Skip to main content

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? 
Labels:

Popular posts from this blog

The 2026 Iran War Audit vs. OFW-Reliant Pinoy Pride Economists

It's a shame, really, that I didn't think about writing this article on OFWs again. I got somewhat fixated on the  gas prices , and my mind was exhausted. I thought about how I even asked, " Will #SahodItaasPresyoIbaba economics even lower down the prices of gasoline? " It's one thing that the Philippines has been overly reliant  on the Middle East for gasoline. What I overlooked was the OFW phenomenon again . It was so easy to hype on the OFW phenomenon, like what happened with the Filipino nurse, Ello Ed Mundsel Bello, way back in 2015. The OFW hype would've compounded the Philippine economy's "reliance model" to a whole new level of bottleneck!  Analyzing the bottleneck of relying on the Middle East It's already a known fact that several OFWs are sent to the Middle East. I even remember running across a presumably retired dancer who would be 64 today, on Facebook. The guy actually bragged about how he was a dancer at the Excelsior Hotel in...
Read more

How is IBON Foundation Viewing and/or Representing FDI in Their Articles?

Some time ago, I wrote about why I can't take IBON Foundation seriously . As the battle for economic charter change is on, I believe it's time to tackle them again. They're tweeting here and there. Okay, I'm no researcher or organization. However, it doesn't mean that I can't do some basic research, share the research of others, and read other books. Even an intellectually stupid person can actually make sense if they gather the best materials. I even recall someone I know who's not intelligent but he actually spoke well about career opportunities, in the very school where he wasn't performing well! Trying to understand IBON's data presentation  I would like to address how IBON Foundation presents FDI growth. They would say stuff such as the claim job creation weakened despite FDI growth .  I was looking at IBON Foundation's claim (above) where it says that job creation allegedly weakened despite FDI inflows. Sure, they named sources but do they ...
Read more

A Destructive Obsession with Ayuda (Cash Handouts)

IBON Foundation Yesterday, I decided to write about how Pinoy Pride won't help pay that enormous PHP 13.42 Trillion debt . I thought I'd probably take a bit of a break to do some more research. However, I feel the need to write this post today since one of IBON Foundation's articles says that there's a destructive fetish for foreign investment . Then, another of IBON Foundation's articles says that there's money for Ayuda . I really feel insulted reading these since I'm a Masters Degree graduate in the School of Business and Economics. This really shows the destructive obsession with ayuda (cash handouts) and protectionism. IBON Foundation Above is one of IBON Foundation's charts. Some people on Facebook have gone as far as to call them Birdbrain Foundation. So what if there's money for ayuda or cash handouts? The problem here is that "think tanks" like IBON Foundation want to make it look like ayuda is more important. If asked to account ...
Read more

"Will #SahodItaasPresyoIbaba Economics Lower Philippine Gas Prices?

Inquirer Gasoline prices have increased again, haven't they?  A few days ago, I wrote  why #SahodItaasPresyoIbaba's view of gas prices is questionable . Today, I feel like writing this after several complaints on Facebook. I would like to create a follow-up post. People are complaining too much without understanding the real reason why some countries have lower prices of gasoline. Real talk. We need to talk about economic policies,  and  of course, please do a study on supply-demand analysis  on supply chain management . Let's examine the complaints made by Bulatlat Bulatlat Here's a chart from Bulatlat that compares the increase in prices of gasoline between the Philippines, Thailand, and Malaysia. It's always problematic when people ignore simple economics. It's funny, but Bulatlat mentions this on their website: Note also how expensive our diesel and gasoline products are compared to those of our ASEAN neighbors. The estimated common price today of diesel in...
Read more

Why I Don't See IBON Foundation as a Real Economic "Think TanK'

It's one thing to criticize presidents for their performance. It's another without analyzing the data. Sure, we need to study mathematics but the way it's presented can be a reason why it's hated. I felt that high school mathematics focused too much on numbers. Mathematics, in all its aspects, is part of life. Trigonometry is part of life. Calculus is part of life. Statistics is part of life. Speaking of statistics, I was thinking about how IBON Foundation has given its assessment of Duterte's administration. This isn't to say that outgoing President Rodrigo R. Duterte hasn't made mistakes. Rather, this is to point out how IBON Foundation has that tendency to be illogical. IBON Foundation (click to enlarge) This data by IBON Foundation was gathered. I'm not saying that the figures are lies or manipulated. My problem with how IBON Foundation works is their failure to account for the cause and effect  more often than not.  Malaya Business Insight It's ...
Read more