Aug 28, 2012

ASEAN - ASEAN Economic Community in 2015?

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ASSOCIATION of Southeast Asian Nations (ASEAN) members -- the Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam -- aim to have an ASEAN Economic Community (AEC) by 2015.

AEC is premised on four pillars. These are: a single market and production base, highly competitive economic region, equitable economic development, and full integration in global economy.

The objective is to have a competitive market by turning ASEAN into a single market and production base. There will be a free flow of goods, services and investment capital among the member countries, e.g., tariff on most goods will be reduced, certain customs procedures will be streamlined, among others.

To have a competitive advantage and maximize the benefits of AEC, the Philippines needs to address a lot of issues, among these is the ease in doing business. In the survey on Doing Business 2012 released by International Finance Corp. (IFC), the Philippines’ rank slid to 136th from 134th place in the 2011 survey -- although this has improved compared to the previous years (i.e., ranks 141th and 144th in 2009 and 2010, respectively).

The factors considered in the ranking were: starting a business, dealing with construction permit, getting electricity, registering properties, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

The Philippines still ranked far behind other ASEAN countries such as Singapore, Thailand and Malaysia which are all in top 20. Even Vietnam is far better than us at 98th place.

I think you would agree with me that main factors for our low ranking are corruption, inefficiencies in government and infrastructure. In fact, in the Global Competitiveness Report 2011-2012, these are the top three most problematic factors for doing business in the Philippines.

It is comforting to know that our current administration is serious in addressing these issues.

One of its projects to reduce corruption and improve the efficiency at the Bureau of Customs (BoC) is the implementation of the National Single Window (NSW).

NSW is part of our governments’ commitment in achieving AEC by 2015. With the NSW, importers and exporters can submit the forms electronically and they are processed and cleared by different agencies in a single integrated process. The NSW will, hopefully, expedite customs processing and enhance efficiency and transparency on transactions with BoC.

Reducing human interference in customs transactions may also diminish the corruption at the BoC.

Tax regulations also play a critical role in doing business in the Philippines.

Consistent application of regulations is important to business. This is one area where recent actions of the tax bureau has caused so much apprehension in the business community.

Notably, there are various tax matters on which the Bureau of Internal Revenue (BIR) has issued new interpretations and reversed previously implemented tax positions. Among these issues are the tax treatment of importation of petroleum and petroleum products; transactions covered by the tax-free exchange; and computation of Improperly Accumulated Earnings Tax (IAET).

These uncertainties on the BIR’s positions prompted businesses to think twice before expanding their business operations in the Philippines. Some even thought of transferring their businesses to other ASEAN countries (Thailand and Vietnam are their top priorities). Hence, it is imperative that our tax authorities ensure consistency in the application, implementation and interpretation of tax laws and regulations.

On the other hand, businesses, especially the small- and medium-scale enterprises, should start to have a global mindset. They should be able to identify the impact of AEC on their businesses and be able to adjust their business strategies to address the risk and maximize the opportunities that will be brought about by globalization.

There are a lot of issues, both policy and political, that each member country of the ASEAN needs to address and sort out. There are even doubts that AEC will be really achieved by 2015. But the AEC offers a lot opportunities and challenges that we have to be thinking about and preparing for. It is for this reason that ASEAN integration will be the focus of the 2012 Annual CEO Business Forum of Punongbayan & Araullo (P&A) scheduled on Oct. 23, 2012.

In fact, in the World Economic Forum’s Global Competitiveness Report 2011-2012, these are the top three most problematic factors for doing business in the Philippines.

As said in Proverbs 27:12"A prudent person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences."

Sources:

Achieving the ASEAN Economic Community 2015: Challenges for the Philippines by Jennu Balboa et al; and


Edward D. Roguel

The author is a tax partner at the Tax Advisory and Compliance Division of Punongbayan & Araullo, a leading audit, tax and advisory services firm that is the Philippine member of Grant Thornton International Ltd.



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