SMEs held back by red tape in 5 key areas, says WB exec

The Philippines still has some ways to go in creating a conducive environment for small and medium enterprises (SMEs) as indicated by its performance in the World Bank’s “Doing Business 2020” report, according to an international trade specialist.

This is based on the Philippines’ scores in at least five indicators in the latest edition of the report, said Farida Lasida Adji, senior private sector specialist with the International Finance Corporation of the World Bank Group, in a recent talk on the cost of regulatory compliance for SMEs.

These are the starting a business, paying taxes, trading across borders, enforcing contracts, and getting credit indicators.

The country’s scores in these areas demonstrate how red tape continues to impact SMEs’ development and competitiveness, added Adji.

Under the starting a business indicator, it still takes 13 steps and 33 days and costs about US$892 for SMEs to establish an enterprise in the Philippines, according to the Doing Business report.

This compares, for example, to the two steps and 1.5 days and a cost of $232 for ASEAN neighbor Singapore, and eight steps and 16 days for Vietnam, where it costs around $134 to set up business, said Adji.

In Thailand, it takes five steps and six days, while in Myanmar it is six steps and seven days, and in Indonesia, 11 steps and 13 days.

Under the paying taxes indicator, Filipino SMEs have to make 13 payments in a year and spend 171 hours on tax payments, said Adji. But aside from this, “there are also right now no tax schemes supporting startups in the Philippines.”

She added that while there are tax benefits under the Barangay Micro Business Enterprise Law of 2002, not all startups can meet its eligibility criteria.

In contrast, startups in Singapore have been receiving tax benefits since 2005, she noted.

As for trading across borders, the cost of border compliance in the Philippines for both exports and imports is the highest in ASEAN, the executive pointed out.

The cost of exporting is $456, and cost of importing $690, according to the Doing Business report. In contrast, exporting in other ASEAN nations costs $335 in Singapore and over $200 in Indonesia, Malaysia, Thailand and Vietnam, and $140 in Laos.

For imports, Philippine companies also have to pay much higher for border compliance compared to more than $300 for Indonesia and Vietnam, and over $200 for Singapore, Malaysia, Thailand and Laos.

Businesses in the Philippines pay so much more to export or import a shipping container as businesses in other ASEAN countries, the executive said. “High trade costs really restrict competition and reduce domestic firms’ opportunities to access wider markets.”

If we want SMEs to integrate more into the global value chains, this is something that has to be addressed, she added.

Meanwhile, in the area of enforcing contracts, Adji said the Doing Business report showed that disputes in the Philippines can take some 962 days, or almost three years, to resolve as opposed to 164 days in Singapore and the 400 or so days in Malaysia, Thailand, Vietnam, Indonesia, and Cambodia.

Finally, under the getting credit indicator, the Philippines still has no collateral registry that can enable SMEs to secure loans by putting up their movable assets as collateral, said Adji. She added that hopefully one could be established once the implementing rules and regulations of the Personal Property Security Act are released.

Adji said that while there remain key areas in doing business where the Philippines must play catch-up with its ASEAN peers, she expressed confidence the country will be able to address these concerns with the full implementation of the mandates of the Ease of Doing Business Act.

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