Is your city business-friendly?

To start a business in the city of Manila in 2011, one had to spend more than five weeks (38 days) completing 15 required procedures. In Makati, it would have taken 33 days to complete 19 procedures. In Taguig, it took four weeks (28 days) for 16 procedures. General Santos City had the best record, needing only about three weeks (22 days) for 17 needed procedures. Starting a business took longest in Iloilo City, requiring 56 days for 20 procedures. But taking account of number of procedures, time required and cost (in fees) all together, Pasig, Las Piñas and San Juan were the most difficult Philippine cities to start a business in among the 25 rated in the “Doing Business in the Philippines 2011” report of the International Finance Corporation (IFC). In all three, more steps were required to start a business than anywhere else in the world.

On the other hand, if you wanted to construct a warehouse in Zamboanga City, it would have taken only one-and-a-half months (46 days) to complete all construction-related procedures, the fastest in the country. This made Zamboanga City the fifth fastest city in the world to complete construction-related requirements. The only economies rated by IFC that took less time were Singapore (25 days), the Republic of Korea (34 days); United States (40 days) and Bahrain (43 days). In Manila, where the procedures take the longest, you would need all of 169 days.

Philippine cities stand out in IFC’s global comparison for the high number of procedures needed to start a business, ranging from 15 to 22. Cities in East Asia and the Pacific average only half of that number (eight procedures). National requirements account for nine to 11 of our procedures, including verification of uniqueness of the company name and registration with the Securities and Exchange Commission (SEC), and compliance with Bureau of Internal Revenue (BIR) requirements.

It is in the number of required local procedures where Philippine cities vary widely, ranging from only two in Cebu City up to eight in Pasig and Navotas. Local requirements include notarization of the business permit application, sanitary and environmental permits, temporary Fire Safety Inspection Certificate, and locational clearance. Cagayan de Oro, Lapu-Lapu and Mandaue require verification of real property tax payment. Muntinlupa requires a stamp of approval for the Certificate of Occupancy, and Zamboanga requires a police clearance. These various additional procedures add to the time it takes to start a business. The fact that not all cities require certain local procedures suggests that a number of them are dispensable and may be eliminated without much consequence.

Since the first IFC “Doing Business” report in 2008, some cities have made deliberate moves to reduce the number of steps and time required to start a business. Davao City cut seven procedures and 16 days in the issuance of business permits, deferring inspections until after the business is up and running, and before renewal for the next year.  Similarly, Cagayan de Oro, Caloocan, Lapu-Lapu, Mandaue, Valenzuela, Las Piñas, Malabon and Taguig shifted inspections after issuance of the business permit, before its renewal for the following year.

Even then, there remains much further scope for reducing the required steps. Some of the nationally mandated requirements are arguably redundant or unnecessary. For example, entrepreneurs are required to buy specialized books of accounts, obtain authorization to print official receipts, and then have the printed receipts stamped by the BIR. Newly registering entrepreneurs quickly discover that BIR employees are themselves involved in the business of printing receipts—and patronizing them often proves to be the easiest way to get over with this requirement. All this is supposedly to curb tax evasion. But in the age of computerized accounting systems, registration and stamping of books and receipts are obsolete practices and downright wasteful. Besides, Filipino companies have been quite ingenious in finding ways to hide revenue from the tax authorities, with or without stamped books and receipts.

The BIR reportedly now gives firms the option to register their computerized accounting system, but IFC notes that the process takes even longer. Thus, even firms that intend to computerize their accounting systems are pushed to purchase special books of accounts and have these registered with the BIR, just to get up and running more promptly. IFC reports that of 183 economies rated, only 25 (less than 14 percent) require new firms to obtain certified books or legalize books; the other 86 percent can do without it. Other requirements that are either superfluous or of questionable value include barangay clearances, notarization of documents and securing community tax certificates, all of which may potentially be eliminated.

On the bright side, average business start-up time in the Philippines is actually shorter (33 days) compared to the rest of East Asia and the Pacific (39 days). Even better news is that in IFC’s global “Doing Business 2014” report, our country jumped 25 notches to 108th from 133rd in the last rating. But business start-up time has increased to 35 days, although still less than the East Asia-Pacific average of 37.8.

Progressive mayors understand that it is in their city’s (or town’s) interest—and that of their citizens—to foster a business-friendly environment in their locality. Unfortunately, we still have too many mayors who behave as if prospective business locators owe them a favor, rather than the other way around.

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E-mail: cielito.habito@gmail.com

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