By Juan Carlos Eusebio| March 26, 2021, 12.00PM
The Philippines’ economy is considered one of the most dynamic economies in East Asia and the Pacific. In 2020, however, GDP contracted by an estimated 8.3% due to the outbreak of COVID-19. Nevertheless, according to the IMF’s October 2020 forecast, GDP growth is expected to pick up to 7.4% in 2021, subject to the post-pandemic global economic recovery. Key economic drivers include solid fundamentals, a competitive workforce, a stable job market, steady remittances, and investment in the construction sector.
The country’s economy shrank by more than 8 percent in 2020, the worst result in ASEAN. The recovery in 2021 will be slow, hampered by continued COVID-19 restrictions, unemployment above 10 percent, large numbers of people leaving the job market, declining remittances from abroad, and the struggles of previous growth industries such as tourism. The country also risks severe declines in education outcomes, with schools closed since March 2020 and online schooling likely to continue through 2021.
Amid the struggles caused by the global health crisis, the Philippines continue to look for ways to recover its economy. Before the end of 2020, the Department of Trade and Industry (DTI) launched its new international marketing campaign called “Make It Happen in the Philippines.” It is a unified, country-wide, and multi-sector investment campaign aiming to attract foreign investors to look into opportunities in five key investment priority sectors – aerospace, automotive, copper, information technology, and business process management (IT-BPM) electronics.
From a legislative viewpoint, the Philippine Congress recently ratified the final version of the proposed Corporate Recovery and Tax Incentives for Enterprises Act, or CREATE, which reduces the income tax rate to 25% for big companies and 20% for smaller enterprises from 30%, the highest among countries in Southeast Asia.
The CREATE Act is viewed to be the most extensive stimulus program in the country’s history. Aside from reducing the corporate income tax rate from 30 to 25 percent, the government will also be more flexible in granting fiscal and non-fiscal incentives to attract high-value foreign investments.
In utilizing foreign relations with other countries, DTI expressed its interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in December 2020. Recently, the Philippines have joined the Regional Comprehensive Economic Partnership (RCEP) and is now looking to join other free trade agreements (FTAs) to enhance its economy amid the global health crisis.
The Philippine government’s policy directions aim to support free, open, and fair trade with other countries to provide more investment opportunities and jobs for Filipinos.
Doing business in the Philippines, either as a single proprietorship, partnership, or corporation, calls for government licenses or permits. An investor or businessman needs to obtain a business license in the locality where it will establish and register its business with the Department of Trade and Industry in case of a sole proprietorship or with the Securities and Exchange Commission in the case of partnerships and corporations.
Notable Government Stakeholders
The Department of Trade and Industry (DTI) is the go-to government agency for foreign investors to register if their enterprise is a single proprietorship. Significant attached agencies are the Philippine Economic Zone Authority, tasked to promote investments, extend assistance, register, grant incentives to and facilitate investors’ business operations in export-oriented manufacturing and service facilities; and the Board of Investments (BOI), an agency that promotes investments in industries and the regions for balanced economic development. It is also the lead investment promotion agency of the Philippine government.
Meanwhile, the Securities and Exchange Commission (SEC) is the national government regulatory agency charged with supervision over the corporate sector, the capital market participants, the securities and investment instruments market, and the investing public’s protection. SEC is the registrar and overseer of the Philippine corporate sector; it supervises more than 600,000 active corporations and evaluates the financial statements (FS) filed by all corporations registered with it. SEC also develops and regulates the capital market, a crucial component of the Philippine financial system and economy.
The difference between the two: DTI is where foreign investors register if their enterprise is a single proprietorship. The agency will issue a certificate of registration of the business name. The SEC is where foreign investors will register their enterprise if classified as a partnership or a corporation. It will issue a certificate of registration.
What government agency regulates market competition in the Philippines?
The Philippine Competition Commission (PCC) is an independent quasi-judicial body mandated to implement the national competition policy or the Philippine Competition Act, which serves as the Philippines’ primary law for promoting and protecting market competition. The creation of PCC aims to ensure fair market competition, a vital element in the government’s overall objective of achieving inclusive development.
PCC institutes a regulatory environment for market competition for two purposes such as protecting consumer welfare by giving consumers access to a broader choice of goods and services at lower prices and promoting a competitive business environment by enforcing the rules of fair market competition, thereby encouraging market players to be more efficient and innovative.
Notable Laws and Regulations
I. Foreign Investment Act
As a general rule, there are no restrictions on the extent of foreign ownership of export enterprises. In domestic market enterprises, foreigners can invest as much as one hundred percent (100%) equity except in areas included in the negative list. Foreign-owned firms catering mainly to the domestic market shall be encouraged to undertake measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners, electing Filipinos to the board of directors, implementing the transfer of technology to Filipinos, generating more employment for the economy, and enhancing skills of Filipino workers.
However, non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless foreign ownership is prohibited or limited by the Constitution or the Foreign Investment Negative List.
II. Retail Trade Liberalization Act
Republic Act 8762, otherwise known as the Retail Trade Liberalization Act, is a law that intends to promote both Filipino and foreign investors to forge efficient and competitive retail trade in the interest of empowering the Filipino consumer through lower prices, higher quality goods, better services, and broader choices.
In 1954, the Third Congress passed R.A. 1180, the Retail Trade Nationalization Act, and in 2000, the Eleventh Congress enacted R.A. 8762, the Retail Trade Liberalization Act. Although separated by 45 years, the two laws are related. Both laws deal with the same industry, and the latter effectively repealed the former.
The nationalization of the retail trade was a change from an open to a protectionist policy, while the retail trade liberalization was a change from a protectionist to an open policy. The nationalization and eventual liberalization of the retail trade industry exemplified the policy shift’s intricacy, as the experience revealed the nuances of policy change in the Philippines.
Legislators are currently looking further to open up the retail sector to foreign companies. Recently, the Senate Committee on Trade, Commerce, and Entrepreneurship approved Senate Bill (S.B.) No. 1840, which seeks to amend Republic Act No. 8762 or the Retail Trade Liberalization Act (RTLA) of 2000. Under the bill, the minimum paid-up capital for foreign retail investors will be lowered to $300,000. It also requires retailers with more than one physical store to invest at least $150,000 for each store.
SB 1840 also removed other qualification requirements such as the $250,000 capital per store for enterprises engaged in high-level or luxury products, the five-year track record in retailing, and the required five retailing branches. The bill also states that only foreign retailers whose country of origin allows entry of Filipino retailers will be covered.
III. Labor Code of the Philippines
The Philippines’ Labor Code is a legal code that determines all employment practices and labor relations in the Philippines. It helps protect employees and employers- while ensuring that neither is subject to unfair treatment or exploitation.
The Philippines’ Labor Code prescribes the rules for hiring and termination of private employees; the conditions of work including maximum work hours and overtime; employee benefits such as holiday pay, thirteenth-month pay, and retirement pay; and the guidelines in the organization and membership in labor unions as well as in collective bargaining.
The Labor Code contains several provisions which are beneficial to labor. It prohibits termination from Private employees’ employment except for just or authorized causes prescribed in the Code. The right to trade union is expressly recognized, as is the union’s right to insist on a closed shop.
Despite the detrimental effects that the COVID-19 pandemic has caused the Philippine economy, the government maintains that it is ready to accommodate foreign investments based on the efforts they have put forward, such as the DTI’s bid to attract investors; to the passage of the Corporate Recovery and Tax Incentives for Enterprises that seeks to entice potential investors by reducing the income tax rate from 30% to 25% for big companies and 20% for smaller enterprises; and its intent to join the Comprehensive and Progressive Trans-Pacific Partnership to further open opportunities for economic recovery.