More firms, but lesser taxes earned?

USAID project to help improve Batangas City’s biz climate.

BATANGAS CITY—THERE’s money here. The signs for brisk Batangueno business? Competition’s brewing, too.

The sari-sari stores are an example, and sari-sari store owner Nancy Medrano has long been feeling the heat: “There are many, many stores here!”

Mushroomed retail stores, however, are common anywhere else in the Philippines. But droves of beauty products and accessories stalls? Here in Batangas, says accessories shop owner Cynthia Roxas, many young residents are fond of these items. “That spurred my business idea,” Roxas said.

And since competitors crowd the local market for accessories, the entrepreneur in Roxas did one cunning move: Bring down her products’ price ranges. “Good thing now we’re catching up on the others,” Roxas said, just as her store, on an early Monday morning, got half-filled with college students scampering for the cheapest and classiest buy.

A locality’s rising business activity then leads to earnings —that is, taxes— that help boost revenue generation by local governments like Batangas City. But underneath these tales of increasing business activity lie some disconnections: While the number of registered businesses has shot up, city tax revenues are going down.

Growing business activity actually show in local city data: registered local enterprises, even if mostly micro (or those operating on less than P150,000 capital) in scale, are growing annually —2.5 percent when comparing 2011 versus 2010 numbers.

Yet issues associated with the business climate, amid the entry of newer sets of entrepreneurs, are a national concern as well. The Philippines’ business climate’s conduciveness to investors and entrepreneurs, big and small, leaves much to be desired.

Worldwide, if a 2012 survey on the ease of doing business by the World Bank and the International Finance Corporation is to be believed, the Philippines’ business climate is ranked too low: 136th (two places below the country’s 134th ranking in 2011). Starting a business, one of ten criteria of that World Bank/IFC survey, seems cumbersome: the Philippines ranked 158th.

Batangas City also has its own concerns, all revealed in that same “Ease of Doing Business” survey, this time covering the year 2011, and covering 25 Philippine cities. In “Starting a business,” Batangas City is 18th and Gen. Santos City in strife-torn Mindanao is tops. In the criteria “Dealing with construction permits” and “Registering property” (topped by Davao and Valenzuela cities, respectively), Batangas City ranked 11th.

Analyzing compliance to local, provincial and national regulations, here’s what the World Bank and IFC found: Local entrepreneurs in Batangas City who wish to start off a new venture will need 34 days, and comply with 19 procedures, to get their first business permits. For those seeking construction permits, one has 86 days to comply with 27 procedures.

And to register properties like land (to include putting a value to it by the city assessor’s office), the process in Batangas City is quicker —48 days and eight procedures— compared to other countries in East Asia and the Pacific (81 days, even for just five procedures). Philippine-level figures —the number of days and the number of procedures needed to comply with— are close to Batangas City’s.

But Ditas Rivera, head of the city’s Business Permits and Licenses Office, said that if applicants bring with them the complete requirements, three days are all it takes to get that permit.

Local governments across the country have initiated various reforms to improve their procedures and systems related to the business climate, such as applying for permits and making improvements in the trail of submitting applications for permits. And amid these bottlenecks in Batangas City, the number of registered businesses grew, including 333 new registrants in 2011 (1,241 newcomers in 2011 versus 908 in 2010).

The city is not even remiss, says Rivera, in surveying those without permits: From February to March this year, BPLO temporarily closed 101 establishments that did not renew their permits such as electrical shops, hardware stores, local eateries (carinderia), and computer shops. They’re found at the Bay City Mall, Caedo Commercial Center, Diversion Road, Barangay Gulod Labac, and Barangay Pallocan West.

Doing inspections alone in a big city —spanning 105 barangays— is tough work, Rivera told The Filipino Connection. Before she assumed office in March of last year, the city government is tracking down businesses in 24 barangays, all of which are found in the city center (see related story). Even enterprises found inside recognizable places such as SM City Batangas and the Batangas Port were missed out before, and some of these establishments’ permits were revoked just recently.

Now that even barangays outside of the city proper are now under the BPLD’s radar, such barangays Bilogo, Sta. Rita, Sta. Clara, Bolbok and Balagtas, there are some “satisfactory results,” Rivera said, amid having only nine people in her office.

The impact of these efforts, will be satisfactory if these translate into more taxes. Latest publicly available data, from 2007 to 2009, coming from the Bureau of Local Government Finance show that Batangas City’s annual local tax revenues dropped: P713.03 million in 2007, P742.77 million in 2008, and P617.13 million in 2009. Dips in collections for real property taxes, regulatory fees (i.e. penalties) and receipts from economic enterprises were also seen over that three-year period (see infographics in this page).

The result? Total local sources of income for Batangas City dipped, with the city government earning P111.81 million less in 2009 than in 2008.

These earned and lost gains surrounding the city’s business climate have prompted the United States Agency for International Development to choose Batangas City and two other cities lowly-ranked in the World Bank’s doing business surveys for a two-year project titled INVEST. The project in Batangas was formally launched last May 3.

City Planning coordinator Engr. Sonny Godoy, in a city press release, said the project will focus on streamlining the operations of Rivera’s office, the BPLO. More than that, an INVEST Project document showed that the project will attempt to set up business one-stop shops (BOSS), improve the conduct of business inspections, then enforce the country’s anti-red tape law. Rivera said the planned BOSS will be set up at the People’s Quadrangle.

Batangas City Mayor Vilma Dimacuha (in yellow and gold) and US Agency for International Development Deputy Director Donald Steinberg launched last May 3 the Cities Development Initiative (CDI) that hopes to improve the business climate of three Philippine cities, including Batangas City. (From the Facebook page of USAID Philippines)

Once these measures are put in place, USAID hopes the three cities (the two others being Iloilo and Cagayan de Oro) will experience five-to-ten percent increases in the number of new registered businesses. USAID, which contracted the Quezon City-headquartered Orient Integrated Development Consultants, Inc. (OIDCI) to implement the project, will even help improve the work of Batangas City’s local investment officers.

As for Batangueño local entrepreneurs, they’re aware of existing city regulations and taxes. Some of these entrepreneurs, Rivera claims, purposively do not apply for new permits, or renew their permits, to skirt from paying these taxes.

Other entrepreneurs, though, comply. “Taxes here are not that high,” says a female entrepreneur of the food supplements retail store, Alliance in Motion Global. And even with increased competition among sari-sari stores that makes Nancy Medrano persevere more in raking more profits daily, she said tax levels in Batangas City are “okay”.

Says accessories shop owner Roxas: “What can we do about regulations on local taxes? Whether one’s business is big or small, we still need to pay those.”