92108 Doing Business 2015 Philippines Economy Profile 2015 Philippines Doing Business 2015 Philippines 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Philippines 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 27 Getting electricity ....................................................................................................................... 37 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 50 Protecting minority investors ................................................................................................... 57 Paying taxes ................................................................................................................................ 65 Trading across borders .............................................................................................................. 70 Enforcing contracts .................................................................................................................... 75 Resolving insolvency .................................................................................................................. 81 Labor market regulation ........................................................................................................... 86 Distance to frontier and ease of doing business ranking ...................................................... 92 Resources on the Doing Business website .............................................................................. 95 Doing Business 2015 Philippines 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Philippines. To allow useful comparison, it information on ordering Doing Business 2015, are also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 Philippines 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Philippines 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 98,393,574 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,270 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 95 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 86* distance to the best performance in each Doing Business Change in rank: -9 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 62.1 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 62.1 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Philippines THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Philippines THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Philippines and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Philippines 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Philippines (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Philippines (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Philippines 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Philippines come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Philippines 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Philippines Best performer globally Philippines DB2015 Philippines DB2014 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Lao PDR DB2015 Vietnam DB2015 Indicator DB2015 Starting a Business (rank) 161 154 155 154 13 75 125 New Zealand (1) Starting a Business (DTF 67.23 66.40 68.84 68.95 94.90 87.98 77.68 New Zealand (99.96) Score) Procedures (number) 16.0 16.0 10.0 6.0 3.0 4.0 10.0 New Zealand (1.0)* Time (days) 34.0 36.0 52.5 92.0 5.5 27.5 34.0 New Zealand (0.5) Cost (% of income per 16.6 18.7 21.1 5.7 7.2 6.6 5.3 Slovenia (0.0) capita) Paid-in min. capital (% of 3.6 4.6 35.5 0.0 0.0 0.0 0.0 112 Economies (0.0)* income per capita) Dealing with Construction Hong Kong SAR, China 124 123 153 107 28 6 22 Permits (rank) (1) Dealing with Construction Hong Kong SAR, China 66.08 65.48 59.03 68.50 82.49 88.77 83.66 Permits (DTF Score) (95.53) Hong Kong SAR, China Procedures (number) 24.0 24.0 17.0 22.0 13.0 7.0 10.0 (5.0) Doing Business 2015 Philippines 12 Best performer globally Philippines DB2015 Philippines DB2014 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Lao PDR DB2015 Vietnam DB2015 Indicator DB2015 Time (days) 94.0 94.0 211.0 107.0 74.0 113.0 114.0 Singapore (26.0) Cost (% of warehouse 1.2 1.6 4.3 0.6 1.3 0.1 0.7 Qatar (0.0)* value) Getting Electricity (rank) 16 16 78 128 27 12 135 Korea, Rep. (1) Getting Electricity (DTF 90.59 90.49 76.90 65.29 86.67 91.71 63.38 Korea, Rep. (99.83) Score) Procedures (number) 4.0 4.0 5.0 5.0 5.0 4.0 6.0 12 Economies (3.0)* Time (days) 42.0 42.0 90.7 134.0 32.0 35.0 115.0 Korea, Rep. (18.0)* Cost (% of income per 90.6 115.5 353.6 1,650.4 46.3 66.1 1,432.8 Japan (0.0) capita) Registering Property 108 107 117 77 75 28 33 Georgia (1) (rank) Registering Property (DTF 62.81 62.74 60.74 71.06 71.16 83.04 81.44 Georgia (99.88) Score) Procedures (number) 9.0 9.0 5.0 5.0 8.0 2.0 4.0 4 Economies (1.0)* Time (days) 35.0 35.0 27.4 98.0 13.5 2.0 57.0 3 Economies (1.0)* Cost (% of property value) 4.3 4.3 10.8 1.1 3.3 6.3 0.6 4 Economies (0.0)* Getting Credit (rank) 104 99 71 116 23 89 36 New Zealand (1) Getting Credit (DTF Score) 40.00 40.00 50.00 35.00 70.00 45.00 65.00 New Zealand (100) Strength of legal rights 3 3 4 7 7 3 7 3 Economies (12)* index (0-12) Depth of credit 5 5 6 0 7 6 6 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 46.4 3.5 56.2 0.0 41.8 Portugal (100.0) Doing Business 2015 Philippines 13 Best performer globally Philippines DB2015 Philippines DB2014 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Lao PDR DB2015 Vietnam DB2015 Indicator DB2015 (% of adults) Credit bureau coverage 11.3 9.3 0.0 0.0 78.6 52.7 1.4 23 Economies (100.0)* (% of adults) Protecting Minority 154 143 43 178 5 25 117 New Zealand (1) Investors (rank) Protecting Minority 41.67 41.67 60.83 29.17 74.17 65.83 46.67 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation index 4.0 4.0 6.0 3.3 8.7 7.7 3.7 Singapore (9.3)* (0-10) Extent of shareholder 4.3 4.3 6.2 2.5 6.2 5.5 5.7 France (7.8)* governance index (0-10) Strength of minority investor protection index 4.2 4.2 6.1 2.9 7.4 6.6 4.7 New Zealand (8.2) (0-10) United Arab Emirates Paying Taxes (rank) 127 121 160 129 32 62 173 (1)* United Arab Emirates Paying Taxes (DTF Score) 66.46 66.46 53.66 66.10 83.95 77.99 43.61 (99.44)* Payments (number per Hong Kong SAR, China 36.0 36.0 65.0 35.0 13.0 22.0 32.0 year) (3.0)* Time (hours per year) 193.0 193.0 253.5 362.0 133.0 264.0 872.0 Luxembourg (55.0) Trading Across Borders 65 53 62 156 11 36 75 Singapore (1) (rank) Trading Across Borders 77.23 78.79 77.46 52.96 89.94 83.57 75.56 Singapore (96.47) (DTF Score) Documents to export 6 6 4 10 4 5 5 Ireland (2)* (number) Doing Business 2015 Philippines 14 Best performer globally Philippines DB2015 Philippines DB2014 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Lao PDR DB2015 Vietnam DB2015 Indicator DB2015 Time to export (days) 15.0 15.0 17.0 23.0 11.0 14.0 21.0 5 Economies (6.0)* Cost to export (US$ per 755.0 585.0 571.8 1,950.0 525.0 595.0 610.0 Timor-Leste (410.0) container) Cost to export (deflated 755.0 596.6 571.8 1,950.0 525.0 595.0 610.0 US$ per container) Documents to import 7 7 8 10 4 5 8 Ireland (2)* (number) Time to import (days) 15.0 14.0 26.0 26.0 8.0 13.0 21.0 Singapore (4.0) Cost to import (US$ per 915.0 660.0 646.8 1,910.0 560.0 760.0 600.0 Singapore (440.0) container) Cost to import (deflated 915.0 673.1 646.8 1,910.0 560.0 760.0 600.0 US$ per container) Enforcing Contracts (rank) 124 124 172 99 29 25 47 Singapore (1) Enforcing Contracts (DTF 52.02 52.02 37.28 57.49 69.39 70.05 65.89 Singapore (89.54) Score) Time (days) 842.0 842.0 471.0 443.0 425.0 440.0 400.0 Singapore (150.0) Cost (% of claim) 31.0 31.0 115.7 31.6 37.3 15.0 29.0 Iceland (9.0) Procedures (number) 37.0 37.0 40.0 42.0 29.0 36.0 36.0 Singapore (21.0)* Resolving Insolvency 50 48 75 189 36 45 104 Finland (1) (rank) Resolving Insolvency (DTF 56.74 56.77 46.75 0.00 65.61 58.73 41.27 Finland (93.85) Score) no Time (years) 2.7 1.9 1.0 2.7 5.0 Ireland (0.4) practice no Cost (% of estate) 32.0 32.0 21.6 10.0 36.0 14.5 Norway (1.0) practice Doing Business 2015 Philippines 15 Best performer globally Philippines DB2015 Philippines DB2014 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Lao PDR DB2015 Vietnam DB2015 Indicator DB2015 Outcome (0 as piecemeal no sale and 1 as going 0 0 0 1 1 0 practice concern) Recovery rate (cents on 21.2 21.3 31.7 0.0 81.3 42.3 18.6 Japan (92.9) the dollar) Strength of insolvency no 14.5 14.5 9.5 7.0 11.5 10.0 5 Economies (15.0)* framework index (0-16) practice Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Philippines 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Philippines 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Philippines? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 16.0 procedures, takes 34.0 days, average of the 2 largest business cities. See the chapter costs 16.6% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 3.6% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Philippines - Paid-in minimum capital (% of income per capita): 3.6 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Philippines 18 STARTING A BUSINESS Globally, Philippines stands at 161 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in The rankings for comparator economies and the regional Philippines to start a business. Figure 2.2 How Philippines and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Philippines 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Philippines (table 2.1)? Table 2.1 How has Philippines made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines eased business startup by setting up a one- DB2011 stop shop at the municipal level. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Philippines is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Corporation firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: PHP the study of laws, regulations and publicly available 5,000 information on business entry in that economy. City: Quezon City Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Philippines - Time to No. Procedure Cost to complete complete Verify and reserve the company name with the Securities and Exchange Commission (SEC) The name search can be done electronically via the SEC's online verification system, but applicants must pay for the reservation fee on site at the SEC. Once the reserved name was approved by the SEC, it costs PHP 40 for the first 30 days. The company name can be reserved 1 day PHP 40 1 for a maximum of 90 days for a fee of PHP 120, which is renewable upon expiration of the period. Agency: Securities and Exchange Commission Deposit the paid-in minimum capital at the bank According to Section 13 of the Corporation Code, the paid-in minimum capital is 5000 pesos. Even though a certificate of deposit is not a requirement by the Securities and Exchange Commission (SEC) for 2 company registration, this procedure must be completed in order to 1 day no charge abide by the applicable law. Agency: Bank Doing Business 2015 Philippines 21 Time to No. Procedure Cost to complete complete Notarize articles of incorporation and treasurer's affidavit at the notary According to Section 14 and 15 of the Corporation Code, articles of 3 incorporation should be notarized before filing with the SEC. 1 day PHP 500 Agency: Notary Register the company with the SEC and receive pre-registered Taxpayer Identification Number (TIN) The company can register online through SEC i-Register, but entrepreneurs must pay at the SEC. The following documents are required for SEC registration: a. Company name verification slip; b. Articles of incorporation (notarized) and by-laws; c. Treasurer's affidavit (notarized); d. Statement of assets and liabilities; e. Registration data sheet with particulars on directors, officers, stockholders, and so forth; f. Written undertaking to comply with SEC reporting requirements (notarized); g. Written undertaking to change corporate name (notarized). On August 15, 2011, SEC launched the Green Lane Unit (GLU) that provides 1 day registration of applications for stock corporations and partnership. In practice, it takes 1-3 business days to process see procedure 4 2 days on average incorporation papers and obtain SEC approval. details The pre-registered Taxpayer Identification Number (TIN) is automatically obtained from the SEC Head Office upon registration. However, the company must still register with the Bureau of Internal Revenue (BIR) in order to identify applicable tax types, pay an annual registration fee, obtain and stamp sales invoices, receipts and the books of accounts. Cost: (PHP 2,066.14 filing fee equivalent to 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 + PHP 19.26 legal research fee (LRF) equivalent to 1% of filing fee but not less than PHP 10 + PHP 500 By-laws + PHP 150 for registration of stock and transfer book (STB) required for new corporations + PHP 320 STB + PHP 10 legal research fee for the By-laws) Agency: Securities and Exchange Commission Doing Business 2015 Philippines 22 Time to No. Procedure Cost to complete complete Obtain barangay clearance To get the barangay clearance, the following documentary requirements should be submitted to the Barangay: Application form, SEC Certificate of Incorporation and approved articles of incorporation and bylaws, location plan/site map and the contract of lease over the corporation's office. This clearance is obtained from the Barangay where the business is located. Barangay fees vary in each Barangay since they have the 5 discretion to impose their own fees and charges as long as these fees 1 day PHP 500 are reasonable and within the limits set by the Local Government Code and city ordinances. In Quezon City, the fees range from PHP 300 to PHP 1000. The clearance is obtained in one day, provided that the barangay captain is in the office as the captain is the only official authorized to sign. Agency: Barangay Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO) The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the company legal form is a corporation, partnership, or association (PHP 500 or lower). The additional community tax (not to exceed PHP 10,000.00) depends on the assessed value of real property the company owns in the Philippines 1 day PHP 500 6 at the rate of PHP 2.00 for every PHP 5,000.00 and on its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year, at the rate of PHP 2.00 for every PHP 5,000.00. Agency: City Treasurer's Office Obtain the business permit to operate from the BPLO The fees vary depending on the LGU issuing the permit. The rate of license fee imposed in Quezon City is 25% of 1% of the authorized capital stock. Other permits, such as location clearance, fire safety and inspection certificate, sanitary permit, certificate of electrical inspection, mechanical permit, and other clearances or certificates required depending on the nature of business, are also imposable. The rate of see procedure 7 6 days these fees depends on the nature of business and land area occupied details by the proposed corporation. The barangay clearance is a prerequisite for the issuance of business permit to operate. Executive Order No. 17, series of 2011 created the Business-One-Stop- Shop to obtain a business permit. The entire procedure including Doing Business 2015 Philippines 23 Time to No. Procedure Cost to complete complete getting approval for the business permit takes around one to two weeks. Cost: (PHP 2,408.05 business tax (25% of 1% of paid-up capital) + PHP 200 mayor’s permit + PHP 150 sanitary inspection fee + PHP 50 signboard fee + PHP 300 business plate + PHP 100 QCBRB + PHP 545 zoning clearance + PHP 1,300 garbage fee+ PHP 300 FSIC (10% of all regulatory fees)) Agency: Business Permits and Licensing Office Buy special books of account at bookstore Special books of accounts are required for registering with the BIR. The books of accounts are sold at bookstores nationwide. One set of journals consisting of four books (cash receipts account, disbursements account, ledger, general journal) costs about PHP 400. If the company has a computerized accounting system (CAS), it may opt to register its CAS under the procedures laid out in BIR Revenue Memorandum Order Nos. 21-2000 and 29-2002. 1 day PHP 400 8 The BIR Computerized System Evaluation Team is required to inspect and evaluate the company’s CAS within 30 days from receipt of the application form (BIR Form No. 1900) and complete documentary requirements. Agency: Bookstore Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR) After the taxpayer obtains the TIN, the company must pay the annual registration fee of PHP 500 at any duly accredited bank, using payment form BIR Form 0605). All newly formed corporations subject to SEC registration are issued PHP 100 pre-generated TIN by SEC-Head Office, which is indicated on their SEC (certification fee) Certificate of Registration. The corporation only has to register its pre- and PHP 15 9 generated TIN with the BIR and report all internal revenue taxes that it 1 day (documentary expects to be liable for. stamp tax, in loose form to be attached The requirements for application for COR with the BIR are: to Form 2303) a. Duly accomplished and filled-out BIR Form No. 1903 (Application for Registration for Corporations); b. Payment Form (BIR Form No. 0605); c. SEC Certification of Incorporation; d. Articles of Incorporation and By-laws; e. Contract of Lease (with BIR Form No. 2000 and supporting BIR Payment Form as proof of payment of documentary stamp tax on the Doing Business 2015 Philippines 24 Time to No. Procedure Cost to complete complete lease agreement); f. Documentary Stamp Tax Return (BIR Form No. 2000) on the original issuance of shares and Payment Form (for the DST payment); and g. Mayor’s Permit/Business Permit Application (duly stamped received by the Business Licensing Division of the local government of Quezon City). Agency: Bureau of Internal Revenue Pay the registration fee and documentary stamp taxes (DST) at the AAB The rate of documentary stamp tax on original issuance of shares of stock shall be PHP 1.00 for every PHP 200.00 or fractional part thereof, of the par value, of such shares of stock. The documentary stamp tax return shall be filed and the tax paid on or before the fifth (5th) day after the close of the month of approval of see procedure 10 SEC registration. 1 day details Cost: (PHP 500 registration fee + PHP 5,165.345 DST on original issuance of shares of stock. DST on the lease contract is not included in the computation of the cost) Agency: Bureau of Internal Revenue Obtain the authority to print receipts and invoices from the BIR The authority to print receipts and invoices must be secured before printing the sales receipts and invoices. The BIR issued Revenue Regulations No. 18-2012 and it became effective on January 18, 2013. It adopted the online system for authority to print official receipts, sales invoices and other commercial invoices. In this regard, all unused or unissued receipts and invoices which were printed prior to January 18, 2013 will be deemed valid only until June 30, 2013. To obtain the authority to print receipts and invoices from the BIR, the company must submit the following documents to the Revenue District 1 day no charge 11 Office (RDO): a. Duly completed application for authority to print receipts and invoices (BIR Form No. 1906); b. Job order; c. Final and clear sample of receipts and invoices (machine-printed); d. Application for registration (BIR Form No. 1903); and e. Proof of payment of annual registration fee (BIR Form No. 0605). Agency: Bureau of Internal Revenue Doing Business 2015 Philippines 25 Time to No. Procedure Cost to complete complete Print receipts and invoices at the print shop The cost is based on the following specifications of the official receipt: 1/2 bond paper (8 ½ x 5 ½ cm) in duplicate, black print, carbonless. The 12 minimum print volume is 25 booklets. 7 days PHP 3,500 Agency: Bureau of Internal Revenue Have books of accounts and Printer’s Certificate of Delivery (PCD) stamped by the BIR After the printing of receipts and invoices, the printer issues a Printer’s Certificate of Delivery of Receipts and Invoices (PCD) to the company, which must submit this to the appropriate BIR RDO (i.e., the RDO which has jurisdiction over the company’s principal place of business) for registration and stamping within thirty (30) days from issuance. The company must also submit the following documents: a. All required books of accounts; b. VAT registration certificate; 13 c. SEC registration; 1 day no charge d. BIR Form W-5; e. Certified photocopy of the ATP; and f. Notarized taxpayer-user’s sworn statement enumerating the responsibilities and commitments of the taxpayer-user. The company must also submit a copy of the PCD to the BIR RDO having jurisdiction over the printer’s principal place of business. Agency: Bureau of Internal Revenue Register with the Social Security System (SSS) To register with the SSS, the company must submit the following documents: a. Employer registration form (Form R-1); b. Employment report (Form R-1A); c. List of employees, specifying their birth dates, positions, monthly salary and date of employment; and d. Articles of incorporation, by-laws and SEC registration. 14 7 days no charge Upon submission of the required documents, the SSS employer and employee numbers will be released. The employees may attend an SSS training seminar after registration. SSS prefers that all members go through such training so that each member is aware of their rights and obligations. Agency: Social Security System Doing Business 2015 Philippines 26 Time to No. Procedure Cost to complete complete Register with the Philippine Health Insurance Company (PhilHealth) To register with PhilHealth, the company must submit the following documents: a. Employer data record (Form ER1); b. Report of employee-members (Form ER2); c. SEC registration; d. BIR registration; and 15 e. Copy of business permit. 1 day no charge Upon submission of the required documents, the company shall get the receiving copy of all the forms as proof of membership until PhilHealth releases the employer and employee numbers within three months. Agency: Philippine Health Insurance Corporation * Register with Home Development Mutual Fund (Pag-ibig) To register with the HDMF, the corporation must submit the following documents: a. Employer's Data Form (EDF [FPF040]); b. Specimen Signature Form (SSF[FPF170]); c. Copy of SEC Certificate of Incorporation; d. Copy of Approved Articles of Incorporation and By-laws; and 1 day e. Board Resolution or Secretary’s Certificate indicating the duly (simultaneous with 16 designated Authorized Representative. no charge previous procedure) Upon submission of the complete documents and payment of the first contribution to the fund, the Pag-IBIG will issue the HDMF number and the HDMF Certificate of Registration. Agency: Home Development Mutual Fund * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Philippines 27 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Philippines 28 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Philippines? According to data collected are a population-weighted average of the 2 largest by Doing Business, dealing with construction permits business cities. See the chapter on distance to frontier there requires 24.0 procedures, takes 94.0 days and costs and ease of doing business ranking at the end of this 1.2% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Philippines - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Philippines 29 DEALING WITH CONSTRUCTION PERMITS Globally, Philippines stands at 124 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Philippines to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Philippines and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Philippines 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Philippines (table 3.1)? Table 3.1 How has Philippines made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines made construction permitting more DB2011 cumbersome through updated electricity connection costs. The Philippines made dealing with construction permits easier DB2014 by eliminating the requirement to obtain a health certificate. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Philippines are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction PHP 7,037,832 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Quezon City service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Philippines - Time to No. Procedure Cost to complete complete Obtain certified true copy of the land title from the Register of Deeds (RD) The certified true copy of the land title serves as proof of ownership of 1 the land on which the warehouse is to be built. 4 days PHP 209 Agency: Register of Deeds (RD) * Obtain lot plan with site map from the geodetic engineer BuildCo must obtain the lot plan with a site map from a geodetic engineer to confirm the location of the land purported to be in the land title. The lot plan with a site map is signed, sealed, and prepared after a 2 meticulous geodetic survey, or at least after an analysis has been 3 days PHP 1,250 conducted of the lot technical description appearing on the title. Agency: Geodetic Engineer * Obtain barangay clearance The barangay clearance is generally a requirement for obtaining the locational clearance. The costs for barangay clearances vary as barangays have the discretion to impose their own fees for as long as 3 such fees are reasonable and within the limits imposed by the Local 1 day PHP 500 Government Code and city ordinances. Agency: Barangay Doing Business 2015 Philippines 32 Time to No. Procedure Cost to complete complete Apply for the locational clearance at the City Planning and Development Office (CPDO) The locational clearance is required to ensure that the construction conforms to the city’s Comprehensive Land Use Plan and zoning ordinances. BuildCo must submit the following documents: • Notarized locational clearance application form 1 day no charge 4 • Barangay clearance • Transfer Certificate of Title (TCT) • Latest real property tax receipt • Architectural plan Agency: City Planning and Development Office (CPDO) Receive inspection for the locational clearance from the CPDO 5 1 day no charge Agency: City Planning and Development Office (CPDO) Obtain the locational clearance from the CPDO BuildCo pays the locational clearance fee at the City Treasurer's Office (CTO) and obtains the locational clearance at the CPDO. 5 days PHP 1,996 6 Agency: City Planning and Development Office (CPDO) * Apply and obtain fire safety evaluation clearance (FSEC) from the local Fire Marshall at the Bureau of Fire Protection (BFP) The City Fire Marshall evaluates one set of plans and specifications submitted by the applicant to ensure that they conform to the fire safety and control requirements of the Fire Code. Three sets of the 7 days PHP 11,055 7 architectural plans must be stamped and approved by the Quezon City Fire Marshall. Agency: Quezon City Fire Marshall - Bureau of Fire Protection (BFP) Apply and obtain the building permit and ancillary permits at the Office of the Building Official (OBO) The ancillary permits consist of: • The architectural permit 8 • Civil/structural permit 21 days PHP 43,043 • Electrical permit • Mechanical permit • Sanitary permit • Plumbing permit • Electronics permit Doing Business 2015 Philippines 33 Time to No. Procedure Cost to complete complete •Fire Safety Clearance, Brgy. Clearance, bill of materials, ECC, PTR & PRC of professionals The applicant must submit the following requirements: • Certified true copy of Original Certificate of Title (OCT)/TCT on file with the Registry of Deeds • Photocopy of tax declaration • Building permit application form • 3 sets of survey plans, design plans, specifications and other related documents (i.e., architectural documents, civil/structural documents, electrical documents, mechanical documents, sanitary documents, plumbing documents, electronics documents, geodetic documents, and clearances from other agencies) • Locational clearance from the CPDO If the sets of documents are complete, an acknowledgement/follow-up slip (afs) is issued to the applicant. 10 workings after, the applicant will receive a order of payment (OP) is obtained from the Releasing Section of the DBO. Payment is made at the cashier of the Quezon City Treasurer’s Office. The official receipt (O.R.) of the permit fees is then submitted to the Releasing Section of DBO. The building permit will then be issued 5 working after submitting the proof of payment. Agency: Office of the Building Official (OBO) Receive inspection from the BFP during construction The BFP conducts an inspection during construction to ensure that the plans and fire safety precautions are observed. 1 day no charge 9 Agency: Bureau of Fire Protection (BFP) Apply for the fire safety inspection certificate (FSIC) at the BFP Once construction has been completed, BuildCo requests the BFP to inspect the site to certify that the required fire safety construction, fire protective and/or warning systems are properly installed and in good 1 day PHP 4,304 10 working condition. Agency: Bureau of Fire Protection (BFP) Receive final inspection for the FSIC from the BFP 11 1 day no charge Agency: Bureau of Fire Protection (BFP) Doing Business 2015 Philippines 34 Time to No. Procedure Cost to complete complete Obtain the FSIC from the BFP 12 5 days no charge Agency: Bureau of Fire Protection (BFP) * Apply for the certificate of final electrical inspection (CFEI) at the OBO The CFEI certifies that a final inspection of the electrical installation has been conducted and that such installation has been completed in 13 accordance with the approved plans and specifications on file with the 1 day no charge OBO and the provisions of the Philippines Electrical Code. Agency: Office of the Building Official (OBO) Receive final inspection for the CFEI from the OBO 14 1 day no charge Agency: Office of the Building Official (OBO) Obtain the CFEI from the OBO 15 3 days no charge Agency: Office of the Building Official (OBO) Apply for the certificate of occupancy at the OBO In order to apply for a certificate of occupancy, BuildCo must submit the following to the OBO: • Application for certificate of occupancy • FSIC • Health certificate • Duly notarized certificate of completion • Construction logbook • As-built plans and specifications 1 day no charge 16 • Building inspection sheet All documents should be signed and sealed by the architect or engineer who undertook the full-time inspection and supervision of the construction. Agency: Office of the Building Official (OBO) Doing Business 2015 Philippines 35 Time to No. Procedure Cost to complete complete Receive final inspection for the certificate of occupancy from the OBO The OBO conducts a final inspection to check the building based on the certificate of completion, construction logbook, building inspection 1 day no charge 17 sheets, and original and as-built plans and specifications. Agency: Office of the Building Official (OBO) Obtain the certificate of occupancy from the OBO After the OBO has processed the application and conducted the inspection, it then issues an assessment and order of payment. The OBO issues the certificate of occupancy after the applicant has paid the 18 days PHP 17,688 18 corresponding fees. Agency: Office of the Building Official (OBO) Apply for water and sewage connection There are two private water providers for Quezon City. Maynilad services the west zone and Manila Water services the east zone. An inspection takes place within a week and the connection is completed some days after the inspection. The case study assumes that BuildCo 1 day no charge 19 will request water from Manila Water as this is the most favorable option. Agency: Manila Water Receive inspection for water and sewage connection 20 1 day no charge Agency: Manila Water Obtain water and sewage connection 21 21 days PHP 6,855 Agency: Manila Water * Apply for the tax declaration of improvement at the City Assessor's Office (CAO) BuildCo must update its official records to include the newly built warehouse for tax purposes. The OBO furnishes the CAO with a copy of 1 day no charge 22 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. Agency: City Assessor's Office (CAO) Doing Business 2015 Philippines 36 Time to No. Procedure Cost to complete complete Receive inspection from the appraiser of CAO 23 1 day no charge Agency: City Assessor's Office (CAO) Obtain the tax declaration of improvement from the CAO The tax declaration of improvement is released after an appraiser inspects the property. 3 days no charge 24 Agency: City Assessor's Office (CAO) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Philippines 37 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Philippines 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 4.0 procedures, which the data are a population-weighted average of the takes 42.0 days and costs 90.6% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Philippines - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Philippines 39 GETTING ELECTRICITY Globally, Philippines stands at 16 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Philippines to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Philippines and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Philippines 40 GETTING ELECTRICITY What are the details? The indicators reported here for Philippines are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: MERALCO identified by Doing Business. Data are collected from the distribution utility, then completed and verified by City: Quezon City electricity regulatory agencies and independent professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Philippines - Time to No. Procedure Cost to complete complete Submit application to MERALCO and await site inspection No notarization required on approval for any other body. MERALCO evaluates the application, and sends engineer to site inspection and inspection of service entrance. Requirements along with application include: Initial requirement to start the Service Application Process - Formal request letter - Complete service application form - Electrical Plan signed & sealed by Professional Electrical Engineer (load schedule, list of loads, single line diagram, location sketch) Other requirements to follow on or before contracting 1 - Wiring Permit (Original/Meralco Copy for issuance of meter base) 3 calendar days PHP 0 - 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 to follow on or before energization -CFEI -Payment of service deposit Doing Business 2015 Philippines 41 Time to No. Procedure Cost to complete complete Agency: MERALCO Receive site visit from MERALCO and await estimate 2 14 calendar days PHP 0 Agency: MERALCO * Request and receive Certificate of Electrical Inspection (CEI) from Quezon City Request for Certificate of Electrical Inspection (CEI) from Quezon City. This can be done once the electrical installations are completed and engineer in-charge of installation signs the “Completion Certificate of 7 calendar days PHP 7,500 3 Electrical Installation” and submitted together with the application for CEI to the City. Agency: Quezon City Submit Certificate of Inspection to MERALCO and MERALCO completes installation of overhead distribution facilities and meter, and electricity starts flowing Once Service Contract is signed with MERALCO and project cost and deposit paid, MERALCO starts installation of power service connection and metering necessary for external connection. Project cost is shouldered by MERALCO through the Customer Allocation Budget. 25 calendar days PHP 120,004.24 4 Security deposit charged can be refunded by the customer, including accumulated interest only upon termination of the service contract or if the account is transferred to another owner. Interest rate fluctuates with the current central bank rate and is accrued to the account. Agency: MERALCO * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Philippines 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Philippines 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Philippines? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 9.0 which the data are a population-weighted average of the procedures, takes 35.0 days and costs 4.3% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Philippines - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Philippines 44 REGISTERING PROPERTY Globally, Philippines stands at 108 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Philippines to transfer property. Figure 5.2 How Philippines and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Philippines 45 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: PHP 7,037,832 notaries and property registries. These procedures are those that apply to a transaction matching the City: Quezon City standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Philippines Time to No. Procedure Cost to complete complete Check against encumbrances and obtain certified true copy of the land title from the Register of Deeds (RD) PHP 209 - PHP 36 for the certification The buyer conducts the search against encumbrances and the seller + PHP 6 for each 1 obtains the true copy of the land title from the Register of Deeds (RD) 4 days additional page (2 additional pages Agency: Register of Deeds needed) + PHP 160.97 IT fee. Prepare the notarized deed of sale and related documents While the deed of sale can be prepared by anyone, it must be executed before and notarized by a notary public. In many instances, the notary public drafts the deed of sale and conducts the whole process on behalf of the parties. In addition to the deed of sale, the Register of Deeds also requires both the buyer and the seller to submit notarized secretary's 1 - 2% property 2 certificates containing the resolution of their board of directors 1 day value for approving the sale. The buyer must also produce a certificate from the notarization Securities and Exchange Commission (SEC) stating that its articles of incorporation have been registered with the SEC. Agency: Notary Obtain tax clearance certificate of real property taxes from the Land Tax Division of the City Treasurer’s Office (CTO) PHP 115 (PHP 50 for tax clearance The seller, after paying any arrears, obtains a tax clearance certificate 2 days for land and for 3 from the CTO. The documentation shall include: (1) an original of the (simultaneous real estate plus official receipt evidencing payment by seller of realty taxes; (2) certified with procedure 2) PHP 15 for true copy of latest tax declarations for each of the land and the documentary warehouse; (3) photocopy of official receipt for payment of real property stamp tax) tax for each of the land and the warehouse for the immediately Doing Business 2015 Philippines 46 Time to No. Procedure Cost to complete complete preceding year. Note: Separate tax clearance for real property tax should be obtained for the land and the warehouse Agency: Real Estate Tax Division of the City Treasurer’s Office PHP 250 (PHP 50 per RPU * Obtain certified true copy of latest tax declaration and certificate of "with improvement" from the City Assessor’s Office (CAO) (land(1RPU), Building (1RPU)) + The seller obtains a certified true copy of the latest tax declaration from 1 day PHP 90 for 4 the Assessor’s Office of Quezon City. (simultaneous certificate of "with with procedure 3) improvement" + Agency: Assessor’s Office PHP 60 (PHP 20 documentary stamp tax per RPU/document) Pay documentary stamp tax and final capital gains tax for the transfer of real property The seller or the buyer (based on their agreement) files the Documentary Stamp Tax return and Capital Gains Tax return with the authorized agent bank. This is done within 5 days after the close of the month when the taxable document was signed or within 30 days after the sale, whichever is earlier. The taxes are paid at the authorized bank to the account of the Bureau of Internal Revenue. The Capital Gains Tax is 6% of capital gains based on selling price, fair market value or zonal value, whichever is higher. The Documentary Stamp Tax is 1.5% based on selling price or fair market value, whichever is higher. The seller may opt to have the taxing authority assess and compute the Capital Gains Tax and the 1.5% of property Documentary Stamp Tax prior to payment to ensure accuracy of the value 5 1 day amount of taxes due. (Documentary The documentation shall include: Stamp Tax) • Original copy and photocopy of notarized deed of sale of building (obtained in Procedure 1) • Certified true copy of transfer certificate of title (in the name of seller) • Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) • Photocopy of the latest realty tax receipt • Letter-request • Identification card of the person requesting Agency: Authorized Agent Bank (AAB) Doing Business 2015 Philippines 47 Time to No. Procedure Cost to complete complete Obtain Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) The Certificate Authorizing Registration (CAR) is a certification issued by the BIR that the transfer and conveyance of the property was reported and the taxes due have been fully paid. The taxpayer/applicant must submit the following documents to the BIR: a. Tax identification number (TIN) of seller and buyer; b. Notarized deed of absolute sale/document of transfer, but only photocopied document shall be retained by the BIR; c. Certified true copy of the latest tax declaration issued by the City Assessor’s Office for the land and improvement applicable to the taxable transaction; d. Owner’s copy (for presentation purposes only) and photocopy (for authentication) of the Original Certificate of Title (OCT), or the certified true copy of the Transfer Certificate of Title (TCT); e. PHP 115 (PHP 100 Sworn declaration of “with Improvement” by at least one (1) of the certification fee + 6 transferees, or certificate of “with Improvement” issued by the City 14 days PHP 15 Assessor’s Office. All documents submitted must also include 2 documentary tax) 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 Original Copies of the BIR Return Forms 1706 (CGT) and 2000 (DST) stamped received by the BIR Applicant accomplishes BIR forms 2000-OT and 1706 for DST and CGT 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 (Procedure 4). Upon receipt of proof of tax payment from the taxpayer/applicant, the BIR immediately issues a claim slip. Agency: Bureau of Internal Revenue (BIR) Pay the transfer tax at the CTO The transfer tax must be paid at the CTO not later than 60 days from the date of execution of the Deed of Absolute Sale or the notarization date thereof, whichever is earlier. The documentation shall include: a. 0.75% of property Certificate Authorizing Registration from the Bureau of Internal Revenue price (transfer tax) (obtained in Procedure 5); b. Tax clearance certificate from the 1 day + PHP 125 7 Treasurer’s Office of Quezon City (obtained in Procedure 3); c. Official (certificate of receipt of the Bureau of Internal Revenue (for documentary stamp tax) payment) (obtained in Procedure 4). Agency: Real Estate Tax Division of the City Treasurer’s Office Apply for registration with the Register of Deeds Registration fee consisting of PHP The buyer applies for registration with the Register of Deeds. The 10 days 8 8,796 for first PHP documentation shall include: a. Copy of deed of absolute sale; b. Official receipt evidencing payment of transfer tax; c. Certificate 1.700,000 + PHP Authorizing Registration from the BIR (CAR) including official receipts for 90 for every PHP Doing Business 2015 Philippines 48 Time to No. Procedure Cost to complete complete payment of DST and CGT; d. Real property tax clearance from the City 20,000 or fraction Treasurer’s Office; e. Original copy of owner's duplicate of TCT (in the thereof in excess name of the seller); f. Original or certified true copy of the latest tax of PHP 1.700,000 declaration; g. Notarized secretary's certificate containing resolution of + PHP 199.56 legal the board of directors of the seller approving the sale; h. Notarized research fee (1% secretary's certificate containing resolution of the board of directors of of the registration the buyer approving the sale; i. Articles of incorporation of the buyer and by-laws; and j. Certificate from the SEC that the articles of incorporation fee) + PHP 30 of the buyer have been registered. judicial form fee + PHP 3,104.37 IT Agency: Register of Deeds fee (PHP 344.93 per document) + PHP 300 primary entry fee (PHP 30 per document) + PHP 480 registration fee for specific documents (PHP 120 per document) + PHP 120 fixed entry fee for specific documents (PHP 30 per document) + PHP 40 legal research fee for specific documents (PHP 10 per document) + PHP 60 annotation fee (PHP 30 per document) + PHP 258 fee for issuance of new transfer certificate of title Obtain new tax declaration over the building and the land in the name of buyer from CAO The buyer applies with the CAO for the issuance of a new tax declaration over the building in his name. The documentation shall include: a. 2 days no cost 9 Photocopy of notarized deed of sale (obtained in Procedure 1); b. Copy of latest tax declaration (in the name of seller) (obtained in Procedure 2); c. Tax clearance certificate of real property taxes from the CTO (obtained in Procedure 3); d. Certificate authorizing registration from the BIR (obtained in Procedure 5); e. Photocopy of official receipt of transfer tax Doing Business 2015 Philippines 49 Time to No. Procedure Cost to complete complete payment (original copy to be presented) (obtained in Procedure 6); and f. The transfer certificate of title (TCT) issued by the RD (in the name of the buyer) (obtained in Procedure 7). Agency: Assessor’s Office - City Government * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Philippines 50 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Philippines 51 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Philippines stands at 104 in the ranking of 189 and bankruptcy laws in Philippines facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 5 on the depth of rankings for comparator economies and the regional credit information index and a score of 3 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in end of this chapter for details). Higher scores indicate Philippines support lending and borrowing. more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Philippines and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Philippines 52 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Philippines and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Philippines 53 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Philippines (table 6.1)? Table 6.1 How has Philippines made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines improved access to credit information through DB2010 a new act regulating the operations and services of a credit information system. The Philippines improved access to credit information by beginning to distribute both positive and negative information DB2014 and by enacting a data privacy act that guarantees borrowers’ right to access their data. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 54 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders are Philippines are based on detailed information collected gathered through a survey of financial lawyers and in that economy. The data on credit information sharing verified through analysis of laws and regulations as well are collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 3 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No 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 electronic database indexed by debtor's No name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by Yes providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Philippines 55 Strength of legal rights index (0–12) Index score: 3 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through Yes public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 5 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No No 0 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. 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. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 397,709 0 Number of individuals 6,493,077 0 Percent of total 11.3 0.0 Doing Business 2015 Philippines 56 Source: Doing Business database. Doing Business 2015 Philippines 57 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Philippines 58 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Philippines? The economy has a score of not measure all aspects related to the protection of 4.2 on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Philippines stands at 154 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Philippines and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Philippines 59 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Philippines in 2014. A summary of scoring for minority investors indicators into context is to see where the protecting minority investors indicators at the end of the economy stands in the distribution of scores across this chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Philippines 60 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Philippines 61 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Philippines 62 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Philippines 63 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Philippines are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Philippines. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Philippines Answer Score Extent of disclosure index (0-10) 2.0 Which corporate body can provide legally sufficient CEO alone 0 approval for the Buyer-Seller transaction? (0-3) Is disclosure by the interested director to the board of No disclosure obligation 0 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public No disclosure obligation 0 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 3.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Not liable 0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Not liable 0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 7.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3 Doing Business 2015 Philippines 64 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from At the discretion of the court 0 the company? (0-2) Strength of minority investor protection index (0-10) 4.2 Extent of conflict of interest regulation index (0-10) 4.0 Extent of shareholder rights index (0-10.5) 4.5 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share No 0 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights No 0 on new shares? Must shareholders approve the election and dismissal of the No 0 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 2.0 Is the CEO barred from also serving as chair of the board of Yes 1.5 directors? Must the board of directors include independent board Yes for listed companies 1 members? Must a company have a separate audit committee? No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected No 0 shares? Must a potential acquirer make a tender offer to all Yes for listed companies 1 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 6.5 Must ownership stakes representing 10% be disclosed? Yes for listed companies 1 Must information about board members’ other directorships as well as basic information on their primary employment Yes for listed companies 1 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Philippines 65 auditor? Must audit reports be disclosed to the public? Yes 1.5 Extent of shareholder governance index (0-10) 4.3 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Philippines 66 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Philippines—and how much do firms pay in frontier and ease of doing business ranking at the end of taxes? On average, firms make 36.0 tax payments a year, this profile for more details. spend 193.0 hours a year filing, preparing and paying Globally, Philippines stands at 127 in the ranking of 189 taxes and pay total taxes amounting to 42.5% of profit economies on the ease of paying taxes (figure 8.1). The (see the summary at the end of this chapter for details). rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Philippines. Figure 8.1 How Philippines and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Philippines 67 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Philippines (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Philippines made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines made paying taxes less costly for companies by DB2010 reducing the corporate income tax rate. The Philippines made paying taxes easier for companies by DB2014 introducing an electronic filing and payment system for social security contributions. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 68 PAYING TAXES What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Quezon City chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online filing 42 30% 20.5 profit previous Local business tax 1 0 0.5% year 8.8 turnover Employer paid - Social 2.89% to gross 1 online filing 38 6.1 security contributions 6.50% salaries assessed Real property tax 1 0 2% property 4.4 value Employer paid - Health 1.16% to gross 12 online filing 0 1.2 insurance 1.19% salaries Employer paid - Housing 2% or P100 gross 12 online filing 0 0.6 development fund per worker salaries Tax on interest 1 online filing 0 20% interest 0.5 per Employer paid - Employer's 0 paid jointly 0 P 30 employee 0.2 compensation per month Community tax certificate 1 0 P 10,500 fixed fee 0.1 Environmental tax 1 0 P 10,000 fixed fee 0.1 Doing Business 2015 Philippines 69 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate basic fee + vehicle Vehicle tax 1 0 0 24% weight BIR certificate 0 paid jointly 0 P 500 fixed fee 0 value not Value added tax (VAT) 1 online filing 113 12% 0 added included P 1.5 per number of small Tax on check transactions 1 online filing 0 0 check checks amount P 0.5 per insurance small Tax on insurance contracts 1 online filing 0 0 each P 4 premium amount various contract small Stamp duty 1 online filing 0 0 rates value amount Employee paid - Social 1.33% to gross 0 paid jointly 0 0 withheld security contributions 2.98% salaries per 1.16% to Employee paid - Payroll tax 0 paid jointly 0 employee 0 withheld 1.19% per month Employee paid - Housing 2% or P 100 gross 0 paid jointly 0 0 withheld development fund per worker salaries Totals 36.0 193.0 42.5 Source: Doing Business database. Doing Business 2015 Philippines 70 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Philippines 71 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Philippines? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 6 documents, doing business ranking at the end of this profile for more takes 15.0 days and costs $755.0. Importing the same details. container of goods requires 7 documents, takes 15.0 Globally, Philippines stands at 65 in the ranking of 189 days and costs $915.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Philippines to export and import goods. Figure 9.1 How Philippines and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Philippines 72 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Philippines (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Philippines made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines reduced the time and cost to trade by improving its electronic customs systems, adding such DB2011 functions as electronic payments and online submission of declarations. In the Philippines trading across borders became more difficult DB2015 because of a new city ordinance restricting truck traffic in Manila. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 73 TRADING ACROSS BORDERS What are the details? The indicators reported here for Philippines are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: Manila South & North harbors cover). Information on the required documents and the time and cost to complete export and import is City: Quezon City collected from local freight forwarders, shipping lines, The predefined stages, and the associated time and cost, customs brokers, port officials and banks. for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Philippines Stages to export Time (days) Cost (US$) Customs clearance and inspections 2 85 Documents preparation 8 105 Inland transportation and handling 2 340 Ports and terminal handling 3 225 Totals 15 755 Stages to import Time (days) Cost (US$) Customs clearance and inspections 2 185 Documents preparation 8 90 Inland transportation and handling 2 340 Ports and terminal handling 3 300 Totals 15 915 Doing Business 2015 Philippines 74 Documents to export Bill of lading Commercial Invoice Customs export declaration Packing List Technical standard/health certificate Terminal handling receipts Documents to import Bill of lading Certificate of origin Commercial invoice Customs import declaration Delivery order Gate Pass Packing list Source: Doing Business database. Doing Business 2015 Philippines 75 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs 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. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Philippines 76 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial business cities. See the chapter on distance to frontier dispute through the courts in Philippines? According to and ease of doing business ranking at the end of this data collected by Doing Business, contract enforcement profile for more details. takes 842.0 days, costs 31.0% of the value of the claim Globally, Philippines stands at 124 in the ranking of 189 and requires 37.0 procedures (see the summary at the economies on the ease of enforcing contracts (figure end of this chapter for details). Most indicator sets refer 10.1). The rankings for comparator economies and the to a case scenario in the largest business city of an regional average ranking provide other useful economy, except for 11 economies for which the data benchmarks for assessing the efficiency of contract are a population-weighted average of the 2 largest enforcement in Philippines. Figure 10.1 How Philippines and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Philippines 77 ENFORCING CONTRACTS What are the details? The indicators reported here for Philippines are COURT NAME based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on Claim value: PHP 220,592 what the indicators cover). These procedures, and the time and cost of completing them, are identified Quezon City through study of the codes of civil procedure and Court name: Metropolitan Trial Court other court regulations, as well as through questionnaires completed by local litigation lawyers City: Quezon City (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Philippines East Asia & Indicator Philippines Pacific average Time (days) 842 554 Filing and service 58 Trial and judgment 580 Enforcement of judgment 204 Cost (% of claim) 31.0 48.6 Attorney cost (% of claim) 20.0 Court cost (% of claim) 6.0 Enforcement Cost (% of claim) 5.0 Procedures (number) 37 37 Number of procedures (without bonus points) 37 Total number of procedures (including bonus points) 37 Doing Business 2015 Philippines 78 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). 5 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defendant. Arrangements for physical delivery of summons and complaint: Plaintiff takes the necessary steps to * arrange for physical service of process on Defendant (e.g. instructing a court officer or a private bailiff). Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 6 made. Substituted service: Substituted service is completed by publication in newspapers, by affixing a notice in 7 court or on public bulletin boards, etc. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 8 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 9 assets are placed in the custody or control of an enforcement officer or private bailiff. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 10 report on the attachment of Defendant’s property to the judge. Doing Business 2015 Philippines 79 No. Procedures Hearing on pre-judgment attachment: A hearing takes place as a matter of law or standard practice to 11 resolve the question of whether Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 12 or defense on the merits of the case (see assumption 4). Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 13 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for 14 example which applications and motions parties intend to file, which documents parties intend to rely on, etc.). Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 15 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr Adjournments: Court proceedings are delayed because one or both parties request and obtain an 16 adjournment to prepare for the oral hearing or trial as a matter of common practice. Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 17 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 18 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Order for submission of final arguments: The judge sets a deadline for the submission of final factual and 19 legal arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 20 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 21 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 22 judgment. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 23 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 24 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Doing Business 2015 Philippines 80 No. Procedures Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 25 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 26 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 27 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). 28 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 29 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a private bailiff. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 30 private bailiff requests Defendant to voluntarily comply with the judgment. 31 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 32 assets). Report on execution of attachment: A court enforcement officer or private bailiff delivers a report on the 33 attachment of Defendant's movable goods to the judge. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 34 opposes aspects of the enforcement process before the judge. 35 Sale through public auction: The Defendant’s movable property is sold at public auction. Direct sale: Defendant's property is sold but not through a public auction. Checked as ‘yes’ if the direct * sale is common as an alternative to a public auction (assumption 9 is disregarded here). Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 36 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 37 Plaintiff had advanced previously. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Philippines 81 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Philippines 82 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, characterize the top-performing economies. How Philippines scores 3.0 out of 3 points on the efficient are insolvency proceedings in Philippines? commencement of proceedings index, 5.5 out of 6 points According to data collected by Doing Business, resolving on the management of debtor’s assets index, 3.0 out of 3 insolvency takes 2.7 years on average and costs 32.0% of points on the reorganization proceedings index, and 3.0 the debtor’s estate, with the most likely outcome being out of 4 points on the creditor participation index. that the company will be sold as piecemeal sale. The Philippines’s total score on the strength of insolvency average recovery rate is 21.2 cents on the dollar. Most framework index is 14.5 out of 16. indicator sets refer to a case scenario in the largest Globally, Philippines stands at 50 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Philippines. Figure 11.1 How Philippines and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Philippines 83 Source: Doing Business database. Doing Business 2015 Philippines 84 Figure 11.2 Recovery Rate (0-100) - Philippines Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Philippines Source: Doing Business database. Doing Business 2015 Philippines 85 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Philippines (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Philippines made resolving insolvency easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform The Philippines enhanced its insolvency process by promoting reorganization procedures through the introduction of DB2010 prepackaged reorganizations and by establishing qualification requirements for receivers. The Philippines adopted a new insolvency law that provides a DB2012 legal framework for liquidation and reorganization of financially distressed companies. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Philippines 86 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Philippines LABOR MARKET REGULATION What are the details? The data reported here for Philippines are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 304.93 (US$/month) Ratio of minimum wage to value added per worker 0.69 Source: Doing Business database. Doing Business 2015 Philippines 88 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 6.0 Premium for night work (% of hourly pay) 10% Premium for work on weekly rest day (% of hourly pay) 30% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 5.0 Paid annual leave for a worker with 5 years of tenure (in working days) 5.0 Paid annual leave for a worker with 10 years of tenure (in working days) 5.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 5.0 working days) Source: Doing Business database. Doing Business 2015 Philippines 89 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Philippines 90 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? No Health insurance existing for permanent employees? Yes Availability of courts or court sections specializing in labor disputes? Yes Source: Doing Business database. Doing Business 2015 Philippines 91 Doing Business 2015 Philippines 92 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Philippines 93 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Philippines 94 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Philippines 95 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Philippines 96