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DTI open to lowering capital threshold for foreign retail business owners

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DTI-Lopez
File photo of Trade Secretary Ramon Lopez speaking at a press conference at Grand Hyatt Hotel in Kuala Lumpur, Malaysia, on November 10, 2016. TOTO LOZANO/PRESIDENTIAL COMMUNICATIONS

THE DEPARTMENT of Trade and Industry is open to lowering the paid-up capital threshold for foreigners to own retail businesses in the country to $500,000 at most, the agency’s chief said.

Trade Secretary Ramon M. Lopez noted that although the agency initially submitted a $200,00 cap proposal, which is in line with the suggestion of the country’s top economic managers and favorable to foreign chambers, he noted that a lawmaker has proposed a “middle ground” at $500,000.

Asked if he would consider this proposal, Mr. Lopez told reporters on Friday: “We’ll look into that.”

“At least it’s a lot lower than the $2.5 [million]. Protected pa rin with that amount, yung talagang small pero you allow na the medium to come in,” he added.

The Retail Trade Liberalization Act of 2000 requires a minimum paid-up capital of $2.5 million for a 100% foreign ownership of a retail business, a stake which will only be valid in the first two years. The maximum stake will be at 60%, thereafter. Meanwhile, two-folds of that or a $7.5 million capital can be wholly-owned by a foreigner without the restriction of a validity period.

Mr. Lope said the entry of more players may boost the market of local enterprises.

Kung mas maraming independent medium and up size na foreign brands, I can imagine na we could also probably put in…the possibilty na mas maraming supplyan si micro SME,” he said.

Ngayon kasi si micro SME will only have to talk to the limited big retailers only. Pero kapag marami na yang medium na foreign brand, kapag sourced locally yan, mas marami nang pwede bentahan ang micro SMEs.”

Meanwhile, the Board of Investments (BoI) offered a different solution to striking a balance between protecting micro and small retailers and liberalization, proposing to scrap the paid-up capital threshold for foreigners to own retail businesses here and instead apply the minimum requirement to each store that will be built by an enterprise.

“The $200 million is one of the requirements for pre-qualification so that’s not the money you’ll have to infuse…,” Marjorie Ramos-Samaniego, director of the BoI’s Legal and Compliance Service Division, told reporters on the sidelines of the Euro-PH Advocacy Fora held Friday at the Makati Shangri-la Hotel.

Under the law, foreign enterprises, wholly owned or with a majority ownership, may break up their stores in such a way that each branch has a paid-up capital of at least $830,000.

“If you have $830,000, you have four stores. So you can see how burdensome. You have the $2.5 million, you just come up with four stores which makes $830,000,” Ms. Ramos-Samaniego added.

The BoI said applying the country’s top economic team’s suggestion of a $200,000 paid-up capital is “ still too small” if applied to the proposed scheme.

As such, the agency will conduct a stakeholder consultation with the Philippine Retail Association in determining the suitable threshold that will be applied for each branch to be put up.

“Because to a certain extent, there still should be a safeguard measure,” the official added, noting that the BoI prioritizes protecting the micro and small scale enterprises while seeing the medium enterprise capable of standing on its own.

The regulator’s position stands in stark contrast with that proposed in Senator Sherwin T. Gatchalian’s Senate Bill No. 1639 in which terms on the threshold, including pre-qualifiers such as the minimum net worth of parent corporations, are totally removed.

“What we aim to do is simplify [the process] para pumasok and foreign investors at dumami,” Mr. Gatchalian told reporters on Friday.

Mr. Gatchalian said he does not see the move as posing a threat to “mom and pop” stores. — JCL