The Asian Institute of Management (AIM) has urged the Philippine government to streamline online compliance systems that would help boost growth and competitiveness of small and medium-sized enterprises (SMEs).
A survey conducted by AIM revealed that most SMEs perceive tax and local government regulations as the most burdensome in terms of regulatory compliance.
The survey found that for SMEs, regulatory compliance was, on average, perceived to be “moderately burdensome,” with the Bureau of Internal Revenue (BIR) and local government units (LGUs) seen as among the most difficult agencies to deal with.
More than half of SMEs (52%) reported regulatory compliance as a concern “as soon as the business was being established,” according to the outcome of the survey on “Cost of Regulatory Compliance for Small and Medium Enterprises in the Philippines.”
“BIR registration and fulfilment of local government requirements such as business permits, fire safety inspection clearance, payment of local business taxes, occupancy and building permits were considered as some of the most burdensome when SMEs were starting,” the survey noted.
The AIM survey covered a total of 590 SMEs in Metro Manila, Cebu, and Davao and was conducted from August to October 2019. The findings were presented last month by Jamil Paolo Francisco, executive director of AIM Rizalino S. Navarro Policy Center for Competitiveness (AIM RSN PCC), and Georgina Gonzales, a consultant for AIM RSN PCC.
The survey cited as the most burdensome agencies by SMEs in general were the BIR followed by the Department of Trade and Industry, LGUs, and Department of Labor and Employment.
On the most burdensome regulatory level, most SMEs “spent more time complying with local than with national regulations.”
Tax-related regulations were perceived as the most burdensome by SMEs (more than 80%) among classes of regulations, followed by building-related, workplace safety-related, and healthcare and insurance regulations.
Regarding specific regulations, “the tax-related TRAIN law was considered the most burdensome… followed by building or occupancy permits and then safe workplace regulations.”
It was also found that SMEs on average spent 30 hours complying with regulations, about a third of which were spent on tax compliance.
Businesses spent around 17% of their total expenses on complying with national and local regulatory requirements, with about a fifth of these allocated for tax compliance.
The report also said 57% of SMEs surveyed reported experiencing delays in processing regulatory requirements.
Among the most common causes of delays mentioned were long transaction lines (more than 40% of polled), too many procedures, too many signatories, BIR requirements, Bureau of Fire Protection requirements, absent signatories, lack of information about the process, understaffed, limited payment options, and lack of facilities.
“Results seemed to suggest that the burden on SMEs might be more strongly associated with time and effort rather than money spent,” said Francisco.
Other findings indicated that hours spent on national regulatory compliance was highest for SMEs in manufacturing. Hours spent on local regulatory compliance was highest for SMEs in accommodation and food service activities, “perhaps because of additional requirements such as health and sanitation permits,” noted the report.
On the other hand, SMEs in wholesale and retail trade reported the highest direct tax expenditure as a percentage of their total expenses, “perhaps because of additional tax requirements such as VAT.”
As to specific business costs, the report observed: “SMEs perceive taxes on revenue/income and business licenses as the most burdensome among regulatory costs.” This was followed by gross receipts taxes, real estate taxes, excise taxes, road taxes, and environmental taxes