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The Philippines 60-40 Equity Scheme Doesn't Prohibit FDIs But It's Still VERY DISCOURAGING for International Business


First and foremost, I'd like to tell people that I don't believe that the Marcos Years were the "golden years". I still agree with economist Cielo Magno that land ownership isn't a factor, since some countries without equity restrictions, don't allow foreigners to buy land. In contrast, inflation and the like were rampant during that time. However, we need to realize that any gains after EDSA 1986 weren't realized. As I was looking at Facebook, a page called Punch the Lies by Atty. Mike Navallo stated this: 
FACT: The 1987 Constitution does not prohibit entry of global investors into PH. What it regulates is foreign investment in areas deemed critical such as public utilities; exploration, devt and use of natural resources; and certain investments as determined by Congress. (Art XII) 
Public utilities (water, electricity, petroleum distribution, seaports, PUVs) are considered vital to socio-economic devt that's why they're subject to foreign ownership limits. 
There's also a question on national security. Remember concerns over Chinese involvement in NGCP? 
The Public Services Act was amended in 2022 excluding from the definition of "public utility" services such as telecomms and transportation, therefore allowing foreign ownership. 
It would be easy to look down on me because I'm not a lawyer. However, in this digital age, I don't need to be a lawyer to understand the basics. I'd like to address the elephant in the room here. However, I'd like to address the common sense issue of public services. It's said by Punch the Lies that the reason why they're subject to foreign ownership limits is because they're vital to socio-economic development. However, what can we do if the costs of water, electricity, petroleum distribution, seaports, and PUVs are too expensive due to the simple rule of supply and demand?

Earlier, I wrote an article about the stupidity of having equity restrictions--in the name of security. Of course, I expect these people to keep quoting mostly Filipino economists and lawyers. Their favorite people are the likes of Atty. Hilario G. Davide Jr., Atty. Christian Monsod, and Professor Solita "Winnie" Collas-Monsod, to name a few. They also love to quote from the IBON Foundation. I find the idea of subjecting businesses to 60-40 in the name of security, to be utterly stupid. It's not like as if certain laws such as taxation laws, labor laws, data privacy act, etc. don't provide necessary restrictions.

The 60-40 arrangement is nothing more than overpriced rent (read here). Who in their right mind would want to rent a space if they have to give 60% ownership to the lessor? Let's say I prepare a shopping mall. However, I require all my tenants to give me 60% of their ownership, which in turn entitles me to 60% of their profits. Even worse, I'd be stingy to give them a good place. It's definitely not paying for the value. In turn, even when I don't prohibit tenants from entering, my conditions would still discourage them from entering.

If people are wondering why Communist Vietnam has been more viable for business--please check their policies on foreign investment. In fact, the Vietnam Briefing reveals that most industries (except a few) allow up to 100% foreign ownership of shares. Vietnam doesn't allow land ownership. Please stop confusing land ownership with share ownership! The Vietnam Embassy states that for certain sectors, the ownership limit granted to investors is 70%, not 40%. A 30% difference really makes a difference in why more go to Vietnam. Please, Vietnam isn't that protectionist paradise as some fools want to paint it out to be. It may still be under the Communist Party of Vietnam but Doi Moi changed its economic policy significantly (read here).

Image by Sabrina Jiang © Investopedia 2020

I'm afraid most people who support the 60-40 policy confuse profits with revenues (read here). If they're worried about FDIs and will run away with their profits, then listen. FDIs get rich based on their net income after taxes (read here). Please, a sample income statement will show you that net income is what's left after all expenses have been paid. For some, it's just some "capitalist conspiracy used as an excuse". However, basic economics is no "capitalist conspiracy". Common sense will tell you that supply and demand drive the market price. Common sense will tell you that businesses don't just earn, they must also spend. FDIs will still be required to pay all types of taxes required. These taxes can be the value tax, income tax, and withholding taxes. Just because they own 100% of their business, doesn't mean they don't pay taxes. 

To explain it in simple terms--an FDI may get a monthly revenue of PHP 277,700.00. However, all the expenses paid such as salaries, utility bills, depreciation, interest due to debt, etc. will be deducted from the revenues. Eventually, the taxable amount is PHP 111,000.00. Now, let's say that the taxes would be subjected to 12% VAT. The remaining net income after tax (for the month) would be PHP 97,680.00. That means the corporate income for the month is only 35% of their revenues for the month. An increase in sales doesn't always translate to an increase in income. Would the company really want to part 60% of what's left after all expenses, with a Filipino oligarch? 
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