Honeyman: Greed is bad

Thursday, November 3, 2011

BUREAU of Customs incoming commissioner Biazon has an impossible job. He has inherited an anarchic bureau. On his first day in post, he requested some important documents. 'Ask the janitor' was the reported pert response from a minion. If true, then the underling should be fired.

The battle against corruption is not confined to the Philippines. It is worldwide. Increasingly, there is international co-operation so that life is made more difficult for the corrupt ones.

Have something to report? Tell us in text, photos or videos.

Smugglers need the connivance of corrupt officials in order to succeed. It is not possible to smuggle a shipment of ten thousand tons of sugar without anyone noticing. The volume is too large.

So we should find out what systems and procedures are necessary to enable to eradicate smuggling. Best practices from ports of entry around the world should be adopted here. Ports I have visited internationally are characterized by a large number of containers and a small number of people. But our ports are pullulating with undesirables. Why are they there? What legitimate purpose do they have? We need overseas experts to recommend non-porous systems to make life more difficult for smugglers and those who coddle them.

***

Some years ago, through European Union funding, a retired official from Hong Kong's Independent Commission against Corruption (ICAC) was seconded to the Ombudsman's office. This official, Tony Kwok, was previously head of the ICAC's Operations Department. The ICAC has three main departments: Corruption Prevention, Community Relations, Operations. Of these, someone from the Corruption Prevention Department would be most useful here. This is because the role of this department is to examine systems, identify corruption opportunities, and to re-design the systems under examination so as to reduce corruption opportunities to a minimum.

As far as I know, Kwok has no experience in Corruption Prevention in Hong Kong and, I believe, was not responsible for an implemented systems upgrade throughout his time in the Philippines.

The Bureau of Customs (BOC) needs to bring in external expertise to combat corruption. Otherwise, nothing will change despite the strenuous efforts of BLT [the Biazon/Lim Team].

***

From time to time, the BOC issues press releases about whether or not, usually not, it is meeting its collection targets. This data is aggregated. It would be helpful if the results were itemized. For example, how much sugar has been imported in 2011 on which the 38% tariff has been paid?

It is good that SRA administrator Gina Martin has already met BOC Commissioner Biazon. Our sugar industry has been hit hard by the illicit importation of sugar. If the SRA has a good communications channel with BOC, then the latter will be better able to address the vexed problem of sugar smuggling. In addition, the BOC has announced a cell phone hotline to which whistleblowers may provide information.

The tariff on sugar imports currently 38% is due to be reduced to 28% in 2012. The incentive to smuggle, though reduced is still large enough to attract those who wish to evade lawful taxes.

***

PEACe Bonds

In 2001, the government of the day issued ten year, PEACe (Poverty Eradication and alleviation Certificates) bonds. These have just matured. A problem has arisen as to whether the bonds should, or should not, attract the 20% withholding tax. Financial institutions holding the bonds believe that they should not have to pay the tax.

I would have thought that withholding tax should be payable. After all, when we receive interest on our savings accounts, as noted in our passbooks, the next line is invariably the 20% debit with the code WTX [withholding tax]. No complaints. Those are the rules.

But, as Leonora Helmsley, New York socialite and hotel owner said long ago: 'only the little people pay taxes.' This seems to be the attitude of the financial institutions that comprise the PEACe bond holders.

The amount under dispute is around P5 billion. This represents the tax that would be payable on a gain of P25 billion. This means that, approximately, the bonds cost P10 billion when purchased, an interest rate of 12.75% compound per annum was applied over the 10 year period before the bonds reached maturity, so that the bonds are now worth around P35 billion.

The financial institutions have petitioned the Supreme Court to prevent the Treasury from withholding 20% of the proceeds. The Supreme Court has issued an injunction while it is still considering the matter.

The Court of Public Opinion notes that an interest rate of 12.75% without withholding tax is roughly equivalent to an interest rate of 16% if withholding tax were applied. 16% per annum compounded over ten years is enormous. Since the Treasury is not a 5-6 client, but represents a fiscally-sound sovereign state, the interest rate associated with the bonds is extremely high and disadvantageous to the government. We also note that the bonds were not available to the general public and, indeed, only available to a limited number of financial institutions. Hence, there are grounds for the Commission on Audit or the Ombudsman to inquire as to the precise circumstances under which the fortunate financial institutions were able to acquire the bonds in 2001.

Meanwhile, the Supreme Court could make further deliberations, recognize the big picture which is to act in the public interest, and find, 'with finality,' that the Treasury is entitled to apply the 20% withholding tax. Although Chief Justice Corona is unlikely ever to reach National Treasure status, he would find that, with a fair resolution of the PEACe bonds case, he would gain public trust and support.

In a democracy, this matters.