Ina Alexandra Dominguez Partner, Corporate & Commercial / M&A
Since the declaration of a state of public health emergency in the Philippines in March 2020 due to COVID-19, the Philippine government has enacted various laws and regulations that present opportunities for increased investment, provide a stimulus to improve economic activity in the Philippine market, and promote the ease of doing business in the country.
Of key importance is the Bayanihan to Recover as One Act (Bayanihan 2) which contains measures to be implemented by the government to accelerate the recovery of the Philippine economy from the adverse impact brought about by the pandemic, and encourage new and additional investment. In addition, procedural changes recently implemented by government agencies such as the Securities and Exchange Commission (SEC) and the Philippine Economic Zone Authority (PEZA) signal sustained efforts to improve the ease of doing business in the country.
Bayanihan 2, which took effect on 15 September 2020, authorizes the President to exercise powers that are necessary and proper for COVID-19 response and recovery interventions. The law is effective until 19 December 2020, except for specific provisions that provide for a longer term of effectivity.
The healthcare industry is a key focus area, and Bayanihan 2 contains several measures to strengthen efforts to test, trace, isolate, and treat COVID-19 cases and enhance the capacity of the Philippine healthcare system.
The pharmaceutical and medical device sectors are expected to benefit from the (i) implementation of an expedited registration process for viral testing kits that diagnose Severe Acute Respiratory Syndrome Coronavirus 2; (ii) delivery of uninterrupted immunization programs against vaccine preventable diseases, including a vaccine for COVID-19; and (iii) waiver of Phase IV trials for COVID-19 medication and vaccine, which shall remain in effect until 19 March 2021.
Increased spending by the government and private sector is also expected, to fulfill the mandate of the Bayanihan 2 on the implementation of mandatory COVID-19 testing of health workers every 15 days, as well as the provision of life insurance, accommodation, transportation, and meals to all health workers. Bayanihan 2 has appropriated PHP4,500,000,000 (approximately USD 93,000,000) for the construction of temporary medical isolation and quarantine facilities, field hospitals, and dormitories and expansion of capacities of public hospitals nationwide. The government will likewise provide personal protective equipment to public and private COVID-19 referral hospitals, with an allocation of PHP3,000,000,000 (approximately USD 62,000,000) for this purpose.
To expedite the procurement of goods and services required for the government’s COVID-19 response programs, and allow a nimbler response to the pandemic by the Department of Health (DOH) and other government agencies, such procurement shall be exempt from the bidding process required under the Government Procurement Reform Act. The government as procuring entity is required to give preference and procure locally-manufactured products, by making the award to the lowest domestic manufacturer-bidder notwithstanding that its bid is 15% in excess of the lowest foreign bid.
Government institutions are given key roles in the recovery process, with Land Bank of the Philippines and Development Bank of the Philippines directed to introduce low interest and/or flexible term loan programs for
operating expenses available to businesses affected by the pandemic. The Small Business Corporation is also directed to expand existing loan programs for Micro, Small and Medium Enterprises (MSMEs), cooperatives, hospitals, and tourism enterprises affected by the pandemic, while Philippine Guarantee Corporation is directed to issue an expanded government guarantee program for non-essential businesses, and give preference to critically impacted businesses, MSMEs, cooperatives and activities that support DOH initiatives towards ensuring an adequate and responsive supply of healthcare services. The Bangko Sentral ng Pilipinas (BSP or the Philippine Central Bank) is encouraged to adopt measures, including the relaxation of regulatory and statutory restrictions and requirements for a period of not more than one year from their date of effectivity, to encourage the banking industry and other financial institutions to extend loans and other forms of financial accommodation to help business recover from the economic effects of the pandemic, and to enable the banking industry to manage appropriately its risks and potential losses.
Bayanihan 2 also encourages BSP to permit private banks and financial institutions to: (i) reallocate any unutilized loanable funds to housing loans; and (ii) grant subsidy to home loan borrowers. This is expected to boost demand for home loans, and ultimately benefit the real estate sector.
Liberalization of incentives
Bayanihan 2 authorizes the President to liberalize the grant of incentives for the manufacture or importation of critical or needed goods, including healthcare equipment and supplies, to carry out the policy of the new law, by implementing exemptions from import duties, taxes, and other fees.
The Department of Trade and Industry (DTI) is permitted to suspend any applicable export requirements for enterprises that produce critical medical goods.
E-commerce and logistics
In order to boost e-commerce, the new law authorizes the President to direct DTI to undertake massive promotion of online commerce and offer assistance to those engaged in e-commerce (including internet retail, digital financial services, digital media, and ride-hailing). This is expected to further promote the use of digital technologies in the Philippines, and the widespread use of online transactions. The logistics industry, which is already adapting to the increasing volume of online transactions, will benefit from the general directive in Bayanihan 2 for the President to ensure the availability of essential goods, in particular, food and medicine, by adopting measures to improve the national end-to-end supply chain.
Bayanihan 2 assigns to infrastructure a key role in rebuilding the Philippine economy, with emphasis on accelerating construction of critical Information and Communications Technology (ICT) infrastructure to support the growth of the digital economy as well as remote work and education.
Players in the ICT industry are expected to benefit from the three year suspension of requirements to secure permits and clearances for the construction of ICT infrastructure, except for the building permit and the height clearance permit. In addition, Bayanihan 2 contains a general directive for the streamlining of regulatory processes and procedures for the development of digital, internet and satellite technology infrastructure.
The new law is also expected to help address the existing infrastructure backlog in the country. It authorizes the President to direct the Department of Public Works and Highways (DPWH) and other government agencies to expedite the implementation of infrastructure programs and projects. All permits and licenses for infrastructure flagship projects are deemed waived for a period of one year from the effectivity of the new law, except for permits relating to environmental laws, health, and occupational safety. It also authorizes a waiver of permits for private projects that are nationally significant or those with high economic returns or employment potential.
The emphasis on lifting the permit requirements for infrastructure projects is a welcome development, in view of the prior regulatory environment that required numerous approvals to be obtained from various government agencies, which caused delays in the kick-off and completion of these projects.
Bayanihan 2 includes other measures that are intended to accelerate the recovery and bolster the resilience of the Philippine economy.
The new law permits any net operating loss for taxable years 2020 and 2021 to be carried over as a deduction from gross income for the next five consecutive taxable years immediately following the year of such loss, which is an improvement over the three year period provided under tax regulations.
In order to promote business continuity and spur economic transactions, Bayanihan 2 exempts mergers and acquisitions (M&A) with a transaction value below PhP50,000,000,000 (approximately USD1,000,000,000), which are entered into within a period of two years from the effectivity of the new law, from compulsory notification and clearance requirements under the Philippine Competition Act, prior to consummation. Further, all M&A shall be exempt from the Philippine Competition Commission’s (PCC) motu proprio power to review mergers and acquisitions for a period of one year from the effectivity of Bayanihan 2. While many M&A will benefit from these provisions from the perspective of reduced regulatory filings and timelines prior to completion, concerns have been raised that these exemptions may be counterproductive in light of the role of merger control in ensuring a competitive economy.
The new law also authorizes the President to direct all government agencies and local government units to act on all pending and new applications for permits, licenses, certificates, clearances, authorizations and resolutions within a non-extendable period of seven working days, in order to support business continuity and encourage resumption of all economic activities. This shortens even the periods provided under the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, and should provide motivation for government agencies to permanently streamline their internal procedures. While this provision in Bayanihan 2 does not appear to be effective beyond 19 December 2020, it is hoped that a similar directive will be contained in subsequent legislation.
Government agencies, particularly the SEC and PEZA, have implemented procedural changes to accommodate continued transactions despite current quarantine restrictions, and to assist enterprises under the regulatory mandate of these agencies.
The SEC, which is the primary regulator of corporations in the Philippines, has continued to improve its package of online services by launching the Interim Registration System to facilitate the registration of corporations under the Revised Corporation Code, as part of its efforts to digitize and streamline its operations. The regulator is also clearly shifting away from the prior requirement for in-person filings, by promoting the use of the SEC Express Nationwide Submission system, that allows General Information Sheets and Audited Financial Statements to be submitted to the SEC by registered mail or by courier service.
The SEC has also issued guidelines on the holding of stockholders meetings and board meetings by remote communication, to amplify the provisions of the Revised Corporation Code on the holding of such meetings. This is a welcome move, in view of the current difficulties in holding in-person meetings.
PEZA has extended the availability of work from home arrangements for PEZA-registered entities, to the extent of 90% of the entity’s revenue, until 12 September 2021. Prior to the pandemic, PEZA-registered entities were generally required to perform all activities from within each entity’s registered site. This special permission for remote work arrangements is a significant break for the business processing industry in the Philippines, with many firms having transitioned from on-site to remote operations in March 2020.
With respect to its internal procedures, PEZA has allowed certain filings and other submissions to initially be made by email, to accommodate continued transactions with the agency despite quarantine restrictions. PEZA’s efforts clearly show an intent to modernize its procedures, and expedite the processing of transactions with the agency.
While the pandemic has resulted in severe challenges to the Philippine economy, regulatory changes as well as procedural changes implemented by government agencies are shining a light on the path to recovery.
Bayanihan 2 provides new investors as well as existing players in the Philippine market with several avenues for new and additional investment, particularly in the industries discussed above. While many of the provisions of the new law are not stated to be effective beyond 19 December 2020, this new legislation signals significant policy changes by the Philippine government, and it is expected for the next piece of pandemic recovery legislation to build on the gains of Bayanihan 2.