Amendments to the Public Service Act to Ease Foreign Equity Limitations
On 21 March 2022, President Rodrigo R. Duterte signed into law Republic Act No. 11659 (“Amended PSA“), amending Commonwealth Act No. 146 or the Public Service Act. The Amended PSA aims to strengthen the regulation of public services and processes for the protection of national security, but also ensure a reasonable rate of return for these public services. The Amended PSA removes foreign equity restrictions for some entities by limiting the scope of what are considered as “public utilities”.
Under the Amended PSA, “public utilities” refer to public services that operate, manage, or control for public use any of the following: (i) distribution of electricity; (ii) transmission of electricity; (iii) petroleum and petroleum products pipeline transmission systems; (iv) water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; (v) seaports; and (vi) public utility vehicles.
Expressly excluded from the definition of “public utilities” are (i) petroleum pipeline systems which are incidental to the operations of a distinct business, and (ii) transport vehicles accredited with and operating through transport network corporations.
The change introduced by the Amended PSA implies that public services falling outside the above definition (e.g. telecommunications, shipping, air carriers, railways, and subways) are no longer required to comply with the Filipino equity requirement (i.e. 60% ownership) for public utilities under Article XII of the 1987 Philippine Constitution. This is intended to attract much needed foreign direct investment and shore up competition in some industries which have long been virtually reserved to Filipinos.
Despite these changes, the Amended PSA still prohibits foreign nationals from owning more than 50% of the capital of entities engaged in the operation and management of “critical infrastructure”, unless the country of such foreign national affords reciprocity to Filipino nationals.
“Critical infrastructure” refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the country that the incapacity or destruction of such systems or assets would have a detrimental impact on national security. This includes telecommunications and other such vital services as may be declared by the President.
In addition, entities controlled by or acting on behalf of foreign governments or foreign state-owned enterprises are prohibited from (i) investing in any public utility or critical infrastructure unless such investments were already made before the passage of the Amended PSA, and (ii) investing additional capital. However, sovereign wealth funds and independent pension funds of states are allowed to collectively own up to a maximum of 30% of the capital of such public services.
Lastly, the Amended PSA authorises the President to suspend or prohibit any proposed merger, acquisition, or investment in public services which grants the foreigner or foreign corporation a controlling stake, when such transaction will affect national security.
The Amended PSA shall take effect after 15 days following its publication on 7 April 2022 in the Official Gazette. That 15-day period ends on 22 April 2022. The National Economic Development Authority, in collaboration with other government agencies, shall promulgate rules and regulations to implement the Amended PSA within six months from 7 April 2022, namely by 7 October 2022.
Amendments to Foreign Investments Act to Loosen Restrictions on Foreign Entrants and Boost Recovery after COVID-19
On 2 March 2022, President Rodrigo R. Duterte signed into law Republic Act No. 11647 (“Amended FIA“), amending Republic Act No. 7042 or the Foreign Investments Act of 1991.
The Amended FIA aims to attract and promote productive investments in activities which significantly contribute to sustainable, inclusive, resilient, and innovative economic growth, productivity, global competitiveness, employment creation, technological advancement, and countrywide development to the extent that foreign investment in such activities is allowed by the Constitution and relevant laws. It is the policy of the law to: (i) encourage foreign investments in enterprises that significantly expand livelihood and employment opportunities for Filipinos, (ii) enhance the economic value of agricultural products; and (iii) promote the welfare of Filipino consumers.
In addition to existing requirements under the law, the Amended FIA now requires export enterprises to register and comply with the export requirements under the Tax Code in order to avail themselves of any tax incentive or benefit.
Prior to the Amended FIA, as a rule, non-Philippine nationals (i.e. corporations with more than 40% foreign equity) which are domestic market enterprises (i.e. cater primarily to the domestic market) must have a minimum paid-in capital equivalent to US$200,000 or US$100,000 under certain circumstances. The Amended FIA added situations where non-Philippine nationals which are domestic market enterprises may have a minimum paid-in capital of US$100,000 (underscored below):
- the domestic market enterprise involves advanced technology as determined by the Department of Science and Technology, or
- the domestic market enterprise is endorsed as startup or startup enablers by the lead host agencies pursuant to Republic Act No. 11337, otherwise known as the Innovative Startup Act; or
- the domestic market enterprise has a majority of its direct employees Filipinos, but in no case shall the number of Filipino employees be less than 15; provided, that registered foreign enterprises employing foreign nationals and enjoying fiscal incentives shall implement an understudy or skills development program to ensure the transfer of technology or skills to Filipinos. Compliance with this requirement shall be regularly monitored by the Department of Labor and Employment (DOLE).
Furthermore, the Amended FIA established the Inter-Agency Investment Promotion Coordination Committee (“Committee“) which will integrate all promotion and facilitation efforts to encourage foreign investments in the country. The Committee shall develop a comprehensive and strategic Foreign Investment Promotion and Marketing Plan based on competitive advantages, natural resources, skill and educational development, traditional linkages, and international market potential that is fully consistent with the strategic investment priorities plan provided in the Tax Code.
Finally, public officials and employees involved in foreign investment promotions who shall commit any of the punishable acts under the Anti-Graft and Corrupt Practices Act (“AGCP Act“) shall, in addition to the penalties under the AGCP Act, pay a fine of not less than PhP2 million (equivalent to US$37,000) but not more than PhP 5 million (equivalent to US$93,000).
The Amended FIA took effect on 19 March 2022, namely 15 days after its publication in the Official Gazette. However, the Amended FIA requires the National Economic Development Authority (the country’s primary socio-economic planning body), in consultation with the Department of Trade and Industry and Department of Finance, to issue implementing rules and regulations (and thus amend existing rules and regulations) necessary for the efficient implementation of the Amended FIA.
Supreme Court Issues Rules on Expedited Procedures in the First-Level Courts
Following the enactment of Republic Act No. 11576, which expanded the jurisdictional amount cognisable by the First Level Courts in civil cases to PhP2 million, the Supreme Court promulgated the Rules on Expedited Procedures in the First Level Courts (“Rules“) on 1 March 2022. The First Level Courts include the Metropolitan Trial Courts, the Municipal Trial Courts in Cities, the Municipal Trial Courts, and the Municipal Circuit Trial Courts. The Rules are intended to harmonise the Revised Rules on Summary Procedure and the Revised Rules on Small Claims Cases.
Cases which fall under Summary Procedure
The Rules contain an enumeration of the cases which now fall under Summary Procedure:
- Forcible entry and unlawful detainer where the attorney’s fees awarded, if any, shall not exceed PhP100,000;
- All civil actions except probate proceedings, admiralty and maritime actions, and small claims cases where the plaintiff’s claim does not exceed PhP2 million, exclusive of interest, damages, attorney’s fees, litigation expenses and costs;
- Complaints for damages where the claim does not exceed PhP2 million, exclusive of interests and costs;
- Cases for enforcement of barangay amicable settlement agreements and arbitration awards where the money claim exceeds PhP1 million;
- Cases solely for revival of judgment, by motion or by action, of a First Level Court; and
- The civil aspect of a violation of Batas Pambansa 22 or the Bouncing Checks Law (“BP No. 22“), if no criminal action has been instituted for the violation.
An appeal from any judgment, final order, or final resolution of a case which falls under the Summary Procedure may be taken to the Regional Trial Court (“RTC“) exercising jurisdiction over the territory. The RTC’s judgment on the appeal shall be final, executory, and unappealable.
The following criminal cases shall also be governed by the Rule on Summary Procedure:
- violations of traffic laws, rules and regulations;
- violations of the rental law;
- violations of municipal or city ordinances;
- violations of BP No. 22; and
- all other criminal cases where the penalty prescribed by law for the offence charged is imprisonment not exceeding one year, or a fine not exceeding PhP50,000.00, or both.
For offences involving damage to property through criminal negligence, the Rules will also apply where the imposable fine does not exceed PhP150,000. The Revised Guidelines for Continuous Trial of Criminal Cases has also been adopted with respect to arraignment and pre-trial.
Small Claims cases
Meanwhile, Small Claims cases now involve:
- an action that is purely civil in nature for the payment or reimbursement of a sum of money arising from a contract of lease, loan and other credit accommodations, contract of services, or contract of sale of personal property excluding the recovery of personal property, unless it is made the subject of a compromise agreement between the parties, where the claim does not exceed PhP1 million; or
- the enforcement of barangay amicable settlement agreements and arbitration awards where the money claim does not exceed PhP1 million.
Streamlining court processes
The Rules provide for several amendments with the intention of accelerating court processes. Similar to the 2019 Amendments to the 1997 Rules of Civil Procedure, the Plaintiff in Small Claims cases may also be authorised to serve the summons upon the Defendant. Where a defendant resides or holds business outside the judicial region, the hearing shall be set not more than 60 calendar days from the filing of the Statement of Claim. The Rules also allow for service of court issuances and filings by either the plaintiff or the defendant in Small Claims cases to made through email, facsimile, and other electronic means. Notices may likewise be served through mobile phone calls, short messaging service (SMS), or instant messaging (“IM“) software applications.
To ensure early resolution of Small Claims cases, the Rules also mandate the allotment of at least one hearing day every week which shall be devoted to Small Claims, with at least five cases scheduled per hearing day. Additionally, hearings through videoconferencing have been permitted using a Court-prescribed videoconferencing platform, alternative videoconferencing platforms or even through IM applications with video call features. Lawyers, who are not themselves parties to the Small Claims case, are still prohibited from representing the parties.
The Rules are set to take effect on 11 April 2022, following its publication in newspapers of general circulation. However, the Rules have not been made applicable to those cases which are pending with the first level and second level courts.
Amendments to the Retail Trade Act to Further Encourage Foreign Retail Enterprises to Do Business in the Philippines
On 10 December 2021, President Rodrigo R. Duterte signed into law Republic Act No. 11595 (“Amended RTLA“), amending Republic Act No. 8762 or the Retail Trade Liberalization Act of 2000. The Amended RTLA substantially lowers the paid-up capital requirements for foreign retail enterprises to do business in the Philippines.
The Amended RTLA removes the categories for pre-qualification under the old law and lowers from US$ 2.5 million to, and sets a single minimum paid-up capital of, at least PhP25 million (approximately US$463,000) for all foreign-owned retail enterprises. The Amended RTLA standardises the minimum paid-up capital to at least PhP10 million (approximately US$185,000) for foreign retailers engaged in retail trade through more than one physical store.
The required minimum paid-up capital is subject to the review and recommendation of the Department of Trade and Industry (“DTI“), the Securities and Exchange Commission (“SEC“), and the National Economic and Development Authority, which are to be submitted to the Congress every three years. The monitoring and regulation of foreign retailers is also now primarily within the purview of SEC, except for sole proprietors which remain under the regulation of DTI.
Under the Amended RTLA, retail enterprises with foreign ownership of more than 80% are no longer required to offer a minimum of 30% of their equity to the public through any stock exchange in the Philippines within eight years from the start of operations.
The Amended RTLA has likewise removed the requirement of obtaining a Certificate of Prequalification from the Board of Investments. It has eliminated the former thresholds for locally-manufactured products and now simply requires a stock inventory of locally- manufactured products which may be maintained through the designation of a store space as a Filipino section, use of locally-made packaging materials, utilisation of locally-sourced raw materials in the production of the goods, or other arrangements that will promote locally- manufactured products.
Despite the lowering and removal of several requirements in the old law, the Implementing Rules and Regulations of the Amended RTLA nonetheless identify specific additional documents to be submitted to SEC (e.g. a Certificate of Inward Remittance of Foreign Exchange and a Certificate of Reciprocity). The Amended RTLA is also wider in scope since the minimum paid-up capital and other registration requirements are made expressly applicable to foreign retailers engaging in retail trade through purely online channels.
These notwithstanding, the Amended RTLA incorporates the policy of giving preference to Philippine nationals, particularly in terms of labour. It requires foreign retailers to first determine that there are no competent, able and willing Filipino citizens available to join the workforce, before they can engage the services of foreign nationals.
Ease of Paying Taxes Act to Streamline Tax Compliance
On 15 September 2021, the House of Representatives approved on third reading House Bill No. 8942 or the Ease of Paying Taxes Act (“HB 8942“). HB 8942 proposes amendments to the Tax Code that seek to modernise tax administration and improve its efficiency and effectiveness by providing mechanisms that encourage proper and easy compliance with the least cost and resources possible.
One proposed amendment is the classification of taxpayers based on their capacity to comply with tax rules and regulations, the amount and type of tax paid, and similar economic and financial factors. HB 8942 particularly mandates the creation of classifications for large and medium taxpayers and other additional classifications that may be necessary to achieve better service and tax administration. Acknowledging that different taxpayers have varying abilities to comply with their tax obligations, HB 8942 institutionalises a simplified process of filing tax returns for small taxpayers to facilitate ease of compliance to tax rules and regulations.
HB 8942 also abolishes the “pay as you file” system. Under this system, payment of tax is simultaneous with filing the return. However, under the proposed amendment by HB 8942, taxpayers will be given the option to pay the tax even before it is due.
To improve the portability of tax transactions, HB 8942 also removes venue restrictions in the filing of returns and the payment of taxes.
HB 8942 seeks to further simplify tax compliance through the removal of the distinction between sales invoices and official receipts for value-added tax (“VAT“) transactions by prescribing the sales invoice as the uniform VAT documentation for both sale of goods and sale of services.
Other proposed amendments include:
- the establishment of registration facilities for non-resident taxpayers;
- abolishment of the annual registration fee;
- cancellation of the tax registration upon the mere filing of the registration update form, without prejudice to the Revenue District Officer’s power to conduct an audit to determine any tax liability;
- the provision of the taxpayer’s bill of rights; and
- the creation of the Office of the Tax Advocate, which is an office independent from the Bureau of Internal Revenue mandated to ensure that the rights of the taxpayers are protected.
HB 8942 is currently pending before the Senate Committee on Ways and Means.
Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice
