Lesson 6: Contemporary Economic Issues Facing the Filipino

Entrepreneur

We’ve been there before; that stolen moment in a day when we find ourselves daydreaming of owning a business.
Perhaps we were motivated by an epiphany that whatever we do, we’ll always be wage earners. Our boss will always
make more money than us.

We may have been influenced by a moment of inspiration to have the power to transform the lives of the
downtrodden citizens in the society. Business after all is a powerful lever of transformation. Abundant resources result
in the capacity to build lives and societies.

Regardless of the reason, everyone wants to own a business. However, not everyone is willing to put in the time,
resources, and effort to manage one. Once the daydreaming starts and the reality of business and its inherent risks hits
home, most budding entrepreneurs remain as they were: daydreamers.
WHAT IS ENTREPRENEURSHIP?
An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the
rewards. The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or
procedures.

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and
bring good new ideas to market. Entrepreneurs who prove to be successful in taking on the risks of a startup are
rewarded with profits, fame, and continued growth opportunities. Those who fail, suffer losses and become less
prevalent in the markets.
Entrepreneurship is one of the resources economists categorize as integral to production, the other three being
land/natural resources, labor and capital. An entrepreneur combines the first three of these to manufacture goods or
provide services. They typically create a business plan, hire labor, acquire resources and financing, and provide
leadership and management for the business.

Entrepreneurs commonly face many obstacles when building their companies. The three that many of them cite
as the most challenging are as follows:

1. Overcoming bureaucracy
2. Hiring talent
3. Obtaining financing
THE FILIPINO ENTREPRENEUR

Filipinos do have a flair for business, judging from data from the Department of Trade and Industry.
According to the DTI, 99.6 percent of registered businesses in the Philippines are micro, small and medium enterprises
(MSMEs) and these provide 63.2 percent of total jobs in the country.

Extraordinary business leaders leave their mark when they create brands that shape the lives of consumers. For
its 10th anniversary issue, Entrepreneur Philippines puts the spotlight on top 5 successful entrepreneurs in the
Philippines who are not only known for raking in the big bucks, but as game-changers who influence, innovate and
inspire.

1. Henry Sy
He's the retail giant behind the SM Group of Companies and is also among Forbes.com's
billionaire list with American bigwigs like publishing tycoon William Hearst III, hotelier
Richard Mariott, and media mogul Oprah Winfrey. The richest man in the country credits
his success to "hard work, tenacity, frugality, self-discipline, Confucian values, and an
undying thirst for learning," according to Entrepreneur. "I don't give up on things easily,"
the 85-year-old says. "I look for solutions to problems. I want to make things happen."

2. Lucio Tan
For many years, Lucio Tan's many business endeavors has made him the second-biggest taxpayer in
the country. Tan built multiple empires in a number of industries--airline, banking, tobacco, liquor,
and real estate--but surprisingly, the Chinese businessman’s lifelong dream was to be a scientist. "I
was part of a poor immigrant family, so I had to work harder than everyone," Tan tells Entrepreneur.
"Perhaps I was really destined to be an entrepreneur, although up to now, my childhood dream of
studying science continues to fascinate me to no end."

3. John Gokongwei Jr.

John Gokongwei’s rags-to-riches story is one of the most inspiring tales in the local business scene.
His humble beginnings more than 60 years ago include selling soap on his bike and peddling goods
in Cebu. Today, he's the chairman and founder of JG Summit Holdings, one of the biggest
conglomerates in the country. "You have to save money instead of spending all of it," Gokongwei
tells Entrepreneur. "Look for areas [where] you can compete in. Work damn hard. Most
importantly, you have to love it."
4. Andrew Tan
Tan has yet to open the grocery store he dreamed of as a kid, but as the CEO of real estate
giant Megaworld, he can "build one every week" if he wants to, says Entrepreneur. Tan’s
Megaworld Properties and Holdings is currently estimated at P30 billion, and its affiliate-
-Empire East Landholdings--is considered one of the leaders in the property sector. His
first business venture, the Consolidated Distillers of the Far East, is the third biggest
distillery in Manila. "Most entrepreneurs are good salesmen," says this accounting grad
who graduated magna cumlaude. "But a good salesman, who is also good at numbers
could also become a good entrepreneur."

5. Tony Tan Caktiong

The chairman and CEO of Jollibee Food Corporation tells Entrepreneur that the country’s
largest fast food chain started with just two ice cream parlors in 1975. Today, the Jollibee
group has grown to include Chowking, Greenwich, Red Ribbon, and Delifrance (the sale of
which will be completed within the year), and has expanded abroad. Soon, the group will also
own 70 percent of Mang Inasal. Caktiong says, "The secret of Jollibee’s success is sharing.
We share our success with people; we give good compensation; we share any honor that
comes our way."

THINK

Research at least 3 entrepreneurs which stories inspire you. Know their stories and
make your own reflection.
TYPES OF BUSINESS STRUCTURES
The type of business structure you choose determines many components of your business, including day-to-day
operations, how much you pay in taxes, and the paperwork you must file. You should choose a business structure that
gives you the right balance of benefits and protection.

Each type of small business structure treats tax liability differently. Some businesses are taxed at the personal
income level or are double-taxed at both the business and personal income levels. Read on to learn the various types of
business structures to see which is the best fit for your small business.

SOLE PROPRIETORSHIP

The most common business structure type is a sole proprietorship. A sole proprietorship is owned and operated
by one person, a sole proprietor. A sole proprietorship is a good option if you are looking to have complete control of your
business.

Sole proprietorships do not produce a separate business entity. Your business assets and liabilities are not separate. Sole
proprietors include both their business expenses and personal income on their personal tax return.

Sole proprietors are liable for the business’s liabilities, debt, and losses. If your business goes into debt, your personal
assets may be at risk.
PARTNERSHIPS

A partnership is a business that two or more individuals own and operate together. Partnerships can be considered
either general partnerships or limited partnerships.

General Partnership

A general partnership is owned by two or more people. In general partnerships, the partners manage the business
and assume responsibility for the partnership’s debts. Partners have equal shares of all profits and losses.

General partnerships allow partners to work as co-owners. Consider creating a partnership agreement to lay out
the specific shares for each partner if you plan on starting a general partnership.

Profits in general partnerships are only taxed at the personal income level.

Limited Partnership

A limited partnership has both general and limited partners. You need at least one general and one limited partner
to start a limited partnership.

Limited partners only serve as investors for the business and typically have no business decision rights. General
partners own and operate the business while assuming liabilities for the partnership. As a general partner, you have
control and responsibility. Limited partners get ownership without taking on the responsibility and risks.
CORPORATION

A corporation, or C Corp, is separate from its owners. Laws treat corporations as independent legal entities.

Corporations provide you with the strongest protection from personal liability. However, corporations are more
complicated than other business structures. A corporation structure is a good option if you plan to expand your business
and add shareholders.

Corporations require extensive recordkeeping and reporting. You are required to comply with more regulations
and tax requirements.

Corporations are double-taxed. Double taxation occurs when you pay income taxes twice on the same source of
earned income. In the case of corporations, the company is taxed as a business entity and each shareholder’s personal
income is taxed.

COOPERATIVE

Cooperatives are people-centred enterprises owned, controlled and run by and for their members to realize their
common economic, social, and cultural needs and aspirations.

Cooperatives bring people together in a democratic and equal way. Whether the members are the customers,
employees, users or residents, cooperatives are democratically managed by the 'one member, one vote' rule. Members
share equal voting rights regardless of the amount of capital they put into the enterprise.

As businesses driven by values, not just profit, cooperatives share internationally agreed principles and act
together to build a better world through cooperation. Putting fairness, equality and social justice at the heart of the
enterprise, cooperatives around the world are allowing people to work together to create sustainable enterprises that
generate long-term jobs and prosperity.
 Cooperatives allow people to take control of their economic future and, because they are not owned by
shareholders, the economic and social benefits of their activity stay in the communities where they are established. Profits
generated are either reinvested in the enterprise or returned to the members.

When selecting a business structure, be sure to choose the one that provides the most benefits and is the best
structure for small business.

Consider these factors when choosing your business structure type:

Legal liability, Taxes, Cost, Flexibility, Your business’s future needs

After you decide on your business structure, check out your state’s website to set up and register your small
business. Consider contacting a small business lawyer or professional to help you get started.

THINK

Cite examples of local businesses in your community for each business type.
ISSUES AND CHALLENGES FACING THE FILIPINO ENTREPRENEUR
“It is widely accepted that small and medium enterprises play a very important and significant role in the economic
and social development of a country”. This is an acknowledgment by the Philippine government itself, through the
Department of Trade and Industry (DTI) in its 2004-2010 SME Development Plan.

Indeed, SMEs (small and medium enterprises, which also encompasses micro enterprises) have an overwhelming
presence in the Philippine economy. Medium enterprises, as defined by the SMED Council, are those with total assets
(excluding land) of P15M to P100M, or not less than 200 employees. Small enterprises are those with total assets
(excluding land) of P3M to P15M, with 10 to 99 employees. Micro enterprises are those with total assets (excluding land)
of P3M or less, with 1 to 9 employees.

The report indicates that in 2001, over 99.7% of all firms are SMEs, which also accounts for 69.1% of employment.
Micro enterprises comprise 91.7% of all firms and has an employment share 35%. In terms of enterprises share, small
enterprises come second (7.6%), followed by medium enterprises (0.4%) and large enterprises (0.3%). In terms of
employment, large enterprises come second (31%), followed by small enterprises (24%) and medium enterprises (7%).
These figures confirm, according to the report, the “increased importance” of micro and small enterprises.

INVESTMENTS, INTEREST, and FINANCING

What Is an Investment?

An investment is an asset or item acquired with

the goal of generating income or appreciation.
Appreciation refers to an increase in the value of an
asset over time. When an individual purchases a good as
an investment, the intent is not to consume the good
but rather to use it in the future to create wealth. An
investment always concerns the outlay of some asset
today—tim e, money, or effort—in hopes of a greater
payoff in the future than what was originally put in.

For example, an investor may purchase a monetary

asset now with the idea that the asset will provide
income in the future or will later be sold at a higher price for a profit.

The act of investing has the goal of generating income and increasing value over time. An investment can refer to
any mechanism used for generating future income. This includes the purchase of bonds, stocks, or real estate property,
among other examples. Additionally, purchasing a property that can be used to produce goods can be considered an
investment.

In general, any action that is taken in the hopes of raising future revenue can also be considered an investment. For
example, when choosing to pursue additional education, the goal is often to increase knowledge and improve skills (in the
hopes of ultimately producing more income).

What is an interest?

Interest is the monetary charge for the privilege of borrowing money, typically expressed as an annual percentage
rate (APR). Interest is the amount of money a lender or financial institution receives for lending out money. Interest can
also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage.

Two main types of interest can be applied to loans—simple and

compound. Simple interest is a set rate on the principle originally lent to the
borrower that the borrower has to pay for the ability to use the money.
Compound interest is interest on both the principle and the comp ounding
interest paid on that loan. The latter of the two types of interest is the most
common.

What is Financing?

Financing is the process of providing funds for business

activities, making purchases, or investing. Financial institutions, such
as banks, are in the business of providing capital to businesses,
consumers, and investors to help them achieve their goals. The use
of financing is vital in any economic system, as it allows companies
to purchase products out of their immediate reach.

Put differently, financing is a way to leverage the time value of

money (TVM) to put future expected money flows to use for projects started today. Financing also takes advantage of the
fact that some individuals in an economy will have a surplus of money that they wish to put to work to generate returns,
while others demand money to undertake investment (also with the hope of generating returns), creating a market for
money.
RENT

In simple words, ‘rent’ is used as a part of the produce which is paid to the owner of land for the use of his goods
and services.

But, in economics, rent has been differently defined from time to time.

Thus rent refers only to make payments for factors of production which are in imperfectly elastic supply. For
instance, it is the price paid for the use of land.

Economic rent is also termed as surplus as it is received by landlord without any effort. Prof. Bounding termed it
as “Economic Surplus.” Moreover, modern economists comprising of Mrs. Joan Robinson, Boulding etc. opined that part
of the income of each factor can be rent.

Income alone received by land cannot be rent. It is so because different factors have different uses. As such, each
factor will be used for that purpose in which its income is maximum. Opportunity cost of a factor for its use in the work
yielding maximum income is the price of output that the factor concerned can earn by working in next alternative use.

MINIMUM WAGES

A minimum wage is the lowest wage per hour that a worker may be paid, as mandated by federal law. It is a legally
mandated price floor on hourly wages, below which non-exempt workers may not be offered or accept a job.

Minimum wage laws were first introduced in Australia and New Zealand in an attempt to raise the income of
unskilled workers.1 Nowadays, most modern developed economies, as well as many underdeveloped economies, enforce
a national minimum wage. Exceptions include Sweden, Norway, and Singapore.

Although minimum wage laws are in effect in many jurisdictions, differences of opinion exist about the benefits
and drawbacks of a minimum wage. Supporters of the minimum wage say it increases the standard of living of workers,
reduces poverty, reduces inequality, and boosts morale. In contrast, opponents of the minimum wage say it increases
poverty, increases unemployment because some low-wage workers "will be unable to find work...[and] will be pushed
into the ranks of the unemployed"

The Department of Labor and Employment (DOLE) and its affiliate agency, the National Wages and Productivity
Commission (NWPC), are mandated to enforce the provisions of the Labor Code of the Philippines – which prescribes
employment regulations and labor laws for companies operating in the Philippines.

Minimum wage rates in the Philippines vary in every region, with a Regional Tripartite Wages and Productivity
Board (RTWPB) in each of them to monitor economic activities and adjust minimum wages based on the region’s growth
rate, unemployment rate, and other factors. In early 2018, NWPC released an updated summary of regional daily minimum
wage rates to serve as a guide for employers on the minimum daily amount legally required for them to pay their
employees.

Source: Department of Labor and Employment as of January 07, 2021

REGION MWR (PHP)

NCR 500.00 - 537.00

CAR 340.00 - 350.00

REGION I 282.00 - 340.00

REGION II 345.00 - 370.00

REGION III 304.00 - 420.00

REGION IV-A 303.00 - 400.00

REGION IV-B 294.00 - 320.00

REGION V 310.00

REGION VI 310.00 - 395.00

REGION VII 351.00 - 404.00

REGION VIII 295.00 - 325.00

REGION IX 303.00 - 316.00

REGION X 331.00 - 365.00

REGION XI 381.00 - 396.00

REGION XII 315.00 - 336.00

REGION XIII 320.00

BARMM 290.00 - 325.00

TAXES

Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity—whether
local, regional or national—in order to finance government activities. In economics, taxes fall on whomever pays the
burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business's goods.

To help fund public works and

services—and to build and maintain the
infrastructures used in a country—the
government usually taxes its individual and
corporate residents. The tax collected is used
for the betterment of the economy and all
living in it. In the U.S. and many other countries
in the world, taxes are applied to some form of
money received by a taxpayer. The money
could be income earned from salary, capital
gains from investment appreciation, dividends
received as additional income, payment made for goods and services, etc.

A percentage of the taxpayer’s earnings or money is taken and remitted to the government. Payment of taxes at
rates levied by the state is compulsory, and tax evasion—the deliberate failure to pay one's full tax liabilities—is punishable
by law.

Community Tax - It is under section 1, of Commonwealth Act No. 465. Every inhabitant of the Philippines over 18 year of
age who has been regularly employed for at least 30 consecutive days must pay an annual residence tax issued by the
local government. This tax depends on the income of the individual.

Property Tax – is imposed on persons with real properties whether acquired, instead, or donated based on their market
value. Ex. Real estate tax.

Value Added Tax- is imposed on the value of the products and services consumed by the individuals

Tariff or Import Duty Tax- which is imposed on imported products

Income Tax – is levied on all citizens and companies that have an income. The tax withheld is the amount of money
deducted from the monthly income of individuals.

Value Added Tax (VAT)- Is a tax placed on the value of the product at each stage of production. For example, a fish sold
in the market has no VAT. If it is manufactured sardines or smoked fish, VAT is levied at every step of the production
process.

THINK

How do you feel about the tax system in the Philippines? What do you think could
be improved on the system? How do you propose to improve it?
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