ASEAN KEY DESTINATIONS
Federalism: More challenges than opportunities
PHILIPPINES:The shift to a federal form of government will bring drastic changes to the country's current political and business landscape, presenting both challenges and opportunities but, from the point of view of a business executive, more of the former.
Government services and processes are expected to undergo considerable changes during the transition, said Peter Perfecto, executive director of the Makati Business Club (MBC).
“For example, the central government and the federal states may share powers over taxes, but each federal state may still impose more specific variations of local taxes,” Perfecto noted.
“This can be a challenge, since the process might add another layer of bureaucracy from the perspective of business, and businesses would have to carefully consider the different local laws and regulations of each region or state when doing business there,” he added.
Federalism is a system of government in which several states form a unity but remain independent in internal affairs, with the central government distinguished from the separate units constituting a federation.
'A major concern'
Still, opportunities may emerge for business as each region or state would be compelled to offer competitive environments and adopt innovative systems to attract investment.
“A major concern, of course, is how a federal system would affect the relationship of the national government and the states in terms of avoiding conflict in laws and regulations,” Perfecto said.
The shift also entails a thorough review of the current set-up under the Local Government Code to know if it really has been fully implemented and to what extent its potential has been maximized, according to the business executive.
Ease of doing business
One of the many issues that impede new investment in the Philippines is the ease of doing business, with bureaucratic red tape and tedious process of filing documents discouraging investors.
This is a top concern of the business community, Perfecto noted.
“The main concern of business, at this point, is if the shift to a federal form of government may add another layer of bureaucracy and hinder ease of doing business," he said.
"With regions/states having a more independent hand in determining local laws and managing local resources, we have to ensure that local leaders are committed to offering efficient and transparent operations,” Perfecto emphasized.
Impact on MSMEs
The impact on local or regional businesses, especially micro, small and medium enterprises (MSMEs), is also a concern.
“The advantage we are seeing is that regions/states can define and manage support programs specifically designed for the profile of their local MSMEs and not simply rely on national programs – some of which may not address local need,” Perfecto noted.
Economic development beyond the National Capital Region is supposedly one of the main purposes driving the Duterte administration to push for federalism, Perfecto said. “It seems that the plan is driven by the need to provide enterprises an enabling environment to thrive and for businesses to contribute to inclusive growth.”
However, the challenge comes if some states are not equipped and leaders are not driven enough to become enablers of entrepreneurs. “We might see some lag on MSME support in these regions,” Perfecto added.
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