Intro - A strong, stable, and welcoming macroeconomic environment is essential to the tax effort strengthened from 12.2% to 13.
.2% to 13.6%, the debt-to-gross
increasing economic opportunities and sustained growth. A fiscal sector which is
accountable, strategic and supportive of inclusive growth will boost the economy
and provide a secure investment-friendly environment. Monetary policy which
ensures price stability with a stable and inclusive financial sector can promote
growth and enhance access to economic opportunities. A proactive foreign trade
policy framework helps Philippine businesses to compete effectively in global
markets and provide Filipinos with employment opportunities.
1. The global economy remains sluggish as addressed in Chapter 2, with
average growth only marginally rising from 3.2 percent in 2008-2015 to 3.6
percent in 2017-2021. As a result, growth in global export volumes is
expected to improve only slightly from 3.0 per cent in 2008-2015 to 3.9 per
cent in 2017-2021 on average.
2. Such a trend may complicate engaging in preferential or multilateral trade
agreements and expanding market access. It also poses a challenge to
established rules governing international trade.
3. Given the above trends, Philippine firms are likely to face harsher
competition in both domestic and international markets. Although targets
have been reached for Philippine exports, the competitiveness of the
country remains hindered by the high cost of doing business due to various
factors including insufficient infrastructure and high electricity costs.
Reforms, including streamlining of export and import processes and other
trade facilitation steps, are yet to be fully implemented. The incentives
provided for by current bilateral and regional trade agreements have not
been fully exploited. Due to various laws, rules, and regulations governing
the sector, the ability of services to drive growth and upgrade the economy
remained limit. Restrictions on the involvement of foreign investors in
certain sectors, along with burdensome regulatory or licensing standards
and procedures, limited trade and investment. A difficulty also lies in
keeping with technological developments and rising market structures.
4. During the last six years, the Philippines enjoyed decreasing borrowing
costs as its credit rating improved to investment grade for the first time.
This was triggered by its improved fiscal position and strong external
position. From 2010 to 2015, the revenue effort rose from 13.4% to 15.8%,
domestic product (GDP) ratio decreased from 52.4% to 44.8%, and the
interest payment share in disbursements decreased from 19.3% to 13.9%.
It retained an average current account surplus of 3.3 percent of GDP over
the same period, while gross foreign reserves rose from USD 62.4 billion to
USD 80.7 billion as trade-in-service revenues grew and remittances from
overseas Filipinos (OFs) remained robust. In the medium term, however,
the shift over assumptions regarding the future direction of US interest
rates would likely result in uncertainty in capital flows and exchange rates,
as well as impacting international and domestic borrowing costs.
5. Improvements in the fiscal position over the past six years have allowed
primary investment to grow from 13.6 percent of GDP in 2010 to 14.4
percent in 2015, though expectations have not yet been reached.
Allocations from the social and economic sectors rose annually,
respectively, by an average of 16.3 and 13.2 per cent for the period 2010-
2015. In total, outlays in government infrastructure rose by 28.4 %
6. Primary investment is expected to rise further to 18.8 % of GDP by 2022
over the next six years. For example, infrastructure spending is expected
to rise by 2022 further to 7.4 % of GDP. It is also expected that R&D
spending would increase from 0.14 GDP in 2013 to 0.50 % of GDP.
Meanwhile, it is estimated that the overall difference in social spending is
about 3.0 to 4.0 % of GDP.
7. The current tax system has inherent flaws that result in revenue loss and
large-scale leakages. These include non-indexation, a large number of
special treatment and exemptions, and barriers, such as bank secrecy laws,
that hinder tax administration.
8. Although fiscal space reforms allowed significant increases in discretionary
funding for priority sectors, government agencies struggled to make
maximum use of those resources. The ratio of real disbursements to the
expected disbursements decreased from an average of 96.4% in 2004-
2009 to 91.7% in 2010-2015. Limitations in project planning and
scheduling, procurement challenges, and implementation bottlenecks due
to structural weaknesses and capacity constraints of line agencies were
among the factors that hampered budget utilization.
9. LGUs rely on IRAs for an average of 61.5 percent of their income, as many
LGUs have not completely maximized their own revenue-raising powers
under the Local Government Code. Municipal taxes already account for a
large share of total income in urban and high-income class LGUs, and they
account for 70 percent on average in metro cities. Nevertheless, reliance
on IRA reaches up to 99 per cent in low-income class LGUs, due to low
economic development and limited capacity for local resource
mobilization.
10. These include contingent liabilities associated with public-private
partnerships and guaranteed liabilities of government owned or controlled
company (GOCC), which will have an impact on the national government's
fiscal situation once the contingent liabilities have materialized.
11. RA 10693 (Microfinance Nongovernmental Organizations [ NGOs] Act) and
the Regulatory Council of Microfinance NGOs enhanced government
support in delivering microfinance products and services for the
vulnerable. Over the past six years, the number of access points in 2015
has risen to 9.4 per 10,000 adults, banks ' microfinance portfolio has
reached some 11.3 billion, cooperative sector deposits have reached 886.2
billion, and insurance penetration5 has reached 1.8%. Nevertheless, access
remains limited, with access to micro-insurance services for example by
only 30 percent of Filipinos and insurance penetration below the average
in ASEAN (3.3 percent in 2014), in emerging markets (2.7 percent) and
worldwide.
12. An archipelagic landscape produces spatial impediments and market
segmentation. Human barriers include limited household expertise and
ability, while structural constraints come in the form of cost to access
banking services and bank distance, to name a few. Incomplete financial
infrastructure often impedes access to the financial products and services
available.
13. Recent developments in the world financial market have shown that
financial stability is closely linked to monetary policy. The banking system
has remained strong and stable over the last six years as demonstrated by
the steady growth in banks ' assets, loans, deposits and capital accounts.
The banking system still maintained sufficient liquidity and capitalization,
and remained profitable. The national savings ratio increased in parallel
with this. Yet financial markets in the Philippines remain relatively shallow
compared to those of its global peers. The increasing complexity of
financial transactions can also lead to instability. Mitigating that risk
requires granular data and regular exchange of information across
jurisdictions between local regulators.
Sector 1
- The proposed tax policy reform is shifting to a simpler, fairer, and
more effective tax system with lower rates and a broader base. This
is expected to correct system inequities, both horizontal and vertical.
Based on international experience, fiscal policy reform will only
succeed if followed by changes in tax administration. In addition to
generating revenue, tax reform should also help to encourage
innovation, create jobs and lift people out of poverty. Main changes
in the BIR include simplification of procedures and forms for small
taxpayers, compliance-enhancing electronic data sharing, taxpayer
rights, and reducing bank secrecy in fraud cases. Such changes are
expected to improve customer loyalty, raising compliance costs while
paying taxes and result in public confidence. In the meantime, the
BOC is pursuing an aggressive anti-smuggling program to increase
revenues. The initiative will be accompanied by stricter regulation in
free trade areas, fuel marking, and trade data reconciliation with
partner countries.
- The revenue-raising powers granted to LGUs by the Local
Government Code must be maximized.
Potential measures include:
(a) professionalization of local treasurers through the Standardized Local
Treasury Service Examination and Assessment Program;
(b) updating of key local finance manuals to take account of developments
in local finance;
(c) stepping up LGU fiscal monitoring and performance evaluation through
standardized reporting tools and metrics;
(d) setting up idle land inventory and imposing idle land tax on all LGUs;
and
(e) allowing LGUs to comply with local income base LGC requirements.
- This will free up the fiscal space in order to make use of government
resources for other public goods and services.
- From an average share of 33 percent in the national budget over the
past six-year period from 2010 to 2015, development spending is
aimed at hitting 50.1 percent by 2022 to fund programs and initiatives
critical to maintaining inclusive growth.
This will be made possible by
(a) more responsible spending;
(b) proactive debt obligation reduction strategies; and
(c) entitlement of government bureaucracy to ensure more efficient and
effective operations.
- There will be several measures in place to maximize the use of the
Agency's budget and tackle underspending.
These include:
(a) strengthening the link between planning and budgeting;
(b) building capacity for line agencies and other stakeholders;
(c) streamlining the release of funds and developing an integrated and
user-friendly financial management system;
(d) strengthening project tracking through modern technology, such as
integrated systems, geotagging and mapping; and
(e) drawing up a codex for the Commission's consistent and effective
application of the audit rules.
- This implies a proactive position in debt portfolio management and
the adoption of a borrowing mix program.
It also requires reforms to:
(a) boost liquidity and trading activity by consolidating debt, reissuing and
reducing outstanding securities;
(b) reduce friction costs of investing in domestic government securities;
(c) formulate an annual issuance program to maintain benchmark
securities that will represent the domestic yield curve;
(d) set up a repurchase agreement scheme for domestic securities to help
the secondary market; and
(e) set up a primary dealer system setting out the rights, privileges and
position of government securities dealers in market making.
In addition, the government will press for changes to the BOT Law with the
goal of enhancing the mechanism of project evaluation, contract
management and contingent liability management.
Policies will be studied regarding re-financing, public consultation and
accounts of trust liability. The government will also streamline the data
reporting process and provide comprehensive data through the
Government Debt Recording and Monitoring System, which will assist in
GOCC debt analysis, better manage government financial exposure, and
inform the formulation of strategies.
Sector 2
Monetary Policy
- As part of the monetary policy framework strengthening initiatives,
the IRC system was launched in June 2016.9 Current policies and
programs will be continued to sustain the reform momentum. The
government will be vigilant in ensuring that the inflation environment
remains appropriate and in line with the evolving domestic price
dynamics and sustained economic growth goals.
- Measures will be studied to reduce the stability of the capital flows.
- This will also improve the BSP's capacity to conduct quality economic
monitoring that will lead to informed monetary policy formulation.
Financial Policy
- Pre-emptive prudential steps aim to reduce the price booms of loans
and properties. These initiatives complement traditional financial and
monetary policies. The creation of the Financial Stability Coordination
Council allows different agencies to take a more comprehensive view
of the financial system, as financial stability is a mutual concern
among regulators. At the same time, the Government will continue to
develop an enabling policy and regulatory environment that supports
the objectives of financial stability.
- The domestic capital market will be widened and deepened to act as
an alternate stable source of funding for infrastructure financing and
 other long-term needs. It will be undertaken in partnership with the
private sector to ensure the efficiency, price, and honesty of pricing
and valuation of financial instruments. The creation of an integrated
financial market infrastructure, which is considered a key component
of the financial system, complements these initiatives.
- Such programs will include numerous economic and financial literacy
activities that will enable Filipinos to engage in economic governance
and leverage OF remittances ' investment potential in novel financial
instruments such as personal equity and retirement funds or
insurance products. These will be complemented by the
establishment of structures to meet the financial needs of the
Filipinos.
- Microfinance programs such as micro, small and medium-sized
enterprises (MSMEs) credit access will be extended. Credit offices and
mobile collateral registries will be established and improved in order
for microcredit to reach its full potential. Innovative products on
micro-insurance are also to be discussed outside of traditional micro-
health and preneed programs. Private insurance companies are
encouraged to participate in the provision of agricultural micro-
insurance.
- The legal framework will provide an enabling environment that
accommodates and promotes the production of Islamic finance
products such as ' sukuk ' or Islamic bonds; a clear and effective
mechanism that protects the enforceability of Islamic financial
contracts; and a credible and reliable platform for resolving legal
disputes resulting from Islamic finance transactions.
Sector 3
1 - Pursue strategic trade partnerships and maximize opportunities in
bilateral, regional and global integration.
- Intensify marketing and promotion of Philippine goods and services and
increase market intelligence.
- Intensify market intelligence
- Explore new markets for Philippine exports.
2 - Minimize the cost of production and delivery of goods and services
through reforms.
- Improve the quality of goods and services by adopting best practices and
successful business models in production processes.
- Encourage and support innovation in the country’s export-oriented
industries through investments.
- Develop human resources and improve institutional structures
- Enhance resiliency to disaster and climate change impact.
3 - Review and implement laws, rules and regulations to reduce the cost to
exporters and importers as well as facilitate and streamline procedures for engaging
in trade. -
Foster forward and backward linkages across sectors through the value chain
approach.
- Provide adequate infrastructure and logistical support to achieve
connectivity, ensure efficient flow of goods and services domestically and
internationally, and lower the cost of production and delivery.
Intro - The Philippine Development Plan (PDP) 2017-2022 aims at boosting market
competition by fostering an environment that penalizes anti-competitive practices,
facilitates player entry, and supports regulatory reforms to stimulate investment and
innovation.
- There are a number of legislative chartered government agencies
which have dual regulatory and proprietary roles. The Philippine Ports
Authority is one example. The lack of distinction between these
agencies ' dual roles will result in conflicts of interest and could have
an unintended negative impact on business outcomes. There are also
challenges to innovation from decentralized regulatory roles of
governments. Regulatory agencies often work in silos, with identical
or similar responsibilities over certain goods. This condition is
exacerbated by the decentralization into local government units of
many regulatory functions under RA 7160, also known as the Local
Government Code of 1991.
- The country has begun to lay the groundwork for the promotion of
competition and has achieved the following achievements under the
Philippine Development Plan 2011-2016:
(a) the establishment of the Competition Office (OFC) in 2011 under
the Justice Department (DOJ);
 (b) the enactment of the PCA in 2015;
(c) the modernization of the Tariff and Customs Administration in
2016;
(d) the full entry of foreign nationals;
- These include:
(a) achieving the right balance between company efficiency and
market competition; and
(b) ensuring that government-owned and controlled corporations
(GOCCs) and private companies compete on an equal footing in the
provision of goods and services;
- These actions include:
(a) government-owned monopolies;
(b) government-authorized private monopolies;
(c) government control over market player entry and expansion; and
(d) government provision of like-minded goods and services provided
by private entities.
- Such unfair drawbacks include incentives for companies situated in
special zones to attract foreign investment, unequal tax treatment
between renewable and non-renewable energy sources and a gap in
taxes between domestic and foreign shipping vessels. In addition, a
few government regulations might unintentionally encourage
collaboration between competing companies.
- In the cement industry, transport costs, for example, represent a
substantial share of the costs delivered from the producer to the
market. Similarly, the lack of interconnection in the Luzon, Visayas,
and Mindanao power grids precludes shifting supply to high-demand
areas and potentially lowering power costs.
Strategic Framework: National Competition Policy
- Target: The NCP aims to improve market efficiency and consumer
welfare by balancing out the playing field. The goal will be based on
the Philippines GCI rankings. From the country's ranking at the top 40
among the 138 economies measured in 2016, the mid-term (2019)
target is to be in the top third (33%) and the end of the program target
is to be in the top 25% of all economies. Table 16.2 details the goals,
including those linked to intermediate outcomes.
- It is important to look at government policy decisions and to assess
whether they are achieving their intended goals. Policy options
available are to maintain existing government market intervention if
there is sufficient public benefit that outweighs its negative effects,
despite its impact on market competition; recalibrate the strength or
form of government market intervention where such action has
limited effectiveness or public benefit; substitute or change the
intervention if it is stronger, more appropriate; Remove government
intervention if the market structure is sufficient to ensure market
competition; or carry out further analysis where additional data need
to be gathered, additional research needs to be conducted, or further
discussions need to be held between stakeholders in order to achieve
consensus.
- Governments must prioritize sectors in tackling market competition
problems where the greatest impact on consumer protection and
market efficiency is expected. After a comprehensive market scoping
is done, different sectors will be identified. The government will
consider improving the variety and quality of goods and services that
are essential to poverty reduction, generating new livelihood and
employment opportunities, spillover effects on other economic
sectors, and indications of lack of competition in selecting priority
sectors.
o Market competition in key production inputs (e.g., fertilizer,
seeds) will be revised in agriculture. Market competition, if
enhanced, effectively extends the range of options
available to producers and lowers input costs, and even
small farmers have much to gain.
o Lack of competition in the industry sector can be due to a
limited market, limited access to raw materials, high
research and development costs, monopolies created by
patent protection, and a tendency to perceive price as a sign
of quality. The market studies to be carried out will identify
important competition issues in various subsectors of the
 industry and recommend measures to encourage market
competition
o In the services sector, the performance of the tradable
goods sector (including manufacturing and agriculture)
strongly relies on the competitive environment in services
that feed into it. These ancillary services include electricity
generation, electricity distribution, air, land and water
transportation, telecommunications, and human capital.
The tradable goods sector (especially manufacturing) will
suffer if the services sector is inefficient. Consequently,
priority will be given to increasing competition in services,
in particular telecommunications and power
- The government should uphold the principle of economic neutrality
and introduce policies that create a level playing field for GOCCs and
companies to compete with.
Legislative
- It will seek regulatory changes complementing national competition
policy. Within the PDP term 2017-2022, the Government must work
towards enacting the following legislation. Upon reviewing
potentially anti-competitive laws and policies that effectively
prohibit, limit or diminish competition, additional items will be drawn
up on the legislative agenda.

- It will quantify the impact of company actions on market efficiency,

competition and consumer welfare. This information will be useful to
both the public and policy-makers in understanding the seriousness
of the competition issues in some sectors and the benefits that could
be derived from inhibiting anti-competitive practices.

- Promoting competition in the market is a cross-cutting concern which

affects all consumers and producers regardless of size. Fostering a
culture of strong competition in the country requires concerted
efforts among relevant government agencies and other sectoral
regulators, with support from the branches of the executive,
legislative and judiciary. The Government will also work with partners
for growth

- The Government recognizes the importance of strengthening both

institutional and individual capacities and creating a knowledge base
to effectively implement the PCA. Considering that competition policy
in the Philippines is a relatively new concept, the government will
ensure that capacity building efforts within its ranks are enhanced
and that any gaps and needs are immediately addressed. Sustained
support will be given to strengthen the operational and technical
capacity of the PCC and the other government units within the
executive, legislative and judicial departments mandated to foster
market competition. The Government will work with academic and
research institutions to strengthen competition law and economics
programs.