Enhancing National Policies
This section describes the most recent investment-specific and investment-related measures per ASEAN member state.
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Philippines
Year Category Sub Category Description 2013 More Reforms Underway Legislative Measures
- Review of the Foreign Investment Negative List (FINL), which lists down the activities with foreign equity restriction.
- Fiscal Incentives Bill to rationalize and simplify the grant and administration of fiscal and non-fiscal incentives
- Amendment of the Retail Trade Liberalization Act to enable Filipino and foreign investors to forge efficient and competitive retail trade
- Customs Modernization and Tariff Act of 2011 to promote and secure international trade, protect and enhance government revenue, prevent smuggling and other fraud against Customs and modernize Customs and tariff administration.
- Anti-Trust/Competition Policy Bill to level the business playing field by strengthening the legal and institutional framework to combat unfair trade practices.
- Amendments to the E-Commerce Act of 2000 to facilitate wider readership of government rules and regulations, thus affording the people the right to information on matters of public concern and at the same complements the government’s cost efficiency program.
- Amendments to the Standards Law in recognition that the matter of standards conformance is now a critical consideration in doing trade globally.Investment Policy and Performance Overall Policy Framework The commitment to pursue inclusive economic growth, as envisaged in President Aquino’s Social Contract with the Filipino people, remains to be the primordial consideration in the adoption of the 2013 Investments Priorities Plan (IPP). Thus, in order to ensure that investments generated would continue to contribute to the development goals of the country, the Board of Investments (BOI) vigorously promoted investments into the country based on the projects’ contribution to job generation, strong backward and forward linkages and overall viability and soundness of investment proposals.
The government’s investment policies will continue to support the country’s industrial development plan taking full consideration of the implementation of the ASEAN regional integration in 2015. Careful assessment and determination of industry gaps will continuously be done in an effort to provide policy support and incentives to industries whose economic output will help realize the national goal of inclusive economic growth.Foreign Direct Investments Generated Investment commitments in 2013 from both foreign and Filipino nationals based on IPA-approved investments amounted to PhP 754.0 Billion or an increase of 8.0 percent from PhP 698.3 Billion in 2012. The bulk or 63.7 percent of investments approved during the period came from Filipino investors valued at PhP 480.0 Billion. It may be noted however, that for approved foreign investments its contribution to total investments have been increasing from 2010 to 2012 at an average of 22%.
In terms of sectors where the foreign investments were infused, the bulks were in manufacturing, transportation and storage, information and communication, electricity and gas, accommodation and food service, etc.
For BOI, the total approved investments reached P466 Billion or a 29% increase from the 2012 figure. These investments were largely infused in the sectors of electricity, transportation and storage, real estate activities, manufacturing and accommodation and food service activities. Further, the bulk of the investments, i.e., 74% came from local investments. On the other hand, the top foreign investments were from British Virgin Islands, USA, Netherlands, South Korea, Australia and Japan.2014 Investment Policy Framework and Performance Investments Priorities Plan 2014 The government, through the Department of Trade and Industry (DTI) and the Board of Investments (BOI), took a new approach in the formulation of the Investment Priorities Plan (IPP). Instead of an annual listing of industries that can avail of fiscal incentives, the IPP starting in 2014, will be effective for three (3) years to provide investors policies that are consistent and predictable.
The 2014 IPP is consistent with the BOI’s focus on industrialization. In the 2011-2016 Philippine Development Plan, specifically its chapter on “Competitive and Innovative Industry and Service Sectors,” BOI prioritizes six broad sectors, namely agro-industry, manufacturing, IT-BPM, tourism, logistics and construction. The formula combines an analytical framework with a rigorous process of identifying priority economic activities to promote and be supported through various government initiatives. The BOI takes into
consideration the potentials of such activities to create quality jobs, move up the value chain, diversify the country’s industrial base, create spill overs, and engender more competitiveness.
By aligning the investment strategy with industry development, the IPP becomes a developmental tool for investment decisions by the private sector and for the government to encourage investments in new areas identified by the national government to support inclusive growth and spur countryside development.
The new IPP is a collaboration among stakeholders – the public and private sectors including the academe and civil society. This integrated approach thus effectively focuses on competitiveness, skills development, technology upgrading, infrastructure modernization, and improvement in the overall
business environment.Investments Generated The total investments generated based on approved projects by BOI amounted to P354.76 Billion in 2014. The total share of domestic capital registered its highest share in 2014 accounting for 90% or P317.87 Billion. which indicated the bullish sentiment of local businessmen in the country’s
growing economy. In 2013 and 2012, domestic investments accounted for 74% and 79%, respectively of the total commitments.
The Electricity, Gas, Steam and Air Conditioning Supply Sectors which are capital intensive remained the top investment destination in 2014 with P174.69 Billion or 49% of all approved investments for the year. The sector registered a share of 71% of all investments in 2013.
Construction, was the second biggest destination of capital in 2014 with P63.98 Billion or 18% of the year’s total. Real Estate Activities, propelled mainly by the mass housing subsector, continued its strong performance in 2014 with P47.94 Billion in investments for a 14% share, its highest since 2012 both in terms of percentage share and amount of investment.
The Manufacturing Sector received P24.47 billion in investment commitments in 2014, which was 77% higher than the previous year’s P13.86 Billion. It was the highest for the sector since 2012 when it generated P14.93 Billion.
Rounding up the top five investment destinations in 2014 was Transportation and Storage with a 6% share or P20.76 Billion, a 69% drop from the previous year’s P67.65 Billion in commitments. Overall, however, the sector had totalinvestments of P155.17 Billion from 2012 to 2014 or 13% of all investments during the period, second only to the energy sector.
In terms of source of foreign investments, Netherlands topped the list at 28% +E613share or P10.3 Billion investments, followed by Indonesia at 20% share or P7.4 Billion investments and British Virgin Islands with total investments of P5.6 Billion or 15% share to the total foreign investments of P36.9 Billion in 2014. The rest of the foreign investments infused in 2014 were mainly contributed by Switzerland, United Kingdom, Japan, China (PROC), USA,
Singapore, Poland, Canada, Thailand, Taiwan, South Korea, Australia, Hongkong, Bahrain, Malaysia, France and Costa Rica.
The following shows the graphical presentation of the country’s source of investments based on BOI-approved projects in 2014:Facilitation of Investments Business Process Simplification On 14 April 2015, the Philippines unveiled reforms simplifying the process of starting a business to 6 steps and 8 days, down from the existing set-up
requiring 16 steps and 34 days. The government also announced e-government initiatives for accessible and convenient online transactions for
payroll-related payments to Philhealth and Pag-IBIG, reducing the number of payments from 36 to 13 per year.7
This reform is a product of continuing work
under the National Competitiveness Council’s Gameplan 3.0 synergizing
government processes related to easing the conduct of business in the
Philippines. The simplified processes were made effective in April 2015
starting in Quezon City and will soon spread across the country.“Going the Extra Mile” Project The BOI as part of its continuing effort to facilitate the setting-up of investment
projects in the Philippines has signed Memorandum of Agreements (MOAs)
with specific government agencies involved in processing and issuance of
registration and licenses. This is in addition to the MOA signed by the BOI
with the DENR-Environmental Management Bureau (EMB) in March 2014.Assistance to Local Government Units (LGUs)9 The Domestic Investments Promotion Service (DIPS) of the BOI which is in-
charge of promoting investments into the regions has initiated the Enhanced
Capability Building Trainings (CBTs) on investment promotion which is
focused on project plan preparation. Previously, CBTs focused on
investments promotion and the crafting and enhancement of the Local
Investment and Incentives Code (LIIC) to prepare the LGUs to host
investments.
In the new CBT set-up, business stakeholders are part of the target
participants to ensure that knowledge earned will be applied in the actual
business setting. This is expected to generate the investment ready projects
from priority sectors which can be promoted in local and international activities
to the Local Government Units (LGUs). CBTs are also focused on crafting and
enhancing the Local Investments Incentives Code (LIIC) of the LGUs.Other Measures to Improve the Business Environment Foreign Investment Negative List (FINL) The 10th FINL was issued on 29 May 2015 through Executive Order No. 184.
The new FINL which replaced the 9th FINL was issued to reflect the changes in
List A. The 10th FINL provides clarity on which practice of professions are open
to foreigners subject to reciprocity.Investment Policy Review The Investment Committee of the Organization for Economic Co-operation and
Development (OECD) is conducting the Philippine Investment Policy Review
(IPR), under the auspices of the ASEAN-Australia New Zealand Free Trade
Area Economic Cooperation Work programme (AANZFTA ECWP).
The Philippines’ IPR involves three review areas, namely, investment policy,
investment promotion and facilitation and competition policy. The final output of
the review is a book containing OECD’s recommendations which will be
presented before the Philippines in July 2015 for review and comments.10Philippine Competition Act Republic Act No. 10667 “An Act Providing For A National Competition Policy
Prohibiting Anti-Competitive Agreements, Abuse of Dominant Position And
Anti-Competitive Mergers and Acquisitions, Establishing the Philippine
Competition Commission And Appropriating Funds Therefor” was signed into
law on 21 July 2015.
The Philippine Competition Act supports the government’s effort in levelling the
playing field in the “Doing Business” in the country and penalizes anti-
competitive agreements and abuses of dominant players.Foreign Ships Co-Loading Act The President signed into law on 21 July 2015, the Foreign Ships Co-Loading
Act which amends the Cabotage Law. This law allows foreign ships carrying
imported cargoes for export to dock in multiple ports in the country. This is also
seen to reduce logistics costs, more efficient import and export system,
decongest major ports in the country and eventually lead to lower prices for
consumers.2015 Ease of Doing Business Project Repeal Project Repeal seeks to eliminate laws that place a heavy regulatory burden on companies and reduce the overall competitiveness of businesses in the country.
As of date, seven (7) government agencies are set to revoke or repeal respective rules and regulations that are deemed burdensome and irrelevant in a bid to eliminate red tape that seriously impacts the competitiveness of the economy. The National Competitiveness Council (NCC) and the seven participating agencies, namely: Departments of Trade and Industry (DTI), Finance (DOF), Energy (DOE), Budget and Management (DBM), Tourism (DOT) Securities and Exchange Commission (SEC), and Land Transportation Franchising and Regulatory Board (LTFRB) are launching Project Repeal to signify their commitment to reduce the regulatory costs by repealing or amending unnecessary, costly, and outdated rules in their respective agencies.
Project Repeal was inspired by reform initiatives of other countries like United Kingdom (Red Tape Challenge), Australia (Cutting Red Tape Initiative), South Korea (Regulatory Guillotine) and Vietnam (Project 30). Fourteen other countries have such similar undertakings.
Prior to the creation of Project Repeal, four government agencies started their own anti-red tape measures. For instance, DTI revoked 133 Department Administrative Orders (DAO) and Joint Administrative Orders (JAOs) in 2015 to streamline the issuances that affect its frontline operations. DOF, on the other hand ordered the review of all policies including those of its attached agencies (SEC, BOC, BIR) for rationalization. The National Economic Development Authority (NEDA) and Development Academy of the Philippines (DAP) have their own regulatory
improvement programs.
NCC envisions Project Repeal to reduce the cost of compliance for business as well as generate savings for the citizens. This could be made possible through a whole-of-a-government approach of instituting a system for repealing laws and allowing public participation in the repeal process.Investment Grade Rating Fitch Ratings, Standard & Poor’s and Moody’s Investors Service affirmed their respective sovereign credit ratings with a stable outlook, recognizing the economy’s strong growth performance and its ability to confront external headwinds better than most emerging markets. Fitch even improved its sovereign outlook from stable to positive.
On the other hand, Japan Credit Rating Agency, Ltd (JCRA) raised the Philippines’ credit grade by a step from BBB to BBB+stable, a notch away from the minimum score in the “A” category and the highest rating the country has ever achieved. This is on the basis of the economy’s sustained ability to expand at a fairly solid pace.
These third party observers confirm the strong growth momentum of the Philippines and support a positive trajectory for the continued transformation of the economy.The Grant Thornton International Business Report Grant Thornton’s International Business Report (IBR), a global business survey of 2,500 businesses in 36 economies, showed that business optimism in the Philippines is at 56 percent, higher than ASEAN’s 45.7 percent.
The Philippine rating is second best among Asean-5, behind Indonesia’s optimistic outlook of 57 percent. The IBR, however, noted that business optimism of global firms in the
Philippines fell in the first quarter of 2016 from 84 percent in the fourth quarter of 2015. IBR explains that this follows the global trend on business optimism, which dropped to its lowest in three years.
However, when businesses look internally at their own operations, the outlook is much brighter. Despite the wider uncertainty, many surveyed firms in the Philippines are confident about their prospects for revenue and employment plans
The survey showed that in terms of revenues, 74 percent of the respondents were looking forward to increasing their revenues, while another 76 percent are optimistic to post higher profits in the Philippines.
Global firms are also bullish in investing in the country both in buildings, as well as in plant and machinery.
About 38 percent said they will increase investments in building in the next 12 months while 48 percent will be investing more on plant and machinery.
International businesses likewise will generate more jobs in the country as 52 percent said they will increase employment in the Philippines.
Furthermore, the IBR noted that among the growth initiatives of global businesses in the Philippines for the next 12 months include increasing investments in marketing, improving sales force effectiveness, and incentive productivity improvements.Investment Policy Framework and Performance in 2015 Investments Priorities Plan (IPP) For 2015, the government through the Department of Trade and Industry (DTI) and the Board of Investments (BOI), continue to promote priority areas for investments through the 2014 IPP which is a three year rolling plan.
The existing IPP covers preferred list of activities which include Manufacturing, Agribusiness and Fishery, Services, Economic and Low Cost Housing, Hospitals, Energy and Public Infrastructure and Logistics. It also covers Export Activities and Special Laws for specific areas for investment promotion such as Industrial Tree Plantation, Renewable Energy, Tourism, etc.
The 2014 IPP is currently being reviewed in preparation for the submission of the 2017 IPP. The review will consider the country’s existing Industry Development Program (IDP), the Comprehensive National Industrial Strategy (CNIS) and the overall economic contributions of the specific activities for IPP listing.Investments Generated The total investments approved by BOI in 2015 reached P366.74 billion, which is an increase of 3% from the 2014 level of P354.76 billion. Investments from domestic sources accounted for 84% or P307.24 billion with the remaining 16% or P59.51 billion from foreign sources.
The Electricity, Gas, Steam and Air Conditioning Supply Sectors such as power generating plants and renewable energy projects, made up the bulk of investment approvals in 2015 totaling P246.42 billion or 67% of approved investments. Real Estate Activities particularly the Mass Housing sub-sector follows with P43.95 billion or 12%.
Investments in Manufacturing totaled to P27.01 billion or 7% while Transportation and Storage amounted to P 17.91 billion or 5% and Construction with P8.36 billion or 2%.
As a subsector of Manufacturing, the fabricated metal products subsector received the biggest increase in investment, up by 1,463% from P452.53 million to P7.07 billion. Another top performing subsector which continues to attract substantial investment is motor vehicle, parts and components. The approved investments in 2015 of P5.68 billion more than doubled the 2014 level of P2.67 billion. The basic metals subsector also exhibited impressive growth with P6.06 billion in investment approvals from P3.12 billion in 2014.
For agriculture, the food products subsector surged by 83% to P7.46 billion from P4.07 billion in 2014.
In terms of source of foreign investments, Netherlands topped the list with P26.70 billion or 45% of approved foreign investments. Next were Singapore with P10.80 billion or 18%, Malaysia with P2.67 billion or 4%, South Korea with P2.41 billion or 4% and Taiwan with P2.37 billion or 4%.2016 Ease of Doing Business Doing Business In the 2017 World Bank International Finance Corporation Doing Business Report, the Philippines climbed four notches from number 103 to number 99 out of the 190 economies. It advanced in four out of ten indicators, i.e., Protecting Minority Investors (up by 18 from 155th to 137th), Dealing with Construction Permits (up by 14 from 99th to 85th), Paying Taxes (up by 11 from 126th to 115th), and Enforcing Contracts (up by 4 from 140th to 136th).
Among the reforms introduced in the country were the extent of corporate transparency index, increasing the transparency of building regulations, and the introduction of an online system for filing and paying health contributions. However, there were slight declines in Getting Credit, Starting a Business, Getting Electricity, and Resolving Insolvency. Meanwhile there were no changes in the other two indicators, i.e., Registering Property and Trading across Borders.Economic Freedom The country has advanced twelve notches from rank number 70 to rank number 58 out of 180 countries in the latest Economic Freedom Index (EFI) 2017, qualifying to the top one-third of the ranking. The index measures a “nation’s commitment to free enterprise” and scores economies in twelve categories, covering a broad range of factors including court system efficiency, tax rates, investment restrictions, and licensing requirements.
Compared with the previous year, the Philippines improved its score by 2.5 points scoring 65.6, maintaining its status as a “moderately free” country for four years. The country significantly progressed in the area of Monetary Freedom, advancing 18 notches (from 86th to 68th) and also improved in the areas of Labor Freedom (up by 6, from 109th to 103rd), and Government Integrity (up by 1, from 87th to 86th). Other areas remain a challenge for the Philippines such as in Property Rights, Government Spending, and Tax Burden, among others.
The index also noted the country’s gradual improvement of the business regulatory environment which includes the reduction of time and cost involved in acquiring licenses.Investment Grade Rating Two credit rating agencies have already affirmed the Philippines’ investment grade credit rating in 2017. In March 2017, Fitch Ratings, a London-based rating agency, affirmed the Philippines’ sovereign credit rating at investment grade “BBB-” with positive outlook. Recognizing the country’s sustained growth momentum, Fitch projected the domestic economy to grow by 6.8 percent in 2017 and 6.7 percent in 2018, within the government’s growth target range for the next two years, driven in part by an increased spending on infrastructure. Further, Fitch noted that the country’s “macroeconomic performance has remained strong” and “domestic political stability has been maintained”. These reflect the country’s continued strong and consistent growth performance, a robust net external creditor position, and government debt levels that are lower than the median of peers in the “BBB” ratings category.
Similarly, in April 2017, Standard and Poor’s (S&P) maintained its investment grade score for the Philippines reflecting the country’s prospects in sustaining its economic momentum even with the new administration. The New York-based global debt watcher’s stable outlook on the Philippines resonates the satisfactory effects of the Philippines’ policy in fiscal and debt metrics. S&P upheld the Philippines’ “BBB” long-term credit rating reflecting the country’s strong external position and adequate capacity to meet financial commitments. The stable outlook on the Philippine economy also shows that policies continue to provide a favorable environment for sustained growth.The Grant Thornton International Business Report The Grant Thornton’s International Business Report (IBR) surveyed 2,400 businesses in 36 economies in the first quarter, asking for business insights, including optimism that the local economy would grow in the next 12 months. The survey revealed that business optimism in the Philippines soared to a new high seven-year in the first quarter, ranking as the second strongest among 36 economies worldwide, next to Indonesia’s 100 percent.
Leaders in the Philippines are at their most confident in seven years, with optimism rising to a net 98 percent in the first quarter from 56 percent in the same period last year, and 80 percent in the fourth quarter of 2016. The second highest recorded business optimism in the country was in the third quarter of 2013 with a net rate of 96 percent. Higher levels of optimism in the country reflect the positive outlook for businesses across the Asia-Pacific region.
Expectation for higher revenues in the Philippines in the next 12 months increased to 76 percent in the first quarter from 66 percent in the same quarter in 2016. Further, profitability expectations are also higher at 84 percent, 14 points higher than the previous year of 70 percent. IBR also noted the reduction by 24 points of businesses who have cited regulations and red tape as major constraint, from 52 percent in the first quarter of 2016 to 28 percent in the same quarter of 2017.Investments Policy Framework and Performance in 2016 Investment Priorities Plan (IPP) In February 2017, the President approved the preferred list of activities under the 2017 IPP through Memorandum Order No. 12. The general and specific guidelines on the implementation of the 2017 IPP is currently being prepared. Once approved, IPP roadshows shall be conducted to disseminate information on the new features of the 2017 IPP.
The 2017 Investment Priorities Plan (IPP) issued by the BOI, is the country’s fundamental investment policy tool that identifies key activities that would greatly benefit the Philippine economy through fiscal and non-fiscal incentives. The 2017 IPP, which is a three-year rolling plan (2017-2019), with the theme “Scaling Up and Dispersing Opportunities” reflects the desire of the Administration to see economic growth spread to a broader segment of the population and bring more firms into the local and global value chains.
The 2017 IPP includes 10 categories of economic activities for investments that focus on the development and promotion of innovative and inclusive industries, pushing forward infrastructure programs and enhancing employment and entrepreneurship that could spur growth in identified sectors. These sectors are Manufacturing; Agriculture; Fishery and Forestry; Strategic Services; Healthcare Services including Drug Rehabilitation Centers; Mass Housing; Infrastructure and Logistics including LGU-PPPS; Innovation Drivers; Inclusive Business Models; Environment or Climate Change-Related Projects; and Energy.Universal Capital Equipment Incentive In support of the government’s program of ensuring competitiveness of the Philippines in attracting investments and the need to provide a level playing field for all investors in the country, the Philippines reduced its tariffs on capital equipment, spare parts and accessories importation of enterprises, whether they are registered or not with the BOI or with any other Investment Promotion Agencies (IPAs).
The program is folded into the Philippines’ Comprehensive Tariff Program (CTP) for 2017-2020 whose Executive Order (EO) was signed on 27 April 2017 (EO 20). The reduction of rates involves 612 tariff lines which are considered as capital equipment and are key factors of production. This provides opportunities for industries and businesses to expand and acquire new technology thus, would help increase competitiveness in the domestic and regional market.Information Technology Agreement (ITA) II On 27 April 2017, the President likewise signed EO No. 21 implementing the Philippine commitments under the World Trade Organization (WTO) – Information Technology Agreement (ITA) II which covers tariff elimination for 742 tariff lines. The reduction of duties for IT products promotes a favorable environment for investors and provides opportunity for industries to participate in the regional and global value chain. Extension of the BOI Capital Equipment Incentive To further promote the Philippines and attract more innovation-led and technology-driven investment projects, the President, on 28 April 2017, also signed EO No. 22 extending the capital equipment incentive for qualified business enterprises registered with the Board of Investments (BOI).
The EO covers various products under 17 chapters wherein qualified BOI-registered enterprises are exempt from paying duties upon acquisition of capital equipment from other countries. The incentive is an important measure in further promoting and driving more high value, impactful, and socially-relevant investment projects into the country, especially for companies that are just in their start up years and those that are expanding or modernizing their facilities.Investments Generated The total BOI-approved investments in 2016 amounted to P442.04 billion, the second highest since 2011. This translates to a 20.53% increase in investments from 2015 which registered a total of P366.74 billion. Local investments dominated the investment source, accounting for 79.78% (P352.65 billion) while investments from foreign sources account for 20.22% (89.40 billion) of the total BOI-approved investments.
In terms of industries, the largest recipient industry of investments for 2016 is still Electricity, Gas, Steam and Air Conditioning Supply totaling P209.93 billion or 47.49% of the total BOI-approved investments. Other activities such as Real Estate Activities and Manufacturing also had significant contribution to the total share of investments with P65.85 billion (14.90%) and P49.26 billion (11.14%), respectively. Meanwhile, the Construction industry picked up its momentum with P62.27 billion (14.09%) from last year’s P8.36 billion. Other industry recipients are Transportation and Storage and Water Supply, Sewerage, Waste Management and Remediation Activities which account for 10.33% of the total.2017 Ease of Doing Business SEC – Company Registration System The Securities and Exchange Commission’s (SEC’s) Company Registration System (CRS) involves the full automation and online pre-processing of corporations and partnerships, licensing of foreign corporations, amendments of the articles of incorporation and other corporate applications requiring SEC approval. Said system is aimed at making business registration process in the Philippines simpler, faster, more efficient and more transparent.
SEC’s CRS features a) online company name verification; b) online fill-out of Articles of Incorporation (AI) and By-Laws; c) online submission of documents for internal processing/evaluation; d) online assessment of filing fees; and e) online payment of fees, among others.Ease of Doing Business (EODB) Act In May 2018, the President signed R.A. 11032 (An Act Promoting Ease of Doing Business and Efficient Delivery of Government Services, Amending for the Purpose Republic Act No. 9485 Otherwise Known as the Anti-Red Tape Act of 20017, and for Other Purposes) which seeks to simplify requirements and streamline procedures for business transactions. The government, is currently working on the Implementing Rules and Regulations which is targeted to be published by October 2018.
The EODB Act mandates all offices and agencies to regularly undertake cost compliance analysis, time and motion studies, undergo evaluation and improvement of their transaction systems and procedures and reengineer the same if deemed necessary to reduce bureaucratic red tape and processing time. Similarly, the Act provides for streamlined procedures for the issuance of local business licenses, clearances, permits, certification or authorizations.
Following are among those Local Government Units (LGUs) are mandated to implement:
adopt a single or unified business application form in processing new applications for business permits and business renewals which consolidates all the information of the applicant or requesting party;
establish a one-stop business facilitation service (business one stop shop or BOSS) for the city/municipality’s business permit and licensing system that will receive and process manual and/or electronic submission of application for license, clearance, permit, certification or authorization; and
automate the city/municipality’s business permitting and licensing system or set up an electronic BOSS.Investment Grade Rating In December 2017, Fitch Rating upgraded the Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-’, with a stable outlook. This upgrade on the IDR was backed by continued strong and consistent macroeconomic performance, underpinned by sound policies that are supporting high and sustainable growth rates. In addition, investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment.
Similarly, Standard and Poor’s upgraded PH’s investment credit rating in April 2018 to ‘positive’ from ‘stable’, reflecting S&P’s view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months.Investments Policy Framework and Performance in 2017 Philippine Inclusive Innovation Strategy The Inclusive Innovation Industrial Strategy i3S is a new industrial policy of the government aimed at growing innovative and globally competitive manufacturing, agriculture, and services while strengthening their linkages into domestic and global value chains. The i3S’ vision is to develop globally competitive and innovative manufacturing, agriculture, and services industries with strong forward and backward linkages. This directly aligns with the Philippine Development Plan 2017-2022 which lays down the foundations for the achievement of inclusive growth in the country by expanding economic opportunities in industry and services through ‘trabaho at negosyo’ (employment and business). The i3S prioritizes the growth and development of 12 major industries covering automotive, electronics and electrical, aerospace parts, chemicals, iron and steel and tool and die, garments, textiles, and furniture, shipbuilding, tourism, IT-business process management particularly knowledge process outsourcing and E-commerce, agribusiness, construction, and infrastructure and logistics. First Package of the Tax Reform for Acceleration and Inclusion (TRAIN) The goal of the first package of the Comprehensive Tax Reform Program (CTRP) or the Tax Reform for Acceleration and Inclusion (TRAIN) is to create a more just, simple, and more effective system of tax collection. One of the features of TRAIN 1 is the lowered personal income tax for 99% of the tax payers, except those belonging to the richest class. Minimum wage earners are also exempted from paying income tax. In addition, the program also increased the threshold for Value-Added Tax (VAT) exemption to PhP 3 million from PhP 1.9 million to encourage more micro and small businesses. Extension of Capital Equipment Incentive To further promote the Philippines and attract more innovation-led and technology-driven investment projects, the President, on 22 June 2018, signed EO No. 57 extending the capital equipment incentive for qualified business enterprises registered with the Board of Investments (BOI).
The EO covers various products under 16 chapters of the Philippine tariff book wherein qualified BOI-registered enterprises are exempt from paying duties on imported capital equipment reasonably needed in the implementation of their projects. The incentive is an important measure in further promoting and driving more high value, impactful, and socially-relevant investment projects into the country, especially for companies that are just in their start up years and those that are expanding or modernizing their facilities.Investments Generated In terms of investments generated, BOI-approved investments totaled to PhP 616,783.06 million, the highest total BOI-approved investments generated since 2013. This is 39.53% higher than that of the 2016 BOI-approved investments which totaled to PhP 442,044.98 million.
Investments from domestic sources accounted for the majority of BOI-approved investments, estimated at 96.48% (PhP 595,046.55 million) of the total for 2017 while the remaining 3.52% (PhP 21,736.51 million) are from foreign sources. The top foreign sources of investments are Japan, (PhP 8,865.75 million), Singapore (PhP 3,507.89 million), Australia (PhP 2,006.71 million), British Virgin Islands (PhP 1,084.58 million), and Netherlands (PhP 1,074.76).
The top three sectors where investments were poured in were in Electricity, Gas, Steam, and Air Conditioning Supply (PhP 268,168.16 million), Construction/PPP Projects (PhP 127,658.68 million), and Manufacturing (PhP 96,600.77 million) which translate to a 27.38%, 104.83%, and 96.11% increase from the 2016 figures for the said sectors, respectively.
For 2013-2017, BOI-approved investments recorded an average growth rate of 9.89%. Among the sectors for investment, the Manufacturing sector has been steadily increasing since 2013, recording an average growth rate of 66.34% for the past five (5) years. This augurs well with the government’s thrust of developing globally competitive industries through the Manufacturing Resurgence Program (MRP). Meanwhile, the figures for Construction/PPP Projects and Manufacturing were the highest recorded since 2013, supporting the government’s ‘Build Build Build’ program.
IPA-approved investments in 2017 totaled to PhP 908,667.20 million, the highest since 2013. This is 32.47% higher than the 2016 recorded approved investments of PhP 685,952.40 million. In terms of sectors, the top destinations are Electricity, Gas, Steam, and Air Conditioning Supply (PhP 324,214.60 million), Real Estate Activities (PhP 241,460.90 million), Manufacturing (PhP 149,456.30 million), and Transportation and Storage (PhP 142,592.00 million).
2013-2017 IPA-Approved Investments (in million Pesos)
In terms of Foreign Direct Investments (FDI), the Philippines’ total investment inflows has been increasing for the past five (5) years, with an average growth rate of 52.29%. In 2017, total FDI amounted to USD 9,524 million, which is 37.73% higher than the amount in investments received in 2016 (USD 6,915 million). On the other hand, FDIs from other ASEAN Member States reached USD 718.70 million, the highest since 2013. This is also 18.16% higher than that of 2016 figures which totaled to USD 608.26 million.Other Measures Improve the Business Environment The Philippines continue to pursue initiatives and programs to help improve the country’s attractiveness as an investment destination. On 21 November 2017, the President issued Executive Order No. 16, s. 2017 directing the government to exert utmost efforts to lift restrictions on certain sectors, including contracts for construction, public works, teaching, retail trade, and domestic market enterprises. In addition, the government is currently reviewing the Public Services Act (PSA), a priority legislative agenda that aims to clarify the definition of public utilities in order to open up certain industries to more competition.
The Board of Investments (BOI) as the lead agency in promoting industry development is spearheading the implementation and the review of the 2017 Investments Priorities Plan (IPP), which is the country’s fundamental investment policy tool that identifies key activities that would greatly benefit the Philippine economy. The 2017 IPP, which is a three-year rolling plan (2017-2019), with the theme “Scaling Up and Dispersing Opportunities” reflects the desire of the Administration to see economic growth spread to a broader segment of the population and bring more firms into the local and global value chains.2018 Philippine Investment Climate Ease of Doing Business (EoDB) and Efficient Government Service Delivery Act of 2018, Republic Act (R.A.) 11032 The environment for transacting with government promises to be much easier with the enactment of the EoDB law or Republic Act No. 11032 on 28 May 2018. This law aims to streamline government services, especially for business-related transactions, reduce processing time, cut bureaucratic red-tape, as well as eliminate corrupt practices. It limits processing time for government agencies and government-owned and controlled corporations to three working days for simple transactions, seven days for complex transactions, and 20 working days for highly technical ones. It also requires all local government units to devise a unified business application form for the issuance of business permits, clearance, and other types of authorizations, as well as set-up a one-stop-shop to facilitate all business transactions. The Implementing Rules and Regulations of said law was signed on 17 July 2019. 11th Regular Foreign Investment Negative List (FINL), Executive Order (E.O.) No. 65 On 29 October 2018, President Duterte signed E.O. 65 promulgating the 11th Regular FINL. Up to 100 percent foreign participation is allowed in the following areas: (1) Internet businesses, which has been excluded from mass media; (2) Teaching at higher education levels provided the subject being taught is not a professional subject (i.e., included in a government board or bar examination); (3) Training centers that are engaged in short-term high-level skills development that do not form part of the formal education system; (4) Adjustment companies, lending companies, financing companies and investment houses; and (5) Wellness centers excluded in Item 4 of List B of the FINL. Revised Corporation Code of the Philippines, R.A. 11232 On 20 February 2019, R.A. 11232 was signed into law. This law provides for amendments to the 38-year-old Corporation Code of the Philippines. Among the significant changes in the law would be the applicability of its provisions to One Person Corporations. A “One Person Corporation” is defined under this law as “a corporation with a single stockholder: Provided, that only a natural person, trust, or an estate may form a One Person Corporation.” Allowing the establishment of one person corporations and removal of the number of incorporators will address the difficulty of investors, particularly start-ups, of having at least five incorporators. Philippine Innovative Startup Act, R.A. 11337 On 26 April 2019, R.A. 11337 was signed into law. This law provides for the Philippine Startup Development Program which is composed of programs, benefits, and incentives for startups and startup enablers. Among the benefits and incentives under the program are Operational Benefits, such as: Grants-in-aid for research, development, training, and expansion project; and full or partial grants in the use of facilities, office space, equipment, and/or services provided by government or private enterprises or institutions. The law also includes the creation of the “Startup Visas” for foreign participants, and the operationalization of the APEC Business Travel Card. 2019 INDIVIDUAL COUNTRY REPORT 2nd half of 2019-1st Ease of Doing Business Based on World Bank’s Doing Business 2020 report issued in October 2019, the country jumped 29 notches, ranking 95th from 124th place in the previous year. The Philippines improved in three (3) areas, i.e., starting a business, dealing with construction permits, and protecting minority investors. Efforts on improving the starting a business area includes the abolishment of the minimum capital requirement for domestic process. Further, processes in obtaining occupancy certificate was streamlined and improved in securing construction permits. Philippine Investment Climate Republic Act (RA) 11453 Republic Act (RA) 11453 or the Authority of Freeport Area of Bataan Act (30 August 2019)
Under RA 1145+E6903, the existing Bataan Economic Zone located in Mariveles, Bataan will be converted into a special economic zone and freeport and, along with other territories indicated in the law, shall be known as the Freeport Area of Bataan (FAB).
Investors can avail of the following incentives:
- Income Tax Holiday (ITH) from four to eight years
- 5% tax in lieu of Local and National Taxes after ITH period
- Duty Free Importation of Capital Equipment, Raw Materials, Consumer Goods and Personal Items
- Exemption from wharfage dues, export taxes, impost and fees
- Domestic sales allowance of up to 30% of total sales
- Special Visas for InvestorsRepublic Act (RA) 11469 Republic Act (RA) 11469 or the Bayanihan to Heal as One Act (24 March 2020)
- Department of Finance and Department of Trade and Industry Joint Memorandum Circular No. 2020-02, Series of 2020
- Bureau of Customs Administrative Order No. 07-2020
The said law and regulations were crafted in response to the current coronavirus disease (COVID-19) pandemic that is caused by the novel coronavirus (SARS-CoV-2).
Pursuant to Section 4(o), (p) and (q) of RA 11469, importers and manufacturers of medical and healthcare equipment which are critical to the COVID-19 response are given liberal grant of incentives including exemption from import duties, taxes and other fees.Republic Act No. 11439 Republic Act No. 11439 or An Act Providing for the Regulation and Organization of Islamic Banks (22 August 2019)
Under the law, Islamic banks shall have such powers as shall be necessary and prudent to carry out the business of a bank in accordance with Shari’ah principles, in addition to the general powers granted to corporations. In line with this, Islamic banks may provide Shari’ah compliant financing contracts and structures and undertake various investments in all transactions allowed by Shari’ah principles.Republic Act (RA) 11032 Issuance of the Implementing Rules and Regulations of Republic Act (RA) 11032 in July 2019, otherwise known as the Ease of Doing Business and Efficient Government Services Law (EODB Law) which seeks to simplify requirements and streamline procedures for business transactions Executive Order No. 85 Issuance of Executive Order No. 85 in July 2019 which extends the capital equipment incentive for qualified enterprises registered with the Board of Investments. The said EO allows duty-free importation of capital equipment, spare parts and accessories needed in the implementation of BOI-registered projects Administrative Order No. 23 Issuance of Administrative Order No. 23, s. 2020 in February 2020 directing national government agencies to hasten and reform their processes in order to eliminate overregulation and promote efficiency of government processes INCLUSIVE INNOVATION INDUSTRIAL STRATEGY (i3S) The i3S framework The DTI crafted a new industrial policy known as the Inclusive Innovation Industrial Strategy (i3S), which aims to grow globally competitive and innovative industries. Central to the i3S framework is the competition-innovation-productivity nexus that serves as channels through which investments, employment, and growth would be generated.
The i3S framework is innovation-centered and science and technology-driven and focuses on the following strategic areas:
- Build our innovation and entrepreneurship ecosystem through strong collaboration between government, academe, and industry, pursue more market-oriented research & acceleration of research commercialization
- Embrace Industry 4.0 technologies to make our industries more competitive with manufacturing as a major driver of industrial development and inclusive and sustainable growth.
- Integrating our production system by linking manufacturing with agriculture & services, address gaps in our domestic supply chain and deepen our participation in GVCs.
- Promoting the development of more innovative MSMEs and startups
- Improving our infrastructure by streamlining & automating regulatory processes and investing in digital & other physical infrastructure including power & logistics
- Building our human capital, upgrade and reskill and equip our workforce with new digital skills to prepare them for future productionPriority Industries for Development Industry priorities for development are based not only on our existing but as well as on latent or future comparative advantage along with other factors such as spillover effects, addressing missing markets & other market failures, innovation, and adoption of new technology. In terms of structure, the highest incentives would be given to high-tech activities or activities that would defy our comparative advantage. These would include projects supporting innovation & industrial transformation through the adoption of Industry 4.0 technologies such as advanced or smart manufacturing and projects that will bring in new products and services embodying AI, Internet of Things, 3D printing, along with innovation and R&D activities.
In the middle would be special & essential activities for agriculture, agribusiness, intermediate goods, services, & supplies that are critical to industrial development such as iron & steel, chemicals, tool & die, or machinery and equipment. Then, we have basic activities or emerging and existing activities around our comparative advantage that are innovating and moving up the GVC to include garments, textiles, or furnitureRegional Inclusive Innovation Centers (RIICs) Consistent with i3S, the DTI, in coordination with DOST and other government agencies, have formulated the Inclusive Filipinnovation and Entrepreneurship Roadmap, which aims to increase the country’s ability to innovate by bridging the gaps between our innovation and entrepreneurship ecosystems and make these inclusive by (1) strengthening government-academe-industry linkages; (2) improving human capital development; (3) enhancing the enabling environment; (4) nurturing a culture of entrepreneurship and increasing support programs for MSMEs; (5) providing funding and sources of financing; and (6) growing industry clusters across the country.
The Roadmap’s major recommendation is the building of Regional Inclusive Innovation Centers (RIICs) in various regions. The RIICs consist of a network of innovation agents that collaborate in order to commercialize market-oriented research towards competitiveness in the regions. It is a government initiative in cooperation with the industry and the academe, which aims to generate better employment opportunities, more entrepreneurial activities, and sustainable economic prosperity in the country’s regions. RIICs are linking together the innovation and entrepreneurship ecosystem, connecting all the innovation stakeholders – universities, funders, R&D labs, S&T parks, accelerators, incubators, MSMEs, startups, government, and other support organizations. Through the RIICs, we can build the local innovation ecosystem from which would emerge innovation, research commercialization, new products, new services, and new business models that address industry and societal issues.2020 Philippine Investment Climate Republic Act No. 11534 By region, majority of the approved foreign investments in the first quarter of 2021 is intended to finance projects in Region IVA-CALABARZON amounting to PhP7.54 billion or 38.6 percent of the total. This was followed by Region VII (Central Visayas) with PhP2.73 billion (14.0%), and National Capital Region with PhP1.74 billion (8.9%).
Approved projects with foreign interest in the first quarter of 2021 were projected to generate 18,416 jobs based on reports of the Investment Promotion Agencies (IPA).
The CREATE Act amended the some of the provisions of the National Internal Revenue Code (NIRC):
- Reduction of Corporate Income Tax (CIT) Rate from 30% to 25% effective 1 July 2020 for domestic corporations, foreign corporations and non-resident foreign corporations.
- CIT rate of 20% for domestic corporations with Net Taxable Income not exceeding 5M and with total assets (excluding land) not exceeding 100M.
- Additional deduction from taxable income ½ of the value of labor training expense for skills development.
- VAT Exempt transactions for the sale or importation of drugs for cancer, mental health, tuberculosis, and kidney diseases effective 1 January 2021.
It also has the following Covid-19 related interventions under the NIRC:
- Sale or importation of the following (1 January 2021 to 31 December 2023):
1. Capital equipment, its spare parts and raw materials necessary for the production of PPEs;
2. All drugs, vaccines and medical devices for the treatment of COVID-19; and
3. Drugs for treatment of COVID-19 for use in clinical trials.
- Percentage Tax for Non-Vat Registered Person (3% current rate); 1% from 1 July 2020 to 30 June 2023)
- Proprietary educational institutions and hospitals (10% current tax rate); 1% from 1 July 2020 to 30 June 2023.
- Minimum Corporate Income Tax (MCIT- 2% current rate); 1% from 1 July 2020 to 30 June 2023.Menu of Incentives under CREATE Law:
- Income Tax Holiday (ITH);
- 5% Special Corporate Income Tax (SCIT) based on Gross Income Earned, in lieu of all national and local taxes; 10 years
- Enhanced Deductions (ED)
- Duty exemption on importation of Capital Equipment, raw materials, spare parts, or accessories
- VAT exemption on importation and VAT Zero-rating on local purchasesEnhanced Deductions:
- Depreciation allowance of assets-additional 10% for buildings; and additional 20% for machineries and equipment
- 50% additional deduction on labor expense
- 100% additional deduction on R&D
- 100% additional deduction on training expense given to Filipino employees
- 50% additional deduction on domestic input expense
- 50% additional deduction on power expense;
- Deduction for reinvestment allowance to manufacturing industry - the amount reinvested to a maximum of 50%
- Enhanced NOLCO
The CREATE Act encourages potential investors to locate outside Metro Manila by offering longer period of incentives availment as it locates further from NCR and Metropolitan Areas (i.e., 6-7 years Income Tax Holiday (ITH) + 10 years Enhanced Deductions (ED) or Special Corporate Income Tax (SCIT) for export enterprises and 6-7 years ITH + 5 years ED for domestic enterprises).Additional Incentives:
- Relocation projects. Registered enterprises that fully relocate outside of NCR will be entitled to an additional 3 years of ITH.
- Disaster/conflict area. Registered enterprises that locate in areas recovering from disasters or conflict will be entitled to an additional 2 years of ITH.Republic Act No. 11517 Republic Act No. 11517 or An Act Authorizing the President to Expedite the Processing and Issuance of National and Local Permits, Licenses and Certifications in Times of National Emergency (05 January 2021)
The President, in times of national emergency shall have the authority to:
1. Accelerate and streamline regulatory processes and procedures for new and pending applications and renewals of permits, licenses, clearances, certifications or authorizations, including fixing or shortening the periods provided under existing laws, regulations, issuances, and ordinances;
2. Suspend or waive the requirements in securing such permits, licenses, clearances, certifications or authorizations; and
3. In consultation with or upon the recommendation of the affected government agencies, may prescribe to be permanent the streamlined regulatory processes and procedures, and the suspension of waiver of the requirements in securing permits, licenses, clearances, and certifications or authorizations.Executive Order (EO) No. 130, Series of 2021 Executive Order (EO) No. 130, Series of 2021 (15 April 2021), which lifts the nine-year moratorium on mineral agreements. The Philippine Government through the Department of Environment and Natural Resources (DENR) may now enter into mineral agreements, in the form of Mineral Production Sharing Agreements (MPSA’s), Financial or Technical Assistance Agreements (FTAA’s), Co-Production Agreement and Joint Venture Agreements, subject to compliance with the Philippine Mining Act of 1995 (Republic Act No. 7942) and other applicable laws, rules, and regulations. Exploration Permits, which is the initial mode of entry for mineral agreements, may continue to be granted by the DENR preparatory to the mineral agreements.
The moratorium on new mineral agreements arose out of EO No. 79, series of 2012, Section 4, issued by the previous administration and it was to be lifted only when a new legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect.
That legislation has recently been enacted by the Philippine legislature through Republic Act No. 10963 otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act which, among others, raised the excise tax rate on minerals, mineral products and quarry products from 2% to 4%.2022 Philippine Investment Climate Retail Trade Liberalization Act (RTLA)
- RA No. 11595 or the Amendments to Retail Trade Liberalization Act, as amended was signed on 10 December 2021, with effectivity on 21 January 2022. Its Implementing Rules and Regulations (IRR) was issued on 9 March 2022 and took effect on 27 March 2022.
- Following are its salient features:
a. Deletion of the classifications of retail enterprises, including those enterprises that specializes in high-end or luxury goods;
b. Reduction of the capital requirement of retail enterprises from US$2.5 Million to PHP25M (around US$500,000.00);
c. Reduction of the minimum investment requirement per store/branch from the peso equivalent of US$830,000.00 to PHP10 Million;
d. Promotes of locally manufactured products by encouraging foreign retailers to keep a stock inventory of locally manufactured products.
e. Removal of the prescribed prequalification requirements:
US$200 Million net worth requirement,
minimum number of required retail branches, and
minimum five-year retailing track.
f. Retained only the reciprocity requirement as the remaining requirement on foreign retailers/investors to engage in retailing in the country.Foreign Investments Act (FIA)
- RA 11647 or An Act Promoting Foreign Investments signed on 02 March 2022 and published on the Official Gazette on 04 March 2022. FIA IRR was published on 11 July 2022 and took effect on 26 July 2022.
- Following are the salient features:
a. Minimum paid-in capital of One hundred thousand US dollars ($100,000) shall be allowed to non-Philippine nationals if it involves:
1. advanced technology as determined by Department of Science and Technology,
2. endorsed as startup or startup enablers by the lead host agencies pursuant to Republic Act No. 11337, or
3. it employs at least 15 direct employees.
b. Creation of an Inter-Agency Investment Promotion Coordination Committee (IIPCC), which shall be the body that will integrate all promotion and facilitation efforts to encourage foreign investments in the country.
c. Development of the Foreign Investment Promotion and Marketing Plan.
d. Review of Strategic Investments - foreign investments involving military-related industries, cyber infrastructure, pipeline transportation, or such other activities which may threaten territorial integrity and the safety and security of Filipino citizens, when:
1. made by a foreign government-controlled entity or state-owned enterprises except independent pension funds, sovereign wealth funds and multi-national banks; or
2. located in geographical areas critical to national security.Public Service Act (PSA)
- RA No. 11659 or "An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act” as amended, was signed on 21 March 2022.
- Following are the salient features:
a. Defines Public Utility (PU) to refer to a public service that operates, manages or controls for public use any of the following:
1. Distribution of electricity;
2. Transmission of electricity;
3. Petroleum and petroleum products pipeline transmission systems;
4. Water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems;
5. Seaports; and
6. Public utility vehicles.
b. Definition of Public Service (PS) under CA 146 is retained (as amended).
c. The provisions on limitation on foreign ownership in the following sectors are repealed:
1. Bulid-Operate-Transfer
2. Domestic Shipping
3. Aircraft and domestic air commerce and/or transportation
4. Toll operations
5. Transport Network Companies and Transport Network Vehicles Service- on the classification thereof as PU
6. Telecommunications- on the classification thereof as PU.
d. Nationality requirement (i.e. 60/40) shall not be imposed to PS not classified as PU. If the industry is not a PU, then it’s a liberalized industry where 100% foreign ownership is allowed, except those under the Constitution (i.e. mass media, land, natural resources).
e. Foreign nationals are allowed to own up to 100% of the capital of entities engaged in critical infrastructure, provided the country of such foreign national accords reciprocity to PH nationals. If there is no reciprocity, foreign nationals shall only be allowed up to 50%.Twelfth Regular Foreign Investment Negative List EO No. 175, s. 2022 or the Twelfth Regular Foreign Investment Negative List which replaced the Eleventh Regular Foreign Investment Negative List and reflects the changes to List A and List B, pursuant to existing laws, consistent with the policy to ease restrictions on foreign participation in certain investment areas or activities.
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