Cumbersome govt permits cost economy P150b

The economy loses more than P150 billion annually in business, tax and economic opportunities because of the cumbersome process of securing government permits, according to the World Bank.

“Overall, the cost imposed on small firms in starting a business is very high. They not only have to pay legitimate fees of up to P45,000, they also spend a considerable amount of time in moving from one agency to another and waiting in line to process documents, often resulting in significant loss in productive time and income,” said World Bank Philippines senior country economist Karl Kendrick Chua.

The World Bank, in its Philippine Economic Update, said the estimate included the average opportunity losses from complying government requirements.

It said for businesses, lost income opportunities likely reached P11.9 billion, annually, while for the government, lost tax and contribution revenues would likely amount to P9.7 billion.  For the economy, this would translate in lower aggregate spending by P133.8 billion.

The estimate is on top of losses due to corruption, which the World Bank said was “significant but very difficult to measure.”

“Apart from legally-mandated direct cost, corruption adds to the cost of starting and maintaining a business. While the peso value is difficult to determine given the clandestine

nature of these transactions, the significant number of businesses reporting the need to pay bribes or give gifts suggest that the practice may be systemic in some agencies,” the World Bank said.

The bank also said the Philippines was still “unfriendly” to small- and medium- enterprises as it continued to be a difficult place do business in.

The World Bank estimated that small businesses were paying fees equivalent to 17 percent to 36 percent of per-capita income, or around P21,000 to 45,000 when starting a business.

“To make growth more inclusive, reforms to simplify business regulations are needed. Priority needs to be given to three major hindrances that affect small businesses the most: starting and maintaining a business, paying taxes and accessing finance,” Chua said.

Chua said an opportunity cost of around P40 billion could arise from discouraged Filipinos who could have started a business if only the cost was reasonable.

He said this could account for foregone employment of around 60,000, equivalent to about 5 percent of new labor force entrants every year.

The World Bank said reforms should be accelerated to simplify business regulations such as fully implementing the Philippine business registry and the regulatory simplification program at the local government unit level; reducing the frequency of renewals of government licenses, permits and clearances for employment purposes; and adopting a risk-based approach for issuing business permits.

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