Newsletter July 2020
The Philippines is among Asia’s fastest growing economy and have maintained a strong momentum with GDP growth in excess of 6%. After decades of red tape stagnation, the country is poised for robust growth albeit from a low base.
In the contracting realm, we already detected stirrings as early as 2016. Projects in the infrastructure sectors were sprouting in the past years and are set to continue. Even though issues surrounding immigration and the high income and withholding taxes continue to be challenging, there are eventual rewards for the persevering.
In this mailshot, our Philippines director, Karen, gives her take on some of the issues.
Harry… on behalf of The Innovare Team
Philippines… The Rising Tiger of Asia
Resilience. That is the best term to describe the Filipino spirit and the Philippines as a whole. Though the country is still suffering from the after effects of graft and corruption from previous administrations, the country has seen an economic boom in the past years and was touted as the Rising Tiger of Asia.
Because of its archipelagic nature, the Philippines is a culturally diverse country. Whilst the country is divided geographically, the Filipinos are collectively known to be resourceful, hospitable and friendly. The Philippines that we see right now is slowly picking up its pace although far from the glorious days in the 60s before it fell down to dictatorship and rampant corruption up to the 70s and 80s. The 90s saw a revolution in the economy with the advent of the Overseas Filipino Workers injecting dollar reserves in the form of remittances from overseas. Thereafter, the new millennium saw a sprout in the BPO industry and the eventual globalization of Small Medium Enterprises because of internet technology.
Business Opportunities in the Philippines
According to the World Bank, from 2010 to 2018, the Philippine economy has risen steadily by an average of 6.34 percent. Economic reforms under the administration of former President Benigno Aquino III has since started to attract local and foreign private investments. Investor’s confidence has been growing ever since the introduction of the Public-Private Partnership (PPP) model, which encouraged greater private sector participation in government projects on infrastructure and social service and spread to almost every industry.
From the perspective of the contracting world, the initial years were mainly focused on telecommunication companies. Thereafter, we opened our services to the oil and gas sector. And due to slowdown in the energy sector a few years ago, we have witnessed a surge in the Information Technology and Business Process Outsourcing industries for expatriates and locals alike.
The Philippines is home to at least 800 BPO companies and is the fastest growing industry and accounts to at least $30 billion income and 1 million jobs. The IT industry has proven to be competitive as well as compared to its Asian counterparts due to Philippines’ culture proximity to its predominantly Western clients and cheaper labour cost. There is also the emergence of the real estate property boom not only in Metro Manila but in big provinces like Cebu and Davao hence promoting a surge in the industrial and logistics sectors.
Before one decides to venture into this country, it is important to understand the rather complicated system of labor-hiring rules with good understanding on compliance to immigration, tax and social security management. The Presidential Decree 442 under the Labor Code of 1974 introduced the concept of probationary employment to the Philippines and Under Article 281 it states that "employers are allowed to hire people under a probationary status for up to six months. These 6 months are used as a trial period for the employee. If the employee is allowed to work after the 6 month of the probationary period, he/she will be considered a regular employee."
However, in 2017, the Department of Labor and Employment (DOLE) has issued Department Order No. 174, providing a new set of guidelines to govern contracting and subcontracting. DO 174 reiterates the absolute prohibition of “labor-only” contracting and the “Endo” (end of contract) which refers to short-term employment practice in the Philippines. In view of that, our Philippines company, Five Lakes Consulting Services, Inc has been issued the DO 174 certification in compliance with the requirements as provided under the Labor Code of DOLE.
Coronavirus and other challenges
As with any other country, COVID-19 certainly has a negative impact on the global growth outlook and investor sentiment. Hence, the government has taken hard-line approaches to contain the spread of Coronavirus. The military has been deployed to man checkpoints and were given arrest orders for those violators, curfew has been implemented and Metro Manila was put in a strict lockdown in mid-March. This is to address the imminent concern of a medical drain of an already weak health care system. The country has already moved to a General Community Quarantine which has relaxed restrictions for most businesses to operate and allow inter-island travel.
Before the pandemic, another challenge that the Philippines has been facing is the nonexistence of an integrated system that will promote seamless and red tape-free procedures at immigration, tax and other government offices. Corruption and bribery is still omnipresent both in the local government units and likewise of the national front. President Rodrigo Duterte has vowed to battle corruption but it doesn’t help that a change in governance every 6 years translates into a new set of commissioners and officers, therefore affecting what’s supposed to be an uninterrupted process chain. He has also promised increase in infrastructure spending and the remittances from overseas workers remain stable, we could still reasonably anticipate a modest performance for the rest of the year.
Moreover, personal income tax in the Philippines is relatively high compared to its Asian counterparts but on the other hand, social security rates are at low premiums rates, hence the reduced and limited benefits to the contributors.
Despite it all, the Philippines has remained resilient and has evolved to be one of our most inquired solutions in the region. With its ample supply of local talents where many MNCs have its presence, it is probably the best time to look for opportunities within the contracting world.
The “Filipino spirit” has always transcended through obstacles and setbacks the country has experienced. As what former President Diosdado Macapagal said, “The strength of the nation lies in the well-being of the common man.”
Business sentiments have remained positive due to the increasing foreign investments backed by the establishment of the ASEAN Economic Community and various domestic sectors valuable to the economy. With the right governance, the Philippines might roar itself not only in Asia but to the rest of the world.
Stay safe and with best regards,
To know more about how we can support you in the Philippines, details of our solution are found here.
We offer contractor management services such as:
- immigration sponsorship and management
- payroll administration
- tax and social security management
- local billing and compliance
Contact our dedicated Singapore Sales line at +65 6336 7966 for further inquiries.
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