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Cost of Regulatory Compliance for Small and Medium Enterprises in the Philippines

It is widely recognized that small and medium enterprises (SMEs) are key drivers of the Philippine economy through their direct contributions to employment, value-added, exports, and entrepreneurial activities. SMEs also play a role in the industrial process and the inclusive development agenda, among others. This study presents detailed profiling of small businesses in the Philippines using data from 590 SMEs in Metro Manila, Metro Cebu, and Metro Davao gathered in 2019. Business characteristics of SMEs in the survey in terms of ownership structure, asset size, and employment are among the key profiles presented. Also revealed in this paper are some behavioral indicators highlighting the perceived burden of national and local regulatory compliance of SMEs. The indicators of regulatory burden are expressed in terms of the number of hours and the percentage of expenditure on regulatory compliance. It is essential to balance adherence to regulations while encouraging firm growth. While regulations are important to promote the welfare of SMEs, policies must be engineered in a way that does the least harm and brings the most benefit to SMEs. With the sudden and prolonged shock brought by the pandemic, issues concerning the burden of compliance cost to SMEs require more careful attention than before. Discussions on evidence-based policy recommendations must be geared towards the objective of facilitating SME growth and post-pandemic recovery.