribed capacity of 140- kilo-volt-ampere (kVA) with a power factor of 1, when 1 kVA = 1 kilowatt (kW). • Does not include time spent gathering information - Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution • Reflects the time spent in practice, with little follow-up and no network and is either overhead or underground, whichever is more common in the area where the prior contact with officials warehouse is located and 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 Cost required to complete each procedure (% of income per owners’ private property because the warehouse has access to a road. capita) - Does not require work to install the internal wiring of the warehouse. This has already been • Official costs only, no bribes completed up to and including the customer’s service panel or switchboard and the meter base. • Value added tax excluded The monthly consumption: The reliability of supply and transparency of tariffs index (0-8) - It is assumed that the warehouse operates 30 days a month from 9:00 a.m. to 5:00 p.m. (8 hours • Duration and frequency of power outages (0–3) a day), with equipment utilized at 80% of capacity on average and that there are no electricity cuts (assumed for simplicity reasons) and the monthly energy consumption is 26,880 kilowatt-hours • Tools to monitor power outages (0–1) (kWh); hourly consumption is 112 kWh. • Tools to restore power supply (0–1) - If multiple electricity suppliers exist, the warehouse is served by the cheapest supplier. - Tariffs effective in January of the current year are used for calculation of the price of electricity for • Regulatory monitoring of utilities’ performance (0–1) the warehouse. Although January has 31 days, for calculation purposes only 30 days are used. • Financial deterrents limiting outages (0–1) • Transparency and accessibility of tariffs (0–1) Price of electricity (cents per kilowatt-hour)* • Price based on monthly bill for commercial warehouse in case study *Note: Doing Business measures the price of electricity, but it is not included in the ease of doing business score nor in the ranking on the ease of getting electricity. Page 21 Doing Business 2020 Philippines Getting Electricity - Philippines Standardized Connection Name of utility MERALCO Price of electricity (US cents per kWh) 18.1 City Covered Quezon city Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Procedures (number) 4 4.2 4.4 3 (28 Economies) Time (days) 37 63.2 74.8 18 (3 Economies) Cost (% of income per capita) 24.3 594.6 61.0 0.0 (3 Economies) Reliability of supply and transparency of tariff index (0-8) 6 4.0 7.4 8 (26 Economies) Figure – Getting Electricity in Philippines – Score 83.3 91.7 99.7 75.0 Procedures Time Cost Reliability of supply and transparency of tariff index Figure – Getting Electricity in Philippines and comparator economies – Ranking and Score DB 2020 Getting Electricity Score 0 100 99.3: Malaysia (Rank: 4) 98.7: Thailand (Rank: 6) 87.4: Philippines (Rank: 32) 87.3: Indonesia (Rank: 33) 75.1: Regional Average (East Asia & Pacific) 58.0: Lao PDR (Rank: 144) Note: The ranking of economies on the ease of getting electricity is determined by sorting their scores for getting electricity. These scores are the simple average of the scores for all the component indicators except the price of electricity. Figure – Getting Electricity in Philippines – Procedure, Time and Cost Time (days) Cost (% of income per capita) 25 35 Cost (% of income per capita) 30 20 25 Time (days) 15 20 15 10 10 5 5 0 0 1 2 *3 4 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures Page 22 Doing Business 2020 Philippines reflected here, see the summary below. Figure – Getting Electricity in Philippines and comparator economies – Measure of Quality 9 8 8 8 7 Index score 6 6 6 5 4.0 4 3 3 2 1 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Page 23 Doing Business 2020 Philippines Details – Getting Electricity in Philippines – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Submit application to MERALCO and await site inspection 3 calendar days PHP 0 Agency : MERALCO Customers apply for a new connection at Meralco regional office or online (https://www.meralco.com.ph/apply). Upon receipt, Meralco will review the application and will send an engineer for a site inspection. The engineer will give instruction on service entrance - the meter, the metering device and the transformer. The metering device will be located on customer's property. Initial requirement to start the Service Application Process - Formal request letter - Complete service application form - Electrical Plan signed & sealed by Professional Electrical Engineer (load schedule, list of loads, single line diagram, location sketch) Other requirements before contracting - Wiring Permit (Original/Meralco Copy for issuance of meter base) - Valid ID card with picture ( Driver's license, GSIS ID, SSS ID, Passport, TIN Card, Firearm's License, Philhealth ID, PRC License, Original NBI Clearance, Pag-ibig ID) - TIN Card / BIR Certificate of Registration - SEC Registration with Articles of Incorporation or DTI Registration - Company's Latest General Information Sheet (GIS) - Secretary's Certificate - Contract of Lease / Transfer Certificate Title (TCT) / Deed of Sale / Condominium Title Certificate (CTC) / Contract to Sell - Depending on the nature of your business and location, a PEZA or BOI Certification for Zero VAT Rating Other requirements before energization -CFEI -Payment of service deposit 2 Receive site visit from MERALCO and await approval 14 calendar days PHP 0 Agency : MERALCO An engineer from Meralco comes on site to perform a feasibility study is and approve the connection request. The applicant's contractor will typically be present. Back in the office, an engineer from Design Office in Meralco will prepare the design of facilities to serve the application and another one to prepare the electric service contract between Meralco and the customer. The contract can be sent through email or the customer can receive it at the Meralco office. 3 Request and receive certificate of final electrical inspection (CFEI) from Quezon City 7 calendar days PHP 7,500 Agency : Quezon City A Certificate of final electrical Inspection (CFEI) must be obtained from Quezon City. This is done once the electrical installations are complete. As part with the application for CFEI to the city, the engineer in-charge of the installation must sign and submit the “Completion Certificate of Electrical Installation”. If the electrical installation is found to be in conformity with the approved electrical permit and with the approved electrical plans, the CFEI will be released. 4 Submit inspection certificate to MERALCO and await final connection 20 calendar days PHP 40,026.56 Agency : MERALCO Once the feasibility study is completed and approved by MERALCO and the customer obtained the CFEI from the City Hall, he/she visits MERALCO to submit CFEI and the deposit (which is 1 month of expected consumption). After this, MERALCO can begin the installation of the power service connection and metering. The project cost is shouldered by MERALCO through the Customer Allocation Budget. The security deposit charged can be refunded to the customer, including accumulated interest, upon the termination of the service contract or if the account is transferred to another owner. Interest rates fluctuate with the current central bank rate and are accrued to the account. However, based on the issuance of the Distribution Services and Open Access Rules, which contains the “Early Refund Policy”, customers who pay their on time for 3 consecutive years can get a full refund prior to the termination of their service. Takes place simultaneously with previous procedure. Page 24 Doing Business 2020 Philippines Details – Getting Electricity in Philippines – Measure of Quality Answer Reliability of supply and transparency of tariff index (0-8) 6 Total duration and frequency of outages per customer a year (0-3) 2 System average interruption duration index (SAIDI) 3.6 System average interruption frequency index (SAIFI) 2.2 What is the minimum outage time (in minutes) that the utility considers for the calculation of SAIDI/SAIFI 5.0 Mechanisms for monitoring outages (0-1) 1 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability of supply? Yes Financial deterrents aimed at limiting outages (0-1) 1 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages exceed a certain cap? Yes Communication of tariffs and tariff changes (0-1) 0 Are effective tariffs available online? Yes Link to the website, if available online http://www.meralco.com.p h/consumer- information/rates-archive Are customers notified of a change in tariff ahead of the billing cycle? No Note: If the duration and frequency of outages is 100 or less, the economy is eligible to score on the Reliability of supply and transparency of tariff index. If the duration and frequency of outages is not available, or is over 100, the economy is not eligible to score on the index. If the minimum outage time considered for SAIDI/SAIFI is over 5 minutes, the economy is not eligible to score on the index. Page 25 Doing Business 2020 Philippines Registering Property This topic examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute. In addition, the topic also measures the quality of the land administration system in each economy. The quality of land administration index has five dimensions: reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally transfer title on immovable property To make the data comparable across economies, several assumptions about the parties to the (number) transaction, the property and the procedures are used. • Preregistration procedures (for example, checking for liens, The parties (buyer and seller): notarizing sales agreement, paying property transfer taxes) - Are limited liability companies (or the legal equivalent). • Registration procedures in the economy's largest business city. - Are located in the periurban (that is, on the outskirts of the city but still within its official limits) • Postregistration procedures (for example, filling title with area of the economy’s largest business city. For 11 economies the data are also collected for the municipality) second largest business city. - Are 100% domestically and privately owned. Time required to complete each procedure (calendar days) - Perform general commercial activities. • Does not include time spent gathering information The property (fully owned by the seller): • Each procedure starts on a separate day - though procedures - Has a value of 50 times income per capita, which equals the sale price. that can be fully completed online are an exception to this rule - Is fully owned by the seller. • Procedure is considered completed once final document is - Has no mortgages attached and has been under the same ownership for the past 10 years. received - Is registered in the land registry or cadastre, or both, and is free of title disputes. • No prior contact with officials - Is located in a periurban commercial zone (that is, on the outskirts of the city but still within its official limits), and no rezoning is required. Cost required to complete each procedure (% of property - Consists of land and a building. The land area is 557.4 square meters (6,000 square feet). A two- value) story warehouse of 929 square meters (10,000 square feet) is located on the land. The warehouse is 10 years old, is in good condition, has no heating system and complies with all safety standards, • Official costs only (such as administrative fees, duties and building codes and legal requirements. The property, consisting of land and building, will be taxes). transferred in its entirety. • Value Added Tax, Capital Gains Tax and illicit payments are - Will not be subject to renovations or additional construction following the purchase. excluded - Has no trees, natural water sources, natural reserves or historical monuments of any kind. - Will not be used for special purposes, and no special permits, such as for residential use, Quality of land administration index (0-30) industrial plants, waste storage or certain types of agricultural activities, are required. - Has no occupants, and no other party holds a legal interest in it. • Reliability of infrastructure index (0-8) • Transparency of information index (0–6) • Geographic coverage index (0–8) • Land dispute resolution index (0–8) • Equal access to property rights index (-2–0) Page 26 Doing Business 2020 Philippines Registering Property - Philippines Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Procedures (number) 9 5.5 4.7 1 (5 Economies) Time (days) 35 71.9 23.6 1 (2 Economies) Cost (% of property value) 4.3 4.5 4.2 0.0 (Saudi Arabia) Quality of the land administration index (0-30) 12.5 16.2 23.2 None in 2018/19 Figure – Registering Property in Philippines – Score 33.3 83.7 71.5 41.7 Procedures Time Cost Quality of the land administration index Figure – Registering Property in Philippines and comparator economies – Ranking and Score DB 2020 Registering Property Score 0 100 79.5: Malaysia (Rank: 33) 69.5: Thailand (Rank: 67) 64.9: Lao PDR (Rank: 88) 60.0: Indonesia (Rank: 106) 57.6: Philippines (Rank: 120) 57.5: Regional Average (East Asia & Pacific) Note: The ranking of economies on the ease of registering property is determined by sorting their scores for registering property. These scores are the simple average of the scores for each of the component indicators. Page 27 Doing Business 2020 Philippines Figure – Registering Property in Philippines – Procedure, Time and Cost Time (days) Cost (% of property value) 35 1.6 30 1.4 Cost (% of property value) 1.2 25 Time (days) 1 20 0.8 15 0.6 10 0.4 5 0.2 0 0 1 2 3 *4 5 6 7 8 9 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 28 Doing Business 2020 Philippines Figure – Registering Property in Philippines and comparator economies – Measure of Quality 30 26.5 25 Index score 20 19.0 15.5 16.2 15 12.5 10.5 10 5 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Details – Registering Property in Philippines – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Check against encumbrances and obtain certified true copy of the land title from the 4 days PHP 444.16; (PHP 209 for Register of Deeds (RD) checking against Agency : Register of Deeds encumbrances and PHP The lawyer goes to the Registry of Deeds, fills out an application that includes the property title 235.16 for obtaining the number and the name of the owner, and shows his ID card. Upon paying the processing fees, the true copy of the land title. lawyer is given a receipt which he must present when returning to collect the Certified True Copy The value of 235.16 is of the land title. divided as follows: PHP 36 for the certificate + PHP 6 per additional page of the certificate (usually 1 additional page) + PHP 160.97 IT fee + PHP 32.19 per additional page of the IT fees (usually 1 additional page).) 2 Prepare the notarized deed of sale and related documents 1 day PHP 146,912.24; (1 - 2% Agency : Notary property value for While the deed of sale can be prepared by anyone, it must be executed before and notarized by a notarization) 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 certificates containing the resolution of their board of directors approving the sale. 3 Obtain tax clearance certificate of real property taxes from the Land Tax Division of the City 2 days PHP 130; (PHP 130 (PHP Treasurer’s Office (CTO) 50 for tax clearance of Agency : Real Estate Tax Division of the City Treasurer’s Office land and PHP 50 for real The seller, after paying any arrears, obtains a tax clearance certificate from the CTO. The estate clearance plus PHP documentation shall include: (1) an original of the official receipt evidencing payment by seller of 30 for documentary stamp realty taxes; (2) certified true copy of latest tax declarations for each of the land and the warehouse; (3) photocopy of official receipt for payment of real property tax for each of the land tax)) 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 4 Obtain certified true copy of latest tax declaration and certificate of "with improvement" 1 day PHP 250; (PHP 250 (PHP from the City Assessor’s Office (CAO) 50 per RPU (1 land RPU Agency : City Assessor’s Office and 1 Building RPU) + The seller obtains a certified true copy of the latest tax declaration and a certificate of "with PHP 90 for certificate of improvement" from the City Assessor’s Office of Quezon City. "with improvement" + PHP 60 (PHP 20 per documentary stamp tax (3 documents))) Page 29 Doing Business 2020 Philippines 5 Pay documentary stamp tax and final capital gains tax for the transfer of real property 1 day PHP 146,912.24; (1.5% of Agency : Authorized Agent Bank (AAB) property value The seller or the buyer (based on their agreement) files the Documentary Stamp Tax return and (Documentary Stamp Tax)) 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 December for which the deadline is on January 15 of the following year. The documentation shall include: • Original copy and photocopy of notarized deed of sale of building (obtained in Procedure 1) • Certified true copy of transfer certificate of title (in the name of seller) • Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) • Photocopy of the latest realty tax receipt • Letter-request • Identification card of the person requesting 6 Obtain Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue 14 days PHP 130; (PHP 130 (PHP (BIR) 100 certification fee + PHP Agency : Bureau of Internal Revenue (BIR) 30 documentary tax)) 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); e. Sworn declaration of “with Improvement” by at least one (1) of the parties, or certificate of “with Improvement” issued by the City Assessor’s Office. f. Official Receipt issued by the Notary Public who notarized the deed of sale All documents submitted must also include 2 photocopies. The Certificate Authorizing Registration that will be released will be accompanied by the following documents: The Original copy of the Deed of Absolute Sale stamped received by the BIR 2000 (DST) stamped received by the BIR Applicant accomplishes BIR forms 2000-OT and 1706 for DST and CWT respectively, based on the ONETT computation sheets prepared by the BIR ONETT team. The applicant files the DST return and CGT return and pays the taxes at the AAB of the Revenue District Office. Upon receipt of proof of tax payment from the taxpayer/applicant, the BIR immediately issues a claim slip. 7 Pay the transfer tax at the CTO 1 day PHP 73,581.12; (0.75% of Agency : Real Estate Tax Division of the City Treasurer’s Office property price (transfer The transfer tax must be paid at the CTO not later than 60 days from the date of execution of the tax) + PHP 125 (certificate Deed of Absolute Sale or the notarization date thereof, whichever is earlier. The documentation of payment)) shall include: a. Original copy of the deed of sale b. Tax clearance certificate from the Treasurer’s Office of Quezon City (obtained in Procedure 3); c. Tax declaration from the City Assessor’s Office of Quezon City (obtained in procedure 4) ; d. Official receipt of the Bureau of Internal Revenue (for documentary stamp tax) (obtained in Procedure 5); e. Certificate Authorizing Registration from the Bureau of Internal Revenue (obtained in Procedure 6); Page 30 Doing Business 2020 Philippines 8 Apply for registration with the Register of Deeds 10 days PHP 49,837.93; Agency : Register of Deeds (Registration fee The buyer applies for registration with the Register of Deeds. consisting of PHP 8,796 for first PHP 1.700,000 + The documentation shall include: PHP 90 for every PHP a. Copy of deed of absolute sale; b. Official receipt evidencing payment of transfer tax; 20,000 or fraction thereof c. Certificate Authorizing Registration from the BIR (CAR) including official receipts for payment of in excess of PHP DST and CGT; 1.700,000 + PHP 199.56 d. Real property tax clearance from the City Treasurer’s Office; legal research fee + PHP e. Original copy of the owner's duplicate of TCT (in the name of the seller); 30 judicial form fee + PHP f. Original or certified true copy of the latest tax declaration; 3,104.37 IT fee (PHP g. Notarized secretary's certificate containing resolution of the board of directors of the seller 344.93 per document (x9)) approving the sale; + PHP 300 primary entry h. Notarized secretary's certificate containing resolution of the board of directors of the buyer fee (PHP 30 per document approving the sale; i. Articles of incorporation of the buyer and by-laws; and (x10)) + PHP 480 j. Certificate of company's incorporation registration fee for specific documents (PHP 120 per document(x4)) + PHP 120 fixed entry fee for specific documents (PHP 30 per document (x4)) + PHP 40 legal research fee for specific documents (PHP 10 per document(x4)) + PHP 60 annotation fee (PHP 30 per document (x2)) + PHP 258 fee for issuance of new transfer certificate of title.) 9 Obtain new tax declaration over the building and the land in the name of buyer from CAO 2 days no charge Agency : City Assessor’s Office - City Government 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); c. Tax clearance certificate of real property taxes from the CTO; d. Certificate authorizing registration from the BIR; e. Photocopy of official receipt of transfer tax payment (original copy to be presented); f. The transfer certificate of title (TCT) issued by the RD (in the name of the buyer); Takes place simultaneously with previous procedure. Page 31 Doing Business 2020 Philippines Details – Registering Property in Philippines – Measure of Quality Answer Score Quality of the land administration index (0-30) 12.5 Reliability of infrastructure index (0-8) 2.0 Type of land registration system in the economy: Title Registration System What is the institution in charge of immovable property registration? Land Registration Authority (LRA) - Register of Deeds In what format are past and newly issued land records kept at the immovable property registry of the largest Computer/Scanned 1.0 business city of the economy —in a paper format or in a computerized format (scanned or fully digital)? Is there a comprehensive and functional electronic database for checking for encumbrances (liens, mortgages, Yes 1.0 restrictions and the like)? Institution in charge of the plans showing legal boundaries in the largest business city: Department of Environment and Natural Resources (DENR) - Land Management Bureau (LMB) In what format are past and newly issued cadastral plans kept at the mapping agency of the largest business Paper 0.0 city of the economy—in a paper format or in a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information No 0.0 (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping agency Separate databases 0.0 kept in a single database, in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same identification No 0.0 number for properties? Transparency of information index (0–6) 3.0 Who is able to obtain information on land ownership at the agency in charge of immovable property registration Only intermediaries 0.0 in the largest business city? and interested parties Is the list of documents that are required to complete any type of property transaction made publicly available– Yes, online 0.5 and if so, how? Link for online access: http://lra.gov.ph/servic es/requirements/ Is the applicable fee schedule for any type of property transaction at the agency in charge of immovable Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? Link for online access: http://lra.gov.ph/servic es/fees/ Does the agency in charge of immovable property registration agency formally commit to deliver a legally Yes, online 0.5 binding document that proves property ownership within a specific timeframe –and if so, how does it communicate the service standard? Link for online access: https://www.lra.gov.ph /citizen-s-charter.html Is there a specific and independent mechanism for filing complaints about a problem that occurred at the agency No 0.0 in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 registration agency? Number of property transfers in the largest business city in 2018: 18.1 Who is able to consult maps of land plots in the largest business city? Anyone who pays the 0.5 official fee Is the applicable fee schedule for accessing maps of land plots made publicly available—and if so, how? Yes, online 0.5 Page 32 Doing Business 2020 Philippines Link for online access: http://www.lra.gov.ph/ mediafiles/pdf%20for ms/LRA%20Fees/lraf eeschedule1.pdf Does the cadastral/mapping agency formally specifies the timeframe to deliver an updated cadastral plan—and Yes, online 0.5 if so, how does it communicate the service standard? Link for online access: https://www.lra.gov.ph /citizen-s-charter.html Is there a specific and independent mechanism for filing complaints about a problem that occurred at the No 0.0 cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 4.0 Are all privately held land plots in the largest business city formally registered at the immovable property Yes 2.0 registry? Are all privately held land plots in the economy formally registered at the immovable property registry? No 0.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Are all privately held land plots in the economy mapped? No 0.0 Land dispute resolution index (0–8) 4.5 Does the law require that all property sale transactions be registered at the immovable property registry to make Yes 1.5 them opposable to third parties? Legal basis: Property Registration Decree, Civil Code and jurisprudence Is the system of immovable property registration subject to a state or private guarantee? Yes 0.5 Type of guarantee: State guarantee Legal basis: Philippine Constitution, Civil code and other pertinent Philippine laws, Article XII, National Economy and Patrimony Law. Is there a is a specific, out-of-court compensation mechanism to cover for losses incurred by parties who Yes 0.5 engaged in good faith in a property transaction based on erroneous information certified by the immovable property registry? Page 33 Doing Business 2020 Philippines Legal basis: Section 95 of Presidential Decree on Assurance Fund #1529 which provides that: "A person who, without negligence on his part, sustains loss or damage, or is deprived of land or any estate or interest therein in consequence of the bringing of the land under the operation of the Torrens system of arising after original registration of land, through fraud or in consequence of any error, omission, mistake or misdescription in any certificate of title or in any entry or memorandum in the registration book, and who by the provisions of this Decree is barred or wise precluded under the provision of any law from bringing an action for the recovery of such land or the estate or interest therein, may bring an action in any court of competent jurisdiction for the recovery of damages to be paid out of the Assurance Fund." Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., Yes 0.5 checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar; Notary; Lawyer; Does the legal system require verification of the identity of the parties to a property transaction? Yes 0.5 If yes, who is responsible for verifying the identity of the parties? Registrar; Notary; Lawyer; Is there a national database to verify the accuracy of government issued identity documents? No 0.0 What is the Court of first instance in charge of a case involving a standard land dispute between two local Regional Trial Court businesses over tenure rights for a property worth 50 times gross national income (GNI) per capita and located in the largest business city? How long does it take on average to obtain a decision from the first-instance court for such a case (without Between 2 and 3 1.0 appeal)? years Are there publicly available statistics on the number of land disputes at the economy level in the first instance No 0.0 court? Number of land disputes in the economy in 2018: Equal access to property rights index (-2–0) -1.0 Do unmarried men and unmarried women have equal ownership rights to property? Yes Do married men and married women have equal ownership rights to property? No -1.0 Page 34 Doing Business 2020 Philippines Getting Credit This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Strength of legal rights index (0–12) Doing Business assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions through 2 sets of indicators. The depth of credit • Rights of borrowers and lenders through collateral laws (0-10) information index measures rules and practices affecting the coverage, scope and accessibility of • Protection of secured creditors’ rights through bankruptcy laws credit information available through a credit registry or a credit bureau. The strength of legal rights (0-2) index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. For each economy it is first determined whether a unitary Depth of credit information index (0–8) secured transactions system exists. Then two case scenarios, case A and case B, are used to • Scope and accessibility of credit information distributed by determine how a nonpossessory security interest is created, publicized and enforced according to credit bureaus and credit registries (0-8) the law. Special emphasis is given to how the collateral registry operates (if registration of security interests is possible). The case scenarios involve a secured borrower, company ABC, and a Credit bureau coverage (% of adults) secured lender, BizBank. • Number of individuals and firms listed in largest credit bureau In some economies the legal framework for secured transactions will allow only case A or case B as a percentage of adult population (not both) to apply. Both cases examine the same set of legal provisions relating to the use of movable collateral. Credit registry coverage (% of adults) • Number of individuals and firms listed in credit registry as a Several assumptions about the secured borrower (ABC) and lender (BizBank) are used: percentage of adult population - ABC is a domestic limited liability company (or its legal equivalent). - ABC has up to 50 employees. - ABC has its headquarters and only base of operations in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. - Both ABC and BizBank are 100% domestically owned. The case scenarios also involve assumptions. In case A, as collateral for the loan, ABC grants BizBank a nonpossessory security interest in one category of movable assets, for example, its machinery or its inventory. ABC wants to keep both possession and ownership of the collateral. In economies where the law does not allow nonpossessory security interests in movable property, ABC and BizBank use a fiduciary transfer-of-title arrangement (or a similar substitute for nonpossessory security interests). In case B, ABC grants BizBank a business charge, enterprise charge, floating charge or any charge that gives BizBank a security interest over ABC’s combined movable assets (or as much of ABC’s movable assets as possible). ABC keeps ownership and possession of the assets. Page 35 Doing Business 2020 Philippines Getting Credit - Philippines Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Strength of legal rights index (0-12) 1 7.1 6.1 12 (5 Economies) Depth of credit information index (0-8) 7 4.5 6.8 8 (53 Economies) Credit registry coverage (% of adults) 0.0 16.6 24.4 100.0 (2 Economies) Credit bureau coverage (% of adults) 13.5 23.8 66.7 100.0 (14 Economies) Figure – Getting Credit in Philippines – Score 40.0 Score - Getting Credit Figure – Getting Credit in Philippines and comparator economies – Ranking and Score DB 2020 Getting Credit Score 0 100 75.0: Malaysia (Rank: 37) 70.0: Indonesia (Rank: 48) 70.0: Thailand (Rank: 48) 60.0: Lao PDR (Rank: 80) 58.0: Regional Average (East Asia & Pacific) 40.0: Philippines (Rank: 132) Note: The ranking of economies on the ease of getting credit is determined by sorting their scores for getting credit. These scores are the sum of the scores for the strength of legal rights index and the depth of credit information index. Page 36 Doing Business 2020 Philippines Figure – Legal Rights in Philippines and comparator economies 8 7.1 7 7 7 6 6 Index Score 6 5 4 3 2 1 1 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Page 37 Doing Business 2020 Philippines Details – Legal Rights in Philippines Strength of legal rights index (0-12) 1 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents No to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description No of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of No collateral? May a security right extend to future or after-acquired assets, and does it extend automatically to the products, proceeds and replacements of the No 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; No and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an No 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 searches can be performed online by any interested third No party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor defaults outside an insolvency procedure? Yes Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is liquidated? No Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No protect secured creditors’ rights by providing clear grounds for relief from the stay and 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 No the collateral through public auction or private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Figure – Credit Information in Philippines and comparator economies 9 8 8 8 7 7 7 Index Score 6 6 5 4.5 4 3 2 1 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Page 38 Doing Business 2020 Philippines Details – Credit Information in Philippines Depth of credit information index (0-8) Credit bureau Credit registry Score Are data on both firms and individuals distributed? No No 0 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 Yes No 1 financial institutions - distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries Yes No 1 that distribute more than 10 years 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 capita distributed? Yes No 1 By law, do borrowers have the right to access their data in the credit bureau or Yes No 1 credit registry? Can banks and financial institutions access borrowers’ credit information online Yes No 1 (for example, through an online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value-added service to help Yes No 1 banks and financial institutions assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 9,183,958 N/A Number of firms 0 N/A Total 9,183,958 0 Percentage of adult population 13.5 0.0 Page 39 Doing Business 2020 Philippines Protecting Minority Investors This topic measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions • Extent of disclosure index (0–10): Disclosure, review, and To make the data comparable across economies, a case study uses several assumptions about approval requirements for related-party transactions the business and the transaction. • Extent of director liability index (0–10): Ability of minority shareholders to sue and hold interested directors liable for The business (Buyer): prejudicial related-party transactions; Available legal - Is a publicly traded corporation listed on the economy’s most important stock exchange. remedies (damages, disgorgement of profits, disqualification - Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of from managerial position(s) for one year or more, rescission of Buyer where permitted, even if this is not specifically required by law. the transaction) - Has a supervisory board in economies with a two-tier board system on which Mr. James appointed 60% of the shareholder-elected members. • Ease of shareholder suits index (0–10): Access to internal corporate documents; Evidence obtainable during trial and - Has not adopted bylaws or articles of association that go beyond the minimum requirements. allocation of legal expenses Does not follow codes, principles, recommendations or guidelines that are not mandatory. - Is a manufacturing company with its own distribution network. • Extent of conflict of interest regulation index (0-30): Sum of the extent of disclosure, extent of director liability and ease of The transaction involves the following details: shareholder suits indices - Mr. James owns 60% of Buyer, sits on Buyer’s board of directors and elected two directors to • Extent of shareholder rights index (0-6): Shareholders’ rights Buyer’s five-member board. and role in major corporate decisions - Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores. • Extent of ownership and control index (0-7): Governance - Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s safeguards protecting shareholders from undue board control distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of and entrenchment Buyer’s assets and is higher than the market value. • Extent of corporate transparency index (0-7): Corporate - The proposed transaction is part of the company’s principal activity and is not outside the transparency on ownership stakes, compensation, audits and authority of the company. financial prospects - Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made—that is, the transaction was not entered into fraudulently. • Extent of shareholder governance index (0–20): Sum of the - The transaction causes damages to Buyer. Shareholders sue Mr. James and the executives and extent of shareholders rights, extent of ownership and control directors that approved the transaction. and extent of corporate transparency indices • Strength of minority investor protection index (0–50): Sum of the extent of conflict of interest regulation and extent of shareholder governance indices Page 40 Doing Business 2020 Philippines Protecting Minority Investors - Philippines Stock exchange information Stock exchange The Philippine Stock Exchange Stock exchange URL http://www.pse.com.ph Listed firms with equity securities 272 City Covered Quezon city Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Extent of disclosure index (0-10) 9.0 5.9 6.5 10 (13 Economies) Extent of director liability index (0-10) 4.0 5.2 5.3 10 (3 Economies) Ease of shareholder suits index (0-10) 7.0 6.7 7.3 10 (Djibouti) Extent of shareholder rights index (0-6) 1.0 2.0 4.7 6 (19 Economies) Extent of ownership and control index (0-7) 5.0 2.4 4.5 7 (9 Economies) Extent of corporate transparency index (0-7) 4.0 2.6 5.7 7 (13 Economies) Figure – Protecting Minority in Philippines – Score 60.0 Score - Protecting Minority Investors Figure – Protecting Minority Investors in Philippines and comparator economies – Ranking and Score DB 2020 Protecting Minority Investors Score 0 100 88.0: Malaysia (Rank: 2) 86.0: Thailand (Rank: 3) 70.0: Indonesia (Rank: 37) 60.0: Philippines (Rank: 72) 49.7: Regional Average (East Asia & Pacific) 20.0: Lao PDR (Rank: 179) Note: The ranking of economies on the strength of minority investor protections is determined by sorting their scores for protecting minority investors. These scores are the simple average of the scores for the extent of conflict of interest regulation index and the extent of shareholder governance index. Page 41 Doing Business 2020 Philippines Figure – Protecting Minority Investors in Philippines and comparator economies – Measure of Quality Philippines 4 4 9 5 1 7 Indonesia 7 5 10 6 5 2 Lao PDR 01 6 0 3 Malaysia 6 9 10 6 5 8 Thailand 6 7 10 6 5 9 OECD high income 5.6 5.6 6.6 4.3 4.5 7.4 East Asia & Pacific 3.1 5.1 6.4 2.9 2.4 6.3 0 5 10 15 20 25 30 35 40 45 50 Sub-Indicator Score Extent of corporate transparency index (0-7) Extent of director liability index (0-10) Extent of disclosure index (0-10) Extent of ownership and control index (0-7) Extent of shareholder rights index (0-6) Ease of shareholder suits index (0-10) Page 42 Doing Business 2020 Philippines Details – Protecting Minority Investors in Philippines – Measure of Quality Answer Score Extent of conflict of interest regulation index (0-30) Extent of disclosure index (0-10) 9.0 Whose decision is sufficient to approve the Buyer-Seller transaction? (0-3) Board of directors 2.0 excluding interested members Must an external body review the terms of the transaction before it takes place? (0-1) Yes 1.0 Must Mr. James disclose his conflict of interest to the board of directors? (0-2) Full disclosure of all 2.0 material facts Must Buyer disclose the transaction in periodic filings (e.g. annual reports)? (0-2) Disclosure on the 2.0 transaction and on the conflict of interest Must Buyer immediately disclose the transaction to the public? (0-2) Disclosure on the 2.0 transaction and on the conflict of interest Extent of director liability index (0-10) 4.0 Can shareholders representing 10% of Buyer's share capital sue for the damage the transaction caused to Yes 1.0 Buyer? (0-1) Can shareholders hold Mr. James liable for the damage the transaction caused to Buyer? (0-2) Not liable 0.0 Can shareholders hold the other directors liable for the damage the transaction caused to Buyer? (0-2) Not liable 0.0 Must Mr. James pay damages for the harm caused to Buyer upon a successful claim by shareholders? (0-1) Yes 1.0 Must Mr. James repay profits made from the transaction upon a successful claim by shareholders? (0-1) Yes 1.0 Is Mr. James disqualified upon a successful claim by shareholders? (0-1) Yes 1.0 Can a court void the transaction upon a successful claim by shareholders? (0-2) Only in case of fraud 0.0 or bad faith Ease of shareholder suits index (0-10) 7.0 Before suing, can shareholders representing 10% of Buyer's share capital inspect the transaction documents? Yes 1.0 (0-1) Can the plaintiff obtain any documents from the defendant and witnesses at trial? (0-3) Any relevant 3.0 document Can the plaintiff request categories of documents from the defendant without identifying specific ones? (0-1) No 0.0 Can the plaintiff directly question the defendant and witnesses at trial? (0-2) Yes 2.0 Is the level of proof required for civil suits lower than that of criminal cases? (0-1) Yes 1.0 Can shareholder plaintiffs recover their legal expenses from the company? (0-2) At the discretion of 0.0 the court Extent of shareholder governance index (0-20) Extent of shareholder rights index (0-6) 1.0 Does the sale of 51% of Buyer's assets require shareholder approval? No 0.0 Can shareholders representing 10% of Buyer's share capital call for a meeting of shareholders? No 0.0 Must Buyer obtain its shareholders’ approval every time it issues new shares? No 0.0 Do shareholders automatically receive preemption rights every time Buyer issues new shares? No 0.0 Do shareholders elect and dismiss the external auditor? Yes 1.0 Are changes to the rights of a class of shares only possible if the holders of the affected shares approve? No 0.0 Extent of ownership and control index (0-7) 5.0 Page 43 Doing Business 2020 Philippines Is it forbidden to appoint the same individual as CEO and chairperson of the board of directors? No 0.0 Must the board of directors include independent and nonexecutive board members? Yes 1.0 Can shareholders remove members of the board of directors without cause before the end of their term? Yes 1.0 Must the board of directors include a separate audit committee exclusively comprising board members? Yes 1.0 Must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of Buyer? Yes 1.0 Must Buyer pay declared dividends within a maximum period set by law? Yes 1.0 Is a subsidiary prohibited from acquiring shares issued by its parent company? No 0.0 Extent of corporate transparency index (0-7) 4.0 Must Buyer disclose direct and indirect beneficial ownership stakes representing 5%? Yes 1.0 Must Buyer disclose information about board members’ primary employment and directorships in other Yes 1.0 companies? Must Buyer disclose the compensation of individual managers? No 0.0 Must a detailed notice of general meeting be sent 21 days before the meeting? No 0.0 Can shareholders representing 5% of Buyer’s share capital put items on the general meeting agenda? No 0.0 Must Buyer's annual financial statements be audited by an external auditor? Yes 1.0 Must Buyer disclose its audit reports to the public? Yes 1.0 Page 44 Doing Business 2020 Philippines Paying Taxes This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions and complying with postfiling procedures (VAT refund and tax audit). The most recent round of data collection for the project was completed in May 2019 covering for the Paying Taxes indicator calendar year 2018 (January 1, 2018 – December 31, 2018). See the methodology for more information. What the indicators measure Case study assumptions Tax payments for a manufacturing company in 2018 (number Using a case scenario, Doing Business records taxes and mandatory contributions a medium size per year adjusted for electronic and joint filing and payment) company must pay in a year, and measures the administrative burden of paying taxes, contributions and dealing with postfiling processes. Information is also compiled on frequency of • Total number of taxes and contributions paid or withheld, filing and payments, time taken to comply with tax laws, time taken to comply with the including consumption taxes (value added tax, sales tax or requirements of postfiling processes and time waiting. goods and service tax) • Method and frequency of filing and payment To make data comparable across economies, several assumptions are used: - TaxpayerCo is a medium-size business that started operations on January 1, 2017. It produces Time required to comply with 3 major taxes (hours per year) ceramic flowerpots and sells them at retail. All taxes and contributions recorded are paid in the second year of operation (calendar year 2018). Taxes and mandatory contributions are measured • Collecting information, computing tax payable at all levels of government. • Preparing separate tax accounting books, if required • Completing tax return, filing with agencies The VAT refund process: - In June 2018, TaxpayerCo. makes a large capital purchase: the value of the machine is 65 times • Arranging payment or withholding income per capita of the economy. Sales are equally spread per month (1,050 times income per capita divided by 12) and cost of goods sold are equally expensed per month (875 times income Total tax and contribution rate (% of commercial profits) per capita divided by 12). The machinery seller is registered for VAT and excess input VAT incurred • Profit or corporate income tax in June will be fully recovered after four consecutive months if the VAT rate is the same for inputs, sales and the machine and the tax reporting period is every month. Input VAT will exceed Output • Social contributions, labor taxes paid by employer VAT in June 2018. • Property and property transfer taxes The corporate income tax audit process: • Dividend, capital gains, financial transactions taxes - An error in calculation of income tax liability (for example, use of incorrect tax depreciation rates, • Waste collection, vehicle, road and other taxes or incorrectly treating an expense as tax deductible) leads to an incorrect income tax return and a corporate income tax underpayment. TaxpayerCo. discovered the error and voluntarily notified the Postfiling Index tax authority. The value of the underpaid income tax liability is 5% of the corporate income tax • Time to comply with VAT refund (hours) liability due. TaxpayerCo. submits corrected information after the deadline for submitting the annual tax return, but within the tax assessment period. • Time to obtain VAT refund (weeks) • Time to comply with a corporate income tax correction (hours) • Time to complete a corporate income tax correction (weeks) Page 45 Doing Business 2020 Philippines Paying Taxes - Philippines Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Payments (number per year) 13 20.6 10.3 3 (2 Economies) Time (hours per year) 171 173.0 158.8 49 (3 Economies) Total tax and contribution rate (% of profit) 43.1 33.6 39.9 26.1 (33 Economies) Postfiling index (0-100) 50.0 56.4 86.7 None in 2018/19 Figure – Paying Taxes in Philippines – Score 83.3 81.1 75.8 50.0 Payments Time Total tax and contribution rate Postfiling index Figure – Paying Taxes in Philippines and comparator economies – Ranking and Score DB 2020 Paying Taxes Score 0 100 77.7: Thailand (Rank: 68) 76.0: Malaysia (Rank: 80) 75.8: Indonesia (Rank: 81) 73.6: Regional Average (East Asia & Pacific) 72.6: Philippines (Rank: 95) 54.2: Lao PDR (Rank: 157) Note: The ranking of economies on the ease of paying taxes is determined by sorting their scores for paying taxes. These scores are the simple average of the scores for each of the component indicators, with a threshold and a nonlinear transformation applied to one of the component indicators, the total tax and contribution rate. The threshold is defined as the total tax and contribution 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 and contribution rate below this threshold receive the same score as the economy at the threshold. Page 46 Doing Business 2020 Philippines Figure – Paying Taxes in Philippines and comparator economies – Measure of Quality 80 73.4 68.8 70 56.4 Index score 60 51.0 50.0 50 40 30 18.6 20 10 0 Philippines Indonesia Lao Malaysia Thailand East PDR Asia & Pacific Page 47 Doing Business 2020 Philippines Details – Paying Taxes in Philippines Tax or Payments Notes on Time (hours) Statutory tax Tax base Total tax and Notes on TTCR mandatory (number) Payments rate contribution contribution rate (% of profit) Corporate 1.0 online 33.0 30% taxable profit 20.21 income tax Local business 1.0 0.5% previous year 8.84 tax turnover Employer paid - 1.0 online 30.0 P 1,208.70 per gross salaries 6.72 Social security employee per contributions month Real property tax 1.0 2% assessed 4.44 property value Employer paid - 1.0 online 2.75% gross salaries 1.43 Health insurance Employer paid - 1.0 online 2% or P100 per gross salaries 0.56 Housing worker development fund Tax on interest 1.0 online 20% interest 0.51 Employer paid - 0.0 jointly P 30 per employee per 0.17 Employer's month compensation Environmental 1.0 P 10,000 fixed fee 0.08 tax Community tax 0.0 jointly P 10,500 fixed fee 0.08 certificate Vehicle tax 1.0 basic fee + 24% vehicle weight 0.04 Value added tax 1.0 online 108.0 12% value added 0.00 not included (VAT) BIR certificate 0.0 jointly and online P 500 fixed fee 0.00 Employee paid - 0.0 jointly 2% or P 100 per gross salaries 0.00 withheld Housing worker development fund Employee paid - 0.0 jointly 0%-32% per employee per 0.00 withheld Payroll tax month Employee paid - 0.0 jointly 1.33% to 2.98% gross salaries 0.00 withheld Social security contributions Stamp duty 1.0 online various rates contract value 0.00 small amount Tax on check 1.0 online P 3 per check number of 0.00 small amount transactions checks Tax on insurance 1.0 online P 0.5 per each P insurance 0.00 small amount contracts 4 premium Totals 13 171 43.1 Page 48 Doing Business 2020 Philippines Details – Paying Taxes in Philippines – Tax by Type Taxes by type Answer Profit tax (% of profit) 20.2 Labor tax and contributions (% of profit) 8.9 Other taxes (% of profit) 14.0 Page 49 Doing Business 2020 Philippines Details – Paying Taxes in Philippines – Measure of Quality Answer Score Postfiling index (0-100) 50.0 VAT refunds Does VAT exist? Yes Does a VAT refund process exist per the case study? No Restrictions on VAT refund process Restricted to international traders and others Percentage of cases exposed to a VAT audit (%) Not applicable Is there a mandatory carry forward period? No Time to comply with VAT refund (hours) No VAT refund per 0.0 case study scenario Time to obtain VAT refund (weeks) No VAT refund per 0.0 case study scenario Corporate income tax audits Does corporate income tax exist? Yes Percentage of cases exposed to a corporate income tax audit (%) 0% - 24% Time to comply with a corporate income tax correction (hours) 1.5 100 Time to complete a corporate income tax correction (weeks) No tax audit per case 100 study scenario Notes: Names of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. The postfiling index is the average of the scores on time to comply with VAT refund, time to obtain a VAT refund, time to comply with a corporate income tax correction and time to complete a corporate income tax correction. N/A = Not applicable. Page 50 Doing Business 2020 Philippines Trading across Borders Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Documentary compliance To make the data comparable across economies, a few assumptions are made about the traded goods and the transactions: • Obtaining, preparing and submitting documents during transport, clearance, inspections and port or border handling in Time: Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as origin economy 22×24=528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, • Obtaining, preparing and submitting documents required by suppose documents are submitted to a customs agency at 8:00a.m., are processed overnight and destination economy and any transit economies can be picked up at 8:00a.m. the next day. The time for customs clearance would be recorded as 24 hours because the actual procedure took 24 hours. • Covers all documents required by law and in practice, including electronic submissions of information Cost: Insurance cost and informal payments for which no receipt is issued are excluded from the Border compliance costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. • Customs clearance and inspections Contributors are private sector experts in international trade logistics and are informed about • Inspections by other agencies (if applied to more than 20% of exchange rates. shipments) Assumptions of the case study: • Handling and inspections that take place at the economy’s port - For all 190 economies covered by Doing Business, it is assumed a shipment is in a warehouse in or border the largest business city of the exporting economy and travels to a warehouse in the largest business city of the importing economy. Domestic transport - It is assumed each economy imports 15 metric tons of containerized auto parts (HS 8708) from • Loading or unloading of the shipment at the warehouse or its natural import partner—the economy from which it imports the largest value (price times port/border quantity) of auto parts. It is assumed each economy exports the product of its comparative advantage (defined by the largest export value) to its natural export partner—the economy that is • Transport between warehouse and port/border the largest purchaser of this product. Shipment value is assumed to be $50,000. • Traffic delays and road police checks while shipment is en - The mode of transport is the one most widely used for the chosen export or import product and route the trading partner, as is the seaport or land border crossing. - All electronic information submissions requested by any government agency in connection with the shipment are considered to be documents obtained, prepared and submitted during the export or import process. - A port or border is a place (seaport or land border crossing) where merchandise can enter or leave an economy. - Relevant government agencies include customs, port authorities, road police, border guards, standardization agencies, ministries or departments of agriculture or industry, national security agencies and any other government authorities. Page 51 Doing Business 2020 Philippines Trading across Borders - Philippines Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Time to export: Border compliance (hours) 42 57.5 12.7 1 (19 Economies) Cost to export: Border compliance (USD) 456 381.1 136.8 0 (19 Economies) Time to export: Documentary compliance (hours) 36 55.6 2.3 1 (26 Economies) Cost to export: Documentary compliance (USD) 53 109.4 33.4 0 (20 Economies) Time to import: Border compliance (hours) 120 68.4 8.5 1 (25 Economies) Cost to import: Border compliance (USD) 690 422.8 98.1 0 (28 Economies) Time to import: Documentary compliance (hours) 96 53.7 3.4 1 (30 Economies) Cost to import: Documentary compliance (USD) 68 108.4 23.5 0 (30 Economies) Figure – Trading across Borders in Philippines – Score 73.9 57.0 79.3 86.9 57.3 42.5 60.3 90.4 Time Cost Time Cost Time Cost Time Cost to to to to to to to to export: export: export: export: import: import: import: import: Border Border Documentary Documentary Border Border Documentary Documentary compliance compliance compliance compliance compliance compliance compliance compliance Figure – Trading across Borders in Philippines and comparator economies – Ranking and Score DB 2020 Trading Across Borders Score 0 100 88.5: Malaysia (Rank: 49) 84.6: Thailand (Rank: 62) 78.1: Lao PDR (Rank: 78) 71.6: Regional Average (East Asia & Pacific) 68.4: Philippines (Rank: 113) 67.5: Indonesia (Rank: 116) Note: The ranking of economies on the ease of trading across borders is determined by sorting their scores for trading across borders. These scores are the simple average of the scores for the time and cost for documentary compliance and border compliance to export and import. Page 52 Doing Business 2020 Philippines Figure – Trading across Borders in Philippines – Time and Cost Time (hours) Cost (USD) 140 800 120 690 120 700 96 Time (hours) 100 600 Cost (USD) 456 500 80 400 60 42 300 40 36 200 20 53 68 100 0 0 Export Export Import Import - - - - Border Documentary Border Documentary Compliance Compliance Compliance Compliance Page 53 Doing Business 2020 Philippines Details – Trading across Borders in Philippines Characteristics Export Import Product HS 85 : Electrical machinery and equipment and HS 8708: Parts and accessories of motor vehicles parts thereof; sound recorders and reproducers, television image 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) 3 3 Domestic transport cost (USD) 300 300 Details – Trading across Borders in Philippines – Components of Border Compliance Time to Complete (hours) Associated Costs (USD) Export: Clearance and inspections required by 2.9 60.7 customs authorities Export: Clearance and inspections required by 0.0 0.0 agencies other than customs Export: Port or border handling 42.5 395.3 Import: Clearance and inspections required by 120.0 139.5 customs authorities Import: Clearance and inspections required by 0.0 0.0 agencies other than customs Import: Port or border handling 120.0 550.0 Page 54 Doing Business 2020 Philippines Details – Trading across Borders in Philippines – Trade Documents Export Import Packing List Packing List Invoice Invoice Bill of Lading Bill of Lading Customs Export Declaration Customs Import Declaration SOLAS certificate Certificate of Origin SOLAS certificate Page 55 Doing Business 2020 Philippines Enforcing Contracts The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to enforce a contract through the courts The dispute in the case study involves the breach of a sales contract between two domestic (calendar days) businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. • Time to file and serve the case • Time for trial and to obtain the judgment To make the data on the time and comparable across economies, several assumptions about the case are used: • Time to enforce the judgment - The dispute concerns a lawful transaction between two businesses (Seller and Buyer), both Cost required to enforce a contract through the courts (% of located in the economy’s largest business city. For 11 economies the data are also collected for the claim value) second largest business city. - The Buyer orders custom-made furniture, then fails to pay alleging that the goods are not of • Average attorney fees adequate quality. - The value of the dispute is 200% of the income per capita or the equivalent in local currency of • Court costs USD 5,000, whichever is greater. • Enforcement costs - The Seller sues the Buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000 whichever is greater. Quality of judicial processes index (0-18) - The Seller requests the pretrial attachment of the defendant’s movable assets to secure the • Court structure and proceedings (-1-5) claim. - The claim is disputed on the merits because of Buyer’s allegation that the quality of the goods • Case management (0-6) was not adequate. • Court automation (0-4) - The judge decides in favor of the seller; there is no appeal. - The Seller enforces the judgment through a public sale of the Buyer’s movable assets. • Alternative dispute resolution (0-3) Page 56 Doing Business 2020 Philippines Enforcing Contracts - Philippines Standardized Case Claim value PHP 362,779 Court name Quezon City Metropolitan Trial Court City Covered Quezon city Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Time (days) 962 581.1 589.6 120 (Singapore) Cost (% of claim value) 31.0 47.2 21.5 0.1 (Bhutan) Quality of judicial processes index (0-18) 7.5 8.1 11.7 None in 2018/19 Figure – Enforcing Contracts in Philippines – Score 31.0 65.2 41.7 Time Cost Quality of judicial processes index Figure – Enforcing Contracts in Philippines and comparator economies – Ranking and Score DB 2020 Enforcing Contracts Score 0 100 68.2: Malaysia (Rank: 35) 67.9: Thailand (Rank: 37) 53.0: Regional Average (East Asia & Pacific) 49.1: Indonesia (Rank: 139) 46.0: Philippines (Rank: 152) 42.0: Lao PDR (Rank: 161) Note: The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts. These scores are the simple average of the scores for each of the component indicators. Page 57 Doing Business 2020 Philippines Figure – Enforcing Contracts in Philippines – Time and Cost Time (days) Cost (% of claim value) 1200 80 Cost (% of claim value) 70.3 962 70 1000 828 60 Time (days) 800 47.2 50 581.1 37.9 589.6 600 40 31.6 31.0 403 425 420 30 400 21.5 16.9 20 200 10 0 0 East Indonesia Lao Malaysia OECD Philippines Thailand Asia PDR high & income Pacific Page 58 Doing Business 2020 Philippines Figure – Enforcing Contracts in Philippines and comparator economies – Measure of Quality Philippines 2.5 1.5 0 3.5 Indonesia 2.5 2.8 0.6 3 Lao PDR 2.5 0 1 Malaysia 2.5 4 2.5 4 Thailand 2.5 2 1 3 OECD high income 2.5 3.2 2.4 3.6 East Asia & Pacific 2.2 2.2 1.3 3 0 2 4 6 8 10 12 14 Sub-Indicator Score Alternative dispute resolution (0-3) Case management (0-6) Court automation (0-4) Court structure and proceedings (-1-5) Details – Enforcing Contracts in Philippines Indicator Time (days) 962 Filing and service 58 Trial and judgment 700 Enforcement of judgment 204 Cost (% of claim value) 31.0 Attorney fees 20 Court fees 6 Enforcement fees 5 Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (-1-5) 3.5 Case management (0-6) 1.5 Court automation (0-4) 0.0 Alternative dispute resolution (0-3) 2.5 Page 59 Doing Business 2020 Philippines Details – Enforcing Contracts in Philippines – Measure of Quality Answer Score Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (-1-5) 3.5 1. Is there a court or division of a court dedicated solely to hearing commercial cases? No 0.0 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small claims? Yes 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, automatic 1.0 5. Does a woman's testimony carry the same evidentiary weight in court as a man's? Yes 0.0 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 a civil case? Yes 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 can be granted? No 2.b. Are adjournments limited to unforeseen and exceptional circumstances? Yes 2.c. If rules on adjournments exist, are they respected in more than 50% of cases? No 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) No 0.0 clearance rate report; (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the competent court? Yes 1.0 5. Are there any electronic case management tools in place within the competent court for use by judges? No 0.0 6. Are there any electronic case management tools in place within the competent court for use by lawyers? No 0.0 Court automation (0-4) 0.0 1. Can the initial complaint be filed electronically through a dedicated platform within the competent court? No 0.0 2. Is it possible to carry out service of process electronically for claims filed before the competent court? No 0.0 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public No through publication in official gazettes, 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 No available to the general public through 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 Yes section of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the courts? Yes Page 60 Doing Business 2020 Philippines 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 Yes section of the applicable code of civil procedure encompassing substantially all their aspects (for example, definition, aim and scope of application, desig 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Page 61 Doing Business 2020 Philippines Resolving Insolvency Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to recover debt (years) To make the data on the time, cost and outcome comparable across economies, several assumptions about the business and the case are used: • Measured in calendar years • Appeals and requests for extension are included - A hotel located in the largest city (or cities) has 201 employees and 50 suppliers. The hotel experiences financial difficulties. Cost required to recover debt (% of debtor’s estate) - The value of the hotel is 100% of the income per capita or the equivalent in local currency of USD 200,000, whichever is greater. • Measured as percentage of estate value - The hotel has a loan from a domestic bank, secured by a mortgage over the hotel’s real estate. • Court fees The hotel cannot pay back the loan, but makes enough money to operate otherwise. • Fees of insolvency administrators In addition, Doing Business evaluates the quality of legal framework applicable to judicial • Lawyers’ fees liquidation and reorganization proceedings and the extent to which best insolvency practices have been implemented in each economy covered. • Assessors’ and auctioneers’ fees • Other related fees Outcome • Whether business continues operating as a going concern or business assets are sold piecemeal Recovery rate for creditors • Measures the cents on the dollar recovered by secured creditors • Outcome for the business (survival or not) determines the maximum value that can be recovered • Official costs of the insolvency proceedings are deducted • Depreciation of furniture is taken into account • Present value of debt recovered Strength of insolvency framework index (0- 16) • Sum of the scores of four component indices: • Commencement of proceedings index (0-3) • Management of debtor’s assets index (0-6) • Reorganization proceedings index (0-3) • Creditor participation index (0-4) Page 62 Doing Business 2020 Philippines Resolving Insolvency - Philippines Indicator Philippines East Asia & OECD high Best Regulatory Pacific income Performance Recovery rate (cents on the dollar) 21.1 35.5 70.2 92.9 (Norway) Time (years) 2.7 2.6 1.7 0.4 (Ireland) Cost (% of estate) 32.0 20.6 9.3 1.0 (Norway) Outcome (0 as piecemeal sale and 1 as going concern) 0 .. .. .. Strength of insolvency framework index (0-16) 14.0 7.0 11.9 None in 2018/19 Figure – Resolving Insolvency in Philippines – Score 22.7 87.5 Recovery rate Strength of insolvency framework index Figure – Resolving Insolvency in Philippines and comparator economies – Ranking and Score DB 2020 Resolving Insolvency Score 0 100 76.8: Thailand (Rank: 24) 68.1: Indonesia (Rank: 38) 67.0: Malaysia (Rank: 40) 55.1: Philippines (Rank: 65) 40.9: Regional Average (East Asia & Pacific) 0.0: Lao PDR (Rank: 168) Note: The ranking of economies on the ease of resolving insolvency is determined by sorting their scores for resolving insolvency. These scores are the simple average of the scores for the recovery rate and the strength of insolvency framework index. Page 63 Doing Business 2020 Philippines Figure – Resolving Insolvency in Philippines – Time and Cost Time (years) Cost (% of estate) 3 2.7 32.0 35 2.6 Cost (% of estate) 2.5 30 Time (years) 21.6 25 2 20.6 1.7 1.5 18.0 20 1.5 1.1 1.0 15 1 10.0 9.3 10 0.5 5 0 0 East Indonesia No Malaysia OECD Philippines Thailand Asia Practice high & Lao income Pacific PDR Page 64 Doing Business 2020 Philippines Figure – Resolving Insolvency in Philippines and comparator economies – Measure of Quality Philippines 5.5 2.5 3 3 Indonesia 5 3 2 0.5 Lao PDR 2 2 0 0.5 Malaysia 2 3 2 0.5 Thailand 5 2.5 2 3 OECD high income 5.3 2.8 2.1 1.9 East Asia & Pacific 3.7 2.3 1.3 1 0 2 4 6 8 10 12 14 16 Sub-Indicator Score Management of debtor's assets index (0-6) Commencement of proceedings index (0-3) Creditor participation index (0-4) Reorganization proceedings index (0-3) 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.” Figure – Resolving Insolvency in Philippines and comparator economies – Recovery Rate Recovery rate(cents on the dollar) 90 81.0 80 70.1 70 65.5 60 50 40 35.5 30 21.1 20 10 0 No Practice Philippines Indonesia Lao PDR Malaysia Thailand East Asia & Pacific Page 65 Doing Business 2020 Philippines Details – Resolving Insolvency in Philippines Indicator Answer Score Proceeding liquidation (after an The most likely procedure applicable to our case study would be a reorganization, which will then be converted into a attempt at liquidation. Mirage may use the reorganization proceeding to gain time, find a new investor, or renegotiate its debt. reorganization) Insolvency proceedings will therefore start with Mirage (debtor) filing for court-supervised reorganization with the Regional Trial Court. The court will 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. Outcome piecemeal sale The hotel will stop operating and Mirage assets will be sold piecemeal in a public auction upon the completion of the liquidation proceeding. Time (in years) 2.7 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 (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan. If the Rehabilitation plan is not approved, the case will then be converted into liquidation, which can take up to 2 additional years (until the proceeds of the sale are finally distributed among creditors). Cost (% of estate) 32.0 The costs associated with the case would amount to approximately 32% of the value of the debtor's estate. Cost incurred during the entire insolvency process mainly include attorney fees (10%), official receiver fees (10%), accountants and other professionals fees (7%), fees of auctioneers (3%), and court fees (2%). Recovery rate 21.1 (cents on the dollar) Page 66 Doing Business 2020 Philippines Details – Resolving Insolvency in Philippines – Measure of Quality Answer Score Strength of insolvency framework index (0-16) 14.0 Commencement of proceedings index (0-3) 2.5 What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for 1.0 both liquidation and reorganization Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? N/A 0.5 What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) (c) Both (a) and (b) 1.0 Debtor is generally unable to pay its debts as they mature (b) The value of debtor's liabilities exceeds the value options are available, of its assets but only one of them needs to be complied with Management of debtor's assets index (0-6) 5.5 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the Yes 1.0 debtor? Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0 Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0 Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0 Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of Yes 1.0 insolvency proceedings? Does the insolvency framework assign priority to post-commencement credit? (a) Yes over all pre- 0.5 commencement creditors, secured or unsecured Reorganization proceedings index (0-3) 3.0 Which creditors vote on the proposed reorganization plan? (b) Only creditors 1.0 whose rights are affected by the proposed plan Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as Yes 1.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class vote Yes 1.0 separately and are creditors in the same class treated equally? Creditor participation index (0-4) 3.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency Yes 1.0 representative? Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0 Does the insolvency framework provide that a creditor has the right to request information from the insolvency Yes 1.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting Yes 1.0 creditors' claims? 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.” Page 67 Doing Business 2020 Philippines Employing Workers Doing Business presents detailed data for the employing workers indicators on the Doing Business website (http://www.doingbusiness.org). The study does not present rankings of economies on these indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Hiring To make the data comparable across economies, several assumptions about the worker and the (i) whether fixed-term contracts are prohibited for permanent business are used. tasks; (ii) maximum cumulative duration of fixed-term contracts; (iii) length of the maximum probationary period; (iv) minimum The worker: wage;(v) ratio of minimum wage to the average value added per - Is a cashier in a supermarket or grocery store, age 19, with one year of work experience. worker. - Is a full-time employee. - Is not a member of the labor union, unless membership is mandatory. Working hours (i) maximum number of working days allowed per week; (ii) The business: premiums for work: at night, on a weekly rest day and overtime; - Is a limited liability company (or the equivalent in the economy). (iii) whether there are restrictions on work at night, work on a - Operates a supermarket or grocery store in the economy’s largest business city. For 11 weekly rest day and for overtime work; (iv) length of paid annual economies the data are also collected for the second largest business city. leave. - Has 60 employees. - Is subject to collective bargaining agreements if such agreements cover more than 50% of the Redundancy rules food retail sector and they apply even to firms that are not party to them. (i) whether redundancy can be basis for terminating workers; (ii) - Abides by every law and regulation but does not grant workers more benefits than those whether employer needs to notify and/or get approval from third mandated by law, regulation or (if applicable) collective bargaining agreements. party to terminate 1 redundant worker and a group of 9 redundant workers; (iii) whether the law requires employer to reassign or retrain a worker before making worker redundant; (iv) whether priority rules apply for redundancies and reemployment. Redundancy cost (i) notice period for redundancy dismissal; (ii) severance payments, and (iii) penalties due when terminating a redundant worker. Data on the availability of unemployment protection for a worker with one year of employment is also collected. Page 68 Doing Business 2020 Philippines Employing Workers - Philippines Details – Employing Workers in Philippines Answer Hiring 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 (US$/month) 295.7 Ratio of minimum wage to value added per worker 0.6 Maximum length of probationary period (months) 6.0 Working hours Standard workday 8.0 Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 10.0 Premium for work on weekly rest day (% of hourly pay) 30.0 Premium for overtime work (% of hourly pay) 25.0 Restrictions on night work? No Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 5.0 Paid annual leave for a worker with 5 years of tenure (working days) 5.0 Paid annual leave for a worker with 10 years of tenure (working days) 5.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days) 5.0 Redundancy rules 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 Redundancy cost Notice period for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 4.3 Severance pay for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 21.7 Page 69 Doing Business 2020 Philippines Severance pay for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 23.1 Unemployment protection after one year of employment? No Page 70 Doing Business 2020 Philippines Business Reforms in Philippines From May 2, 2018 to May 1, 2019, 115 economies implemented 294 business regulatory reforms across the 10 areas measured by Doing Business. Reforms inspired by Doing Business have been implemented by economies in all regions. The following are reforms implemented since Doing Business 2008. =Doing Business reform making it easier to do business. = Change making it more difficult to do business. DB2020 Starting a Business: The Philippines made starting a business easier by abolishing the minimum capital requirement for domestic companies. Dealing with Construction Permits: The Philippines made dealing with construction permits easier by improving coordination and streamlining the process for obtaining an occupancy certificate. Protecting Minority Investors: The Philippines strengthened minority investor protections by requiring greater disclosure of transactions with interested parties and enhancing director liability for transactions with interested parties. DB2019 Starting a Business: The Philippines made starting a business easier by simplifying tax registration and business licensing processes. At the same time, the Philippines increased tax registration costs. Dealing with Construction Permits: The construction sector in the Philippines improved its risk management practices as latent defect liability insurance is now commonly obtained by industry players. Registering Property: Philippines made transferring property easier by introducing a national database to check for encumbrances. DB19. Protecting Minority Investors: The Philippines strengthened minority investor protections by increasing shareholders’ rights and role in major corporate decisions and clarifying ownership and control structures. Trading across Borders: The Philippines made trading across borders more difficult by increasing the number of inspections for importing, thereby increasing the average time for border compliance. DB2018 Getting Electricity: The Philippines reduced the time to get an electricity connection by implementing a new asset management system and by creating a new scheduling and planning office. Paying Taxes: The Philippines made paying taxes easier by introducing a new electronic system for payment and collection of the housing development fund contributions. DB2017 Dealing with Construction Permits: The Philippines made dealing with construction permits easier by increasing the transparency of its building regulations. Paying Taxes: The Philippines made paying taxes easier by introducing an online system for filing and paying health contributions and by allowing for the online corporate income tax and VAT returns to be completed offline. DB2016 Starting a Business: The Philippines made starting a business easier by streamlining communications between the Securities and Exchange Commission and the Social Security System and thereby expediting the process of issuing an employer registration number. DB2015 Trading across Borders: In the Philippines trading across borders became more difficult because of a new city ordinance restricting truck traffic in Manila. DB2014 Dealing with Construction Permits: The Philippines made dealing with construction permits easier by eliminating the requirement to obtain a health certificate. Getting Credit: The Philippines improved access to credit information by beginning to distribute both positive and negative information and by enacting a data privacy act that guarantees borrowers’ right to access their data. Paying Taxes: The Philippines made paying taxes easier for companies by introducing an electronic filing and payment system for social security contributions. DB2012 Resolving Insolvency: The Philippines adopted a new insolvency law that provides a legal framework for liquidation and reorganization of financially distressed companies. Page 71 Doing Business 2020 Philippines DB2011 Starting a Business: The Philippines eased business startup by setting up a one-stop shop at the municipal level. Dealing with Construction Permits: The Philippines made construction permitting more cumbersome through updated electricity connection costs. Trading across Borders: The Philippines reduced the time and cost to trade by improving its electronic customs systems, adding such functions as electronic payments and online submission of declarations. DB2010 Getting Credit: The Philippines improved access to credit information through a new act regulating the operations and services of a credit information system. Paying Taxes: The Philippines made paying taxes less costly for companies by reducing the corporate income tax rate. Resolving Insolvency: The Philippines enhanced its insolvency process by promoting reorganization procedures through the introduction of prepackaged reorganizations and by establishing qualification requirements for receivers. DB2009 Trading across Borders: The Philippines reduced the time for importing by upgrading the risk-based inspection and electronic data interchange systems. DB2008 Starting a Business: The Philippines made starting a business more difficult by increasing the paid-in minimum capital requirement. Page 72 Doing Business 2020 Philippines Page 73