The Philippines’ Performance in Doing Business 2008 Kim S. Jacinto-Henares September 26, 2007

1. The Philippines’ Performance in Doing Business 2008Kim S. Jacinto-HenaresSeptember 26, 2007

2. IFC and the World Bank: Part of the World Bank Group IFC is owned by its 179 member countries, which collectively determine policies. International Finance Corporation International Bank for Reconstruction and Development (IBRD or World Bank), 1945 International Development Association, 1960 Multilateral Investment Guarantee Agency, 1988 International Centre for Settlement of Investment Disputes, 1966

3. Doing Business project 2007 2008 2006 • Starting a business • Dealing with licenses • Employing workers • Registering property • Enforcing contracts • Getting credit • Trading across borders • Protecting investors • Paying taxes • Closing a business • Update of 2007 • 3 new countries • Update of 2006 • Add 20 countries 178 economies 10 topics www.doingbusiness.org

4. What is the Doing Business report? • Presents quantitative indicators, empirical data set on business regulations & their enforcement • Highlights the extent of obstacles to doing business • Helps identifies the source of those obstacles • Helps identifies what reforms are needed and provides advice on how to start the process • Highlights best practices in how to reform • An objective benchmark against which to measure regulatory performance in comparison to other economies

5. Doing Business indicators measure • Degree of regulation (e.g. no. of procedures to start a business or register commercial property) • Regulatory outcomes (e.g. time & cost to enforce a contract, go through bankruptcy or trade across borders) • Extent of legal protections of property (e.g. protections of investors against looting by company directors or the range of assets that can be used as collateral) • Flexibility of employment regulation • Tax burden on businesses

6. Macroeconomic policy Currency volatility Ease of access to markets Proximity to large markets Quality of infrastructure services (other than those related to ‘Trading across borders’) Investor perceptions Crime rate Security of property from theft & looting Transparency of government procurement Bribes Underlying strength of institutions What Doing Businessindicators don’t measure

7. Overall Doing Business ranking is based on an average of the averages of the 10 topics.Ranking on each topic is the simple average of rankings on its component indicators. Doing Business 2008 Overall Ranking

8. Reforms have started but need to be accelerated & fully implemented. 3-year Philippines performance

9. Starting a business: entry regulation Measures the challenges of launching a business in the Philippines. Records all procedures that are officially required for an entrepreneur to start up and formally operate a general commercial business. Both pre- and postincorporation procedures are recorded, including official correspondence or transactions with public agencies.

10. Dealing with licenses: operations regulations Measures the requirements for ongoing operations in the Philippines. Records all procedures that are officially required for a business in the construction industry to build a standardized warehouse.

11. Employing workers: labor regulation Measures the regulation of employment, specifically as it affects the hiring and firing of workers and the rigidity of working hours (examines employment and social security laws). Each index takes values b/w 0 and 100, w/ higher values indicating more rigid regulation.

12. Registering property: regulation of property transfers Measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building. Records the full sequence of procedures necessary to transfer the title from the seller to the buyer.

13. Getting credit: credit information and legal rights (1) Measures the legal rights of borrowers & lenders, describing how well collateral and bankruptcy laws facilitate lending. (2) Measures the sharing of credit information, specifically the coverage, scope, quality & accessibility of credit information available through public & private credit registries. Index ranges from 0 (weak legal rights) to 10 (strong legal rights).

14. Protecting investors: corporate governance Measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain. Index ranges from 0 to 10, with higher vaues indicating more protections or greater disclosure.

15. Paying taxes: tax payable and compliance Records the taxes and mandatory contributions that a company must pay or withold in a given year & the administrative costs of doing so. Measures all taxes & contributions that are government mandated, at any level, apply to the standardized business & have an impact in its income statements.

16. Trading across borders: importing & exporting Compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure involved is recorded – starting from the final contractual agreement between the two parties, and ending with the delivery of the goods.

17. Enforcing contracts: court efficiency Measures the efficiency of the judicial system in resolving commercial dispute.

18. Closing a business: bankruptcy Identifies weaknesses in the bankruptcy law as well as the main procedural & administrative bottlenecks in the bankruptcy process.

19. Starting a business – entry regulation Registering property – property registration Getting credit – access to credit Dealing with licenses – operations regulation Trading across borders – importing & exporting Protecting investors – corporate governance Closing a business - bankruptcy Paying taxes – tax payable & compliance Enforcing contracts – court efficiency Employing workers – labor regulation Philippines Reform Get basics right Fully implement quick wins Build on strategic priorities Remain opportunistic

20. Cut the minimum capital req’t Introduce a one-stop shop (e.g. merge procedures, delegate tax registration to company registrar) Allow online start-up Simplify & lower fees Introduce fast-track procedures Make the registry electronic Make the use of notaries optional Expand the range of information available in credit registries Eliminate legal obstacles to sharing credit information Allow all types of assets to be used as collateral Establish unified registries for all collaterals Phils Business Registry (DTI, NCC) SEC & BIR data exchange (pre-registered TIN) (SEC, BIR) Anti-Red Tape Law (June 2007) (ARTTF, PAGC) One Time Tax Transaction (ONETT) project (BIR) LAMP2 project* (DENR) Land Administration and Reform Act (LARA) bill; LEDAC priority* Credit Information System (CIS) bill; LEDAC priority Immediate/ short-term reforms; high impact. Philippines Reform: (1) Get basics right – TARGET NOW Phils reform pipeline Successful reforms Starting a business Registering property Getting credit executive action *medium-long term reform

21. Property registration – doable administrative reforms

22. Reduce licensing req’ts Make information easily accessible Introduce online license applications Curb inspections Consolidate project clearances Limit physical inspections Go online Measure delays at the border Shift from cutting tariffs to cutting delays Shorten inland delays One Time Tax Transaction (ONETT) project (BIR) National Single Electronic Window (BOC, NCC) Xray machines for import/export inspection (BOC, NCC) Strong Republic Nautical Highway (SRNH) (DPWH, NCC) Batangas-Clark-Subic Logistics Corridor (NCC) SLEX, STAR, LRT projects (NCC) Short-medium term reforms; medium impact. Philippines Reform: (2) Fully implement quick wins – TARGET NOW Phils reform pipeline Successful reforms Dealing w licenses Trading across borders

23. Anti-trust bill; LEDAC priority Good Corporate Governance Training for BOD (BSP) Judicial Reform Support Project (JRSP) (SC) Open company activities to investor scrutiny Require disinterested shareholder approval Minimize dependence on the courts Shift power to creditors Limit appeals Introduce time limits Use the internet to post decisions & publicize auctions Introduce floating charges Develop the trustee profession Medium-long term reforms; high impact. Philippines Reform Agenda: (3) Build on strategic priorities – HIGH IMPACT Successful reforms Phils reform pipeline Protecting investors Closing a business

24. National Program Support for Tax Administration Reform (NPSTAR) (BIR) Judicial Reform Support Project (JRSP) (SC) Case management (SC) Specialized commercial courts Introduce online filling Combine taxes Simplify tax administration Reduce tax rates and broaden base Streamline appeals Make the enforcement of judgments faster & cheaper Introduce e-courts Allow flexible working hours Introduce apprentice wages Lower dismissal costs Raise & equalize mandatory retirement ages Long term reforms; medium impact. Philippines Reform Agenda: (4) Remain opportunistic – MEDIUM IMPACT Phils reform pipeline Successful reforms Paying taxes Enforcing contracts Employing workers

25. Doing Business 2008September 26, 2007

26. Doing Business methodology - some basics • Gather all the relevant laws, regulations, decrees, fee schedules • Follow the entrepreneur from the beginning to the end of a transaction • Record every step of the process, and its time and cost • The data set for all sets of indicators in Doing Business 2008 are for June 2007 • The standardized survey uses a simple business case to ensure comparability across countries and over time • Assumptions about the legal form of the business, its size, location and the nature of its operations • Surveys are administered through local intermediaries

27. “The need to make assumptions” ‘Starting a Business’ • Considers SME (between 10 and 50 employees) • 100% domestically owned • Start-up capital of 10 times income per capita • Turnover of at least 100 times income per capita • Operates in country’s most populous city • Legal form: limited liability company (LLC) • Simple business operation – general commercial activity • Does not qualify for any special benefits • Does not own real estate • All requirements to incorporate and commence operations are recorded