PIDS study finds fully automated business permitting boosts local tax revenues

Cities with fully automated business permitting systems recorded stronger growth in local business tax revenue than cities that had not fully automated their permitting processes, according to a new study by the Philippine Institute for Development Studies (PIDS).

The study, titled “Relevance of e-Governance in Revenue Generation among Philippine Cities,” found that cities with fully automated Business Permits and Licensing Systems (BPLS) were associated with an 18.16-percentage-point increase in local business tax (LBT) revenue growth compared with cities that had not fully automated their permitting processes.

These cities also recorded higher levels of active business establishments, suggesting that streamlined digital services can encourage business formation and expansion.

Authored by PIDS supervising research specialist Tatum Ramos and Vice President Marife Ballesteros, the study examined data from 138 cities to determine whether digitalizing business permitting contributes to improved local revenue generation and economic activity. 

Digital permitting allows businesses to apply for permits online, pay through banks and e-wallets, receive electronic official receipts, and, in some cases, obtain permits electronically or through courier delivery.

The study cites Caloocan, Makati, Quezon City, and Valenzuela as examples of local governments that have adopted these features, reducing the need for business owners to make repeated trips to city halls.

The researchers said these systems improve tax administration by enabling faster processing, better data management, and more efficient revenue collection, while making compliance easier for businesses.

Despite these gains, the study identified several obstacles to digital transformation, including inadequate ICT infrastructure, funding constraints, shortages of personnel with advanced technical expertise, resistance to organizational change, and the continued preference of some taxpayers for face-to-face transactions.

“The lack of ICT infrastructure is a key problem since this impedes the use of digital technologies at the organizational level and the general public,” the authors said.

The study also found that stronger internet capability significantly increases the likelihood that a city will have a fully automated BPLS.

Yet despite widespread computer ownership and internet access among formal sector establishments, adoption of online government services remains limited.

In 2021, while 90.83 percent of establishments used computers and communication equipment and 80.96 percent had internet access, only 38.39 percent used the internet to make payments to government agencies.

“Not overcoming these obstacles can prevent the realization of e-Governance benefits,” the authors stressed.

Despite widespread computer ownership and internet connectivity among formal sector establishments, the use of online government services—including online payments—remains relatively low, suggesting room to increase the adoption of e-governance.

To maximize the benefits of digital business permitting, the researchers recommend expanding ICT infrastructure, strengthening technical capacity within local governments, integrating local systems with the Department of Information and Communications Technology's eLGU platform, improving interoperability across agencies, and encouraging wider use of online government services by businesses.

The study identifies the recently enacted E-Governance Act as an opportunity to accelerate digital transformation and improve coordination across national and local government systems.

“The impact of fully-automated BPLS on LGU revenue generation is becoming apparent,” the study concludes.

By investing in integrated digital systems and addressing implementation challenges, local governments can strengthen revenue generation while making it easier for businesses to comply with regulations and access government services. (PIDS)