Encouraging Micro, Small and Medium Enterprises (MSME) through the Go Negosyo Act of 2013

The crucial role played by micro, small and medium enterprises (MSMEs) has long been recognized. The established figures are astounding — more than 99% of enterprises in the Philippines are MSMEs. These business entities heavily contribute to economic development and, more importantly, generate employment in a scale larger than big industries. It thus makes absolute sense for lawmakers to pass a legislation that encourages and assists MSMEs during registration, in the conduct of business, and compliance with regulatory requirements.

On 17 December 2013, the Senate Committee on Trade, Commerce and Entrepreneurship released its report and submitted Senate Bill 2046, which substitutes a number of proposed laws at the Senate (a proposed law at the Senate is called a Senate Bill). To appreciate the rationale and importance of Senate Bill 2046, it would be helpful to briefly summarize the reasons given by the lawmakers in filing the various Senate bills (and, at the same time, state our humble opinion).

[Update: On 15 July 2014, President Benigno S. Aquino III signed into law Republic Act No. 10644, also known as the Go Negosyo Act; see full text]

Senate Bill 169

Also known as the Philippine Business Registry Databank (PBRD) Act, Senate Bill 169 seeks to create a main repository of information on business enterprises in the Philippines — the Philippine Business Registry Databank (PBRD) — primarily to promote and expand trade and investment through electronic information networking. The proposal claims that there is yet no mechanism for a business database that is national in scope.

Either this is a redundancy because a business databank is already existent with agencies which are national in scope, principally the Department of Trade and Industry (DTI), or this is a harsh verdict on the DTI for failing to come up with a comprehensive business registry.

Senate Bill 253

The short name of SB 253 is the Jobs Act of 2013. The bill emphasizes the fact that “in 2011, MSMEs employed a total of 3.9 million individuals, dwarfing that of large-scale industries which only generated 2.5 million jobs.” Unfortunately, the growth of MSMEs, and accordingly the employment-generating capacity of MSMEs, have been hindered by “stringent regulatory requirements”. There are around 816,758 MSMEs, comprising 99.6% of all business enterprises in the Philippines. The proposal provides exemptions, subject to conditions, to income tax and minimum wage requirements.

On one hand, the premise of this proposal — the job-creating capacity of MSMEs — is a recognition of the important role played by, and a good rationale for the support given to, MSMEs. On the other side, it would seem that the label flipped the treatment of MSMEs on its head. Job-creation is merely the side-effect, not the focus of supporting MSMEs. These small entities already have the the burden of operating their businesses, the burden of ensuring that their businesses don’t go bankrupt, and the burden of navigating through the myriad of government regulations. Emphasizing the additional burden of creating jobs, while a logical result of a robust MSME sector, appears to run counter to the goal of encouraging more MSMEs.

Senate Bill 615

This is a bill Expanding the Coverage of Micro Enterprises. Of the 820,255 business enterprises in the Philippines, 99.6% (816,759) are MSMEs, further classified as micro enterprises (743,250 or 91%), small enterprises (70,222 or 8.6%) and medium enterprises (3,287 or 0.4%). This proposal seeks to expand the coverage of the benefits under the Magna Carta for Micro, Small and Medium Enterprises by amending the definition/classification of MSMEs.

There’s an interesting explanatory note attached to SB 615. It reads: “According to a survey of enterprises referred to by the MSMED Plan for 2011-2016, the second most problematic area in improving the business environment for MSMEs is described as follows: ‘Business registration and licensing procedures are tedious, lengthy, complicated, and expensive.” For example, the Philippines has the most number of start-up procedures at 15 steps compared to other Southeast Asian countries. Singapore has 3 steps, Malaysia, 4; Thailand, 5; Indonesia, 8; and Vietnam, 9.’ Let’s expand this discussion below but, at this point, suffice it to say that it would have been heaven-sent for SB 615 to actually address this problem of delays in registration.

Senate Bill 1028

SB 1028 proposes a law to be known as the Go Negosyo Act of 2013. Recognizing the “mighty impact” of small-scale enterprises in the country’s development, this Bill proposes to “further strengthen the MSME sector by providing this sector with better incentives and benefits, granting more access to focused support for enhanced business performance, promoting support to key growth industries, and facilitating financing support programs that are much-needed for growth.”

Senate Bill 1254

This proposal for the enactment of a Magna Carta for Small Enterprises highlights the crucial role played by small and medium sized enterprises, comprising the vast majority of Philippine industries. It provides an encouraging outlook that government must focus its efforts “in assisting the businesses instead of policing them for failure to comply.” This is necessary because “as the government tries to reach out to [businesses], more and more regulations are being issued. In many instances, due to their limited resources and expertise, our small and medium entities find themselves having a hard time complying with the government requirements.” The proposal requires the Small and Medium Enterprise Development Council to “prepare compliance guides for all regulations” for the purpose of assisting small and medium entities.

Senate Bill 1593

SB 1593 proposes a law to be known as the Business One-Stop Shop (BOSS) Center Act of 2013. The BOSS will “cater to the needs of small and medium enterprises from their registration up to their operations.” This is necessary considering that SMEs, while comprising a large percentage of Philippine business, are disadvantaged in terms of capital, resources, products and other services.

As previously noted, all these Senate Bills have been consolidated and substituted by Senate Bill 2046, which provides for the following:

1. Negosyo Centers

The proposed law, Senate Bill 2046, creates an interesting body — the Negosyo Centers, which shall be under the supervision of the Micro, Small and Medium Enterprises Development (MSMED) Council. There’s one “Negosyo Center” in all provinces, cities and municipalities.

The city or municipal level Negosyo Center has the SOLE power to register, through the issuance of a Certificate of Authority, micro enterprises in accordance with Republic Act 9178. It is responsible for promoting ease of doing business and facilitating access to services for MSMEs within its jurisdiction. It is tasked to build local support networks and establish market linkages for MSME development, to coordinate with schools and organizations on the development of a youth entrepreneurship training program, and facilitate access to grants and other forms of financial assistance, shared service facilities and equipment, and other support of MSMEs. The Negosyo Center is also tasked to “encourage” government institutions that are related to the business application process to help promulgate information regarding the Negosyo Center.

2. Start-up Fund

The MSMED Council, on the other hand, is tasked to establish a Start-up Fund for MSMEs to provide financing for the development and promotion of MSMEs in priority sectors of the economy as specified in the MSMED Plan.

Even if we’ve noted that the task of looking for business opportunities is more difficult than looking for sources of funding, having a ready pool of funds is actually helpful. Still, if there’s one thing we’ve learned from the current PDAF scams, it’s the sad fact that large-scale corruption follows where big money is. Indeed, fleshing out the mechanism for recipient identification, fund disbursement, accounting and audit would be challenging.

3. Compliance Guide

The proposed law seeks ease in doing business for MSMEs. It requires that for each rule or group of related rules issued by any government agency for compliance by MSMEs, the MSMED Council  shall publish compliance guides entitled ‘Micro, Small and Medium Enterprises Compliance Guide.’ The Council shall ensure that the compliance guide shall be written in plain language or in the local dialect, if necessary.

A compliance guide is very, very helpful for MSMEs. The Go Negosyo Act, however, has to take a big leap forward. A compliance guide is not new. This is similar, if not exactly the same, as a Citizen’s Charter required under the Anti-Red Tape Act of 2007. As previously discussed, all covered agencies are required to issue a written publication — the “Citizen’s Charter” — and post in billboards, information on service standards that include: (1) The procedure to obtain a particular service; (2) The person/s responsible for each step; (3) The maximum time to conclude the process; (4) The document/s to be presented by the customer, if necessary; (5) The amount of fees, if necessary; and (6) The procedure for filing complaints. What is needed is something beyond compliance guides. The problem with “guides,” just like traffic laws, is the sad reality that these are taken as “suggestions.”

4. Ease in Registration

MSME applications are centralized with the Negosyo Centers, which are empowered to receive and act on these applications. The MSME is deemed registered (for a period of 1 year only) if the Negosyo Center fails to process the application within 15 days, although the Negosyo Center has the option, should it determine that the MSME has not met the necessary requirements and qualifications, to revoke the registration within 30 days. The positive aspect of this provision is the recognition of the existing delays in business registration. This is a good start.

Still, we should look at the bigger picture. The report published by the World Bank and the IFC — Doing Business 2014, Understanding Regulations for Small and Medium-Size Enterprises — reveals interesting figures. In terms of the number of days for registration, the Philippines (ranked 108th worldwide in Ease of Doing Business) has 34 days, Thailand (ranked 18th in Ease of Doing Business) has 27.5 days, Vietnam (ranked 99th in Ease of Doing Business) has 34 days and Indonesia (ranked 120 in Ease of Doing Business) has 48 days. Contrast these figures to the top tier in Ease in Doing Business — Singapore (ranked 1st worldwide) with merely 2.5 days in registration and Malaysia (ranked 6th) with 6 days in registration. In terms of procedures in registration, it takes 15 steps for the Philippines, 3 steps for Singapore and Malaysia, 4 steps for Thailand, and 10 steps for Indonesia and Vietnam.

The proposed 15-day period, after which a MSME is deemed registered by the Negosyo Center fails to act on the application, is actually an eternity compared to the 2.5 days in Singapore and 6 days in Malaysia. On the other hand, if the MSME starts doing business without being told what requirements are lacking within the 15-day period, the MSME will certainly feel prejudiced if the Negosyo Center nevertheless revokes the registration within 30 days. The 15-day period is an expression of policy — 15 days is acceptable.

The 15-day period should not be acceptable; it should be faster if the Philippines intends to catch up with world standards. In fact, the 15-day period is a step backwards. The Anti-Red Tape Act of 2007 requires that all applications shall be acted within a period of 5 working days in the case of simple transactions and 10 working days in the case of complex transactions, counted from the date the request or application was received. Also, if the Senate recognizes the problem of delays even with the existing Anti-Red Tape Act of 2007, then there is certainly a need to add more teeth in ensuring the effective implementation of the intent to speed up and declutter registration procedures.

Of course, these measures have been thoroughly studied and drafted in the Senate, with the participation of experts resource persons. Our opinion may not even come close to the pool of expertise tapped by the Senate. Nevertheless, because the common purpose is to help small Pinoy Entrepreneurs, it wouldn’t hurt to express our opinion.

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