Honeyman: The good, the bad, and the ugly (Transparency, Tax, Pilferage)

Monday, December 5, 2011

TRANSPARENCY

PNoy, unlike his predecessor, is concerned about how his presidency will be judged by posterity.

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He asks us to look at the state of the nation at the end of his term and to compare this with the state on his first day in office. Or as he puts it,

‘At the end of my term, I would like to say this is what I inherited, this is now what I leave with you.’

In July 2010, I suggested that since PNoy’s No.1 issue is corruption, then for the Philippines to climb to 100th in Transparency International’s Corruption league table by December 2015 from 134th in 2010 would denote a successful presidency.

Last Thursday, Transparency International issued its 2011 Corruption Perceptions Index. The Philippines has shown a slight but significant improvement and now ranks in 129th place. More significant perhaps is that the level of corruption is now 2.6 compared to 2.4 last year [The scale is 0-10 with 0 being highly corrupt and 10 meaning very clean].

Indonesia is now attracting the most foreign direct investments in the region. This is attributed to some success in reducing corruption and now ranks 100th. In 2003, Indonesia was deemed more corrupt than the Philippines.

Governance is the overwhelming reason behind corruption levels. We see this in the Korean Peninsula where South Korea is 43rd and prosperous whereas its neighbor, North Korea is 182nd and, for most of its unfortunate inhabitants, impoverished.

Reducing corruption is a major challenge. Customs Deputy Commissioner for Intelligence Danilo Lim, in Bacolod last week, is working with sugar industry representatives in the fight against sugar smuggling. Lim states that one of the problems is that there is collusion between smugglers and Bureau of Customs personnel.

Smuggling charges have recently been filed against a trader and two brokers for attempting to smuggle imported onions worth P3.7 million at the Port of Davao on 23 September. We trust that the justice system will effectively address the alleged misdeclaration, undervaluation and importation of agricultural products.

The livelihood of many Filipino farmers depends on it.

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Taxes

Are Finance Secretary Cesar Purisima and Revenue Commissioner Kim Henares acting beyond their range of authority? Today they are both due to appear at the House of Representatives’ Ways and Means Committee to explain a controversial memo [Memorandum Circular 40-2011 issued by the Bureau of Internal Revenue on 5 September] which requires tax payers to file a separate statement of assets, liabilities and net worth.

Purisima and Henares have allegedly failed to attend meeting of the Ways and Means Committee over the past three weeks (Henares denies this) and members threatened to charge them with contempt if they do not show up today. They are already in warm water with the Supreme Court when they ignored a TRO stating that disputed tax on the PEACe Bonds should be hold in a bank-administered escrow account.

The very visible conflicts between the Executive Branch and the theoretically co-equal Legislative and Judicial Branches are a cause for concern. From an external perspective, it looks as though the Executive Branch should try to be more cohesive with the Legislative Branch, particularly when the latter consists of elected representatives whereas Executive Branch officials are merely the hired help.

But we empathize with Kim Henares. Our tax collection rate is low and since, prudently, the government does not want to incur excessive budget deficits, our potential infrastructure projects are being delayed, particularly when the much publicized Public Private Partnership projects are not being met with overwhelming enthusiasm by the private sector.

As in many countries, the self-employed sector is accused of much tax evasion. Henares states that 1.7 million self-employed professionals and lawyers pay only a total of P9.8 billion in tax. [P5,764 per professional]. Her estimate is that the income accruing to this sector should result in a tax liability of an average of P100,000 per capita. This means that BIR should be collecting P170 billion from the self-employed sector. A consequential shortfall of P160.2 billion, indicating a tax evasion rate of 94.2% is unconscionable.

We should pay our taxes but Henares should also look at the enemy within. In many communities, the local BIR official is the one with visibly the greatest disposable income. We need to see more efforts to root out corruption inside BIR.

Henares has been creative. Perhaps unduly so. She wants to impose taxes on the benefits accruing from voluntary contributions to the social security agencies: SSS, GSIS, Pag-IBIG and PhilHealth.

This imposition is contained in Revenue Memorandum Circular 27-2011 which stresses that ‘exemption from withholding tax on compensation shall apply only to mandatory/compulsory contributions’ of the concerned employee.

It is unlikely that SSS et al will agree with the BIR ruling. We would like to see more collegiality within the government, both within the Executive Branch and between the Executive Branch, the Legislative, and the Judiciary.

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Electricity Pilferage

Visayan Electric Company (Veco) has filed a P168 million electricity pilferage case against the Waterfront Cebu City Casino Hotel Inc.

Veco’s Revenue Protection staff monitored the quantity of electricity being consumed by the Waterfront Hotel between 7 and 17 February 2011 and compared this with the quantity of electricity purchased as shown on the Hotel’s meters. According to Veco, there was a large discrepancy the meter reading showed much lower readings than the quantity of electricity actually consumed.

Veco than extended their results from 7 to 17 February 2011 back to August 2007 and deduced that the Waterfront Hotel had, allegedly due to pilferage, been underbilled by over P168 million during the period August 2007 until February 2011.

In most robberies, there are two parties involved – the robber and the robbed. We may denigrate the robber and empathize with the robbed but we are not directly involved. With electricity pilferage, we are all involved; we are all victims. This is because we all pay for pilfered electricity in the form of ‘systems losses’. The amount stolen is not trivial and makes for much of our Ceneco systems losses, currently 90 centavos per KWH. Then with a piece of creativity, atypical of civil servants, the Bureau of Inland Revenue forces us to pay Value-Added Tax on the electricity that we have not received.

This is adding insult to injury. Our systems loss cost is over P1 per KWH that we consume.

We hope the Cebu prosecutor’s office evaluates the documents it receives relating to the Waterfront Hotel pilferage allegations very carefully. Differential billing cases are not easy to resolve as they depend on circumstantial evidence.

Around ten years ago there was a similar case involving Ceneco’s allegations of pilferage at Goldenfields. At first, it seemed that the Goldenfields’ owners were not disputing Ceneco’s allegations
but later mounted a rebuttal. In the end, the case did not, as far as we recall, reach Bacolod RTC and we presume that an agreement between Goldenfields and Ceneco’s Board was eventually found.

In Cebu, Waterfront Hotel is currently playing hardball so we trust that the case will be heard.

The burden of proof is, of course, on Veco but we all hope that the Court’s deliberations will be fair and thorough.

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Post Script

At the weekend, the Newsmag Dealers Association held its annual General Assembly in Bacolod City.

Last Friday’s editorial mentioned the significance of advertisers who enable the media to disseminate objective information to the public.

Readers can rest assured that the contents of ‘An Independent View’ are unaffected by who are, and who are not, advertisers. We goodmouth the (to us) praiseworthy and we criticize the unpraiseworthy without fear or favor.

We also salute Sun.Star’s management for allowing us to write without the constraints that
some advertisers may try to impose.