British tax expert: abolish fees on business permits

By Perseus Echeminada, The Philippine Star

Posted at Aug 22 2010 03:36 PM | Updated as of Aug 22 2010 11:38 PM

MANILA, Philippines - The Philippines can experience an economic boom once it pushes the abolition of regulatory fees on the multi-layered procurement of business permits, a major source of corruption and a stumbling block in tapping the underground economy, a British tax expert said.

Dr. Philip Truscott, author of the newly-released book “Filipino Futures – Nation Building As If Ideas Mattered,” said in a recent forum that the multi-layered system of acquiring business permits in local and national government is the main factor that stagnated the Philippine economy.

“In prosperous countries like Australia and Canada, business permit is free so every one can register and report and pay his income tax to the government he said.

Truscott, an expert on tax benefit policy modeling and a full-time faculty member at the Ateneo de Manila University, said based on the population survey ratio, the Philippine government is supposed to generate at least P235 billion from the income of professionals including the small-time entrepreneurs.

But because of the tedious process and high cost of a getting a permit from local government, most of the small-time businessmen prepare to operate underground beyond the reach of the Bureau of Internal Revenue.

In the US, he said people are free to register their businesses and they report to the internal revenue service their income, which will be the basis of their income tax payment.

He said out of the projected P235 billion income based on the population ratio in the Philippines, only P157 billion is collected due to the bureaucratic obstacle in setting up small business in the country.

In his book, he said the Philippines is now in a very strange position because it has very low import duties, but has not dismantled the barrier – paying for a business permit – that stops the poor from owning their own businesses.

“The Philippines has introduced free trade before introducing free enterprise. It amounts to a strange system, of internal protection without any external protections, a sort of ‘naked mercantilism’, “ he said.

Because of the lack of small business opportunities, some nine million talented and professional Filipinos have gone to other countries to seek employment.

Small-time investors are the engine of countries economic boom as more small businesses translate to more income tax generated.

Truscott said aside from depriving the poor and small-time entrepreneurs setting up legal business, the high cost of business permits in local and national government units has also become a major source of corruption where applicants usually shell out extra money to facilitate the transaction.

He said, however, that with the assumption of President Aquino to power, the problem on the bureaucratic red tape is now being addressed as Interior and Local Government Secretary Jesse Robredo – just what he did when he was mayor of Naga City – has ordered the simplification of the process of getting business permits.

He said the BIR is also right in focusing its attention to professional and small businesses but unless the government continues to impose

payments and stiff requirement for business permits, the so-called underground economy will be beyond the reach of the BIR.

“The shadow economy will continue to thrive as long as the main obstacle which is the business permit fee is not removed,” Truscott emphasized.