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A bleeding heart for the middle class

The Social Weather Survey (SWS) announced a “recovery” in October of self-rated poverty to 42% compared to September’s 45% from March’s “awesome” (according to SWS) 38% which was 12 points better than the 50% of December 2018. These are distressing statistics for bleeding hearts. There is no “improvement” in poverty. There is no “less poor” or “more poor” but only “poor.” In a deeply religious and morally demonstrative country like the Philippines, expression of empathy more than just lip-service sympathy is expected for the poor from those who have more in life.

The Brookings Institute, refining traditional estimates of the Gini Ratio by the estimated undeclared wealth of the rich, found the adjusted inequality ratio in the Philippines in 2018 to be as high as 0.6, or 60%, from the estimate of just over 0.4, or 40% in 2017, meaning the gap is six points away from equality of zero to the inequality of 10. The latest statistics on the Asian Development Bank website show that the Philippines is pathetically third among ASEAN nations, with 21.6% of the population below the poverty line, compared to the worst, Myanmar with 32.1%, and the best in control of poverty, Malaysia, with 0.4%. Based on the Commission on Population’s estimate of the country’s population of 107.19 million in 2018, some 23+ million Filipinos live below the poverty line.

How does this stand beside President Rodrigo Duterte’s vow at his assumption of office in 2016, that poverty will be eradicated by 2040? More than halfway into his term, poverty in the country is increasingly prevalent. But according to established private purveyors of social statistics, surveys show that the ever-optimistic and always-forgiving Filipinos believe Duterte’s exaggerated promise is still deliverable. In May, SWS reported that the administration of President Duterte scored a record-high +72 net satisfaction rating in the first quarter of the year. The respondents were most satisfied with the government’s efforts to help the poor. In October, SWS announced that Duterte’s net satisfaction rating remained “very good” in the third quarter despite a three-point decline to +65 during the Sept. 27-30 survey covering 1,800 adults (0.00169%) from a total population of 107 million.

The economist Paul Krugman might call it a “statistical illusion.” In his column, “The conscience of a liberal” in The New York Times on Jan. 20, 2013, Krugman doubts the value of measurements and statistics in which the cumulative effects of extended time may be mistakenly presented as segregated incremental bursts of improvements and declines. He cautions against the distortions from respondents having a good year or a bad year. And he blasts his professional rival, co-Nobel laureate economist Joseph Stiglitz, for the “morality tale” — as Krugman derogatorily brands it — that “inequality is a big factor in (economic) recovery.”

Is it a “morality tale,” this over-concern for the trickle-down and inclusion of the lowest denizens of society in economic progress? It does seem opportunistic in socio-politics to mouth and emote concerns for the poor. In the US, Republicans and Democrats have branded themselves conservatives and liberals respectively, with the former more inclined towards economic growth, today spurred by supply-side policies, government priming, and fiscal incentives to big business, and the latter pitching for the “soft” products of social and economic reforms that will have future benefits for society. Thus, the derogatory name-calling (by those opposed) of politicians and economists who dream and do for the less-privileged in society as “bleeding hearts.”

But in the Philippines, like in most developing countries, the bleeding heart for the poor must throb in cadence with the stressful palpitations for rapid economic growth in the race with global competition. We observe with mixed amazement and worry how our leaders must mouth concern for the poor, the unemployed, the underemployed, as small tax breaks are doled to low-income earners while big businesses rake in lower-taxed double-digit profits. How much of the money of the rich is even saved, or reinvested for the recycling of money that will trickle down to the poor in the long run?

“In the long run, we shall all be dead,” economist John Maynard Keynes famously said in the regrouping and rehabilitation after the world wars of the last century. That was said in the urgency of the times. But that was at least 75 years ago, yet the compromises for recovery with heightened laissez-faire capitalism thrive today in the pernicious competition that favors those who have the capital to compete — the rich. And that is the obvious reason why income inequality is widening in the world today, even in America, probably the most democratic of all economies.

The Huffington Post in January 2013 (at the time of the world financial crisis) analyzed the debate between Krugman and Stiglitz on why income inequality is slowing economic growth. Krugman accused Stiglitz of a faulty “underconsumption” hypothesis, basically that the rich spend too little of their income. Stiglitz disregarded Krugman’s accusation of him as a bleeding heart for the poor against the rich, and focused instead on the middle class, saying that “America’s middle class is too weak to support the kind of consumer spending required for a robust recovery, the middle class is too weak to invest in its future, the weak middle class means a smaller tax base and income inequality causes more intense boom and bust cycles.”

“Theories of economic growth, however, do not typically include models for investigating the implications of changes in the strength of the middle class,” economists Heather Boushey and Adam Hersh posted on americanprogress.org in May, 2012. They noted that in between 1979 and 2007, income growth stalled for the middle class while the incomes of those at the top continued to rise dramatically compared to the rest of the working population. Thus consumption, which is mostly from the middle class, declined and so did economic growth.

A 2015 Rappler analysis quoted the Asian Development Bank (ADB) definition of the regular middle class as “those with incomes between four to 10 times the poverty line (which, on average, is P6,312 to P15,779 pesos per person in 2012 prices). For a household of five persons (which is the average family size in the country), the household is thus considered middle class if its total monthly family income ranges around P30,000 to P80,000.” The Philippine Statistics Office estimates that in 2012, the middle class comprised about 3.6 million households, or three out of every 20 households.

There is also the lower middle income class, those with incomes are between twice the poverty line and four times the poverty line; and the upper middle income: those with incomes between 10 to 15 times the poverty line. If we were to aggregate the middle-middle class with the lower middle and upper middle classes, this combined group would be about nine of 20 families (45.1% in 2006, 44.6% in 2009, and 45.8% in 2012). The total share of their incomes of these three groups is about two thirds of the country’s household income (65.1% in 2006, 64.7% in 2009, and 65.6% in 2012), the ADB study said. Though these figures are not current, this is certainly a clear indication of how much the middle class can do to boost consumption and drive economic growth.

A bleeding heart for the middle class is needed. The government must nurture the middle class as a major driver to the achievement of its economic goals by providing an environment of opportunities to this sector, more than “partnering” at dubious costs and accommodations to the already-rich. President Duterte defined his Ambisyon Natin 2040: “By 2040, the Philippines shall be a prosperous, predominantly middle class society where no one is poor; our peoples shall live long and healthy lives, be smart and innovative; and shall live in a high trust society.”

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

In sickness and in health

By Tony Samson

THESE are the words fervently and publicly proclaimed in marriage vows. They promise steadfastness in times of tribulations brought on by failing health (you forgot your walking stick, Hon).

This same devotion is not proffered to leaders undergoing health problems. Not that even in marriage, especially late, is this vow always observed. After all, the state of well-being is not confined to the physical, but the fiscal as well.

Corporate chiefs as they advance in age without any succession plan in place and hanging on beyond retirement age are constantly observed for failing mental faculties. Instructions are contradictory and given to different executives. Speech patterns are stretched with long pauses where the verb eagles looking for a direct object, as the sound of coffee being dipped around the table become noticeable — somebody please complete the sentence. Outbursts of temper are frequent.

What happens to the organization with an ailing chief who thinks he’s still in good health and capable of carrying on?

The designated gatekeeper assumes unusual powers when petitioners want to see the chief — sorry he’s taking a nap. The gatekeeper may or may not actually clear requests for appointments and memos for signing with the chief.

Power groups form in this power vacuum. This may entail those not even in the Organization chart like family members and romantic attachments. They use proxies to make their moves, usually appointments to top positions and bully the gatekeeper — can you have the chief sign this short memo?

Appointments and public appearances are abruptly cancelled with a curt note to organisers of events — he needs to take a nap. His representative will read the speech he wrote for him. No other explanation is forthcoming.

Nobody is really in charge and major decisions are put on hold, until the situation is more stable. Banks and stockholders are particularly concerned about this management risk.

Doctors become constant companions and may also be pressed to pass on items for signature — Sir, you’re just supposed to sign this document that your blood pressure is through the roof.

Of course, nature can take its course to relieve the corporate situation. Full page ads are taken and tributes showered on the chief “who worked through the end” and died with his boots on.

Then, the whole unstable process continues until a new chief is designated, preferably much younger and in good health (he just completed the marathon in Berlin). By then, it is the company that may have health issues, definitely of the fiscal variety.

Sickness and health for the chief also affect nations. In those cases, it is the subject of media speculation, fake news, and inside information. Anyway for that situation, there is a succession process in place… but not always devoid of conspiracy theories and some surprises.

 

Tony Samson is Chairman and CEO, TOUCH xda.

ar.samson@yahoo.com

Photos cluttering up your phone? You may be an artist

By Leonid Bershidsky

AS SMARTPHONE CAMERAS continue to improve, we are understandably taking more and more photos with them. Priceonomics, a San Francisco-based firm that analyzes data to create content, attempted to figure just how many more.

Using data from Avast, a company that makes antivirus and maintenance software, it found that the average number of photos stored on a smartphone anywhere in the world is 952. Five years ago, a study based on data from another app developer, Magisto, put the average number at 630. Though the large datasets used in both cases are not directly comparable, it’s likely that they accurately capture how much more we’re photographing with our phones. They also reveal the same trends — for example, more photos taken in certain Asian countries than elsewhere, and more pictures snapped by women than men.

Is this increase in snapping and storing good for us, though? That depends on how we use that camera.

In 2013, Linda Henkel, a psychologist from Fairfield University in Connecticut, described a “photo-taking-impairment effect.” People told to walk around a museum photographing some objects and merely looking at others turned out to have clearer memories of the exhibits they hadn’t snapped. Other studies with different experimental setups have confirmed the existence of this effect.

An early theory explaining the impairment effect held that people forget things they photograph because they, consciously or unconsciously, want to get rid of unnecessary information they’d otherwise keep in their heads. “Cognitive offloading,” researchers named it. Two years ago, Julia Soares and Benjamin Storm from the University of California at Santa Cruz, found that the impairment effect is present even when people use an ephemeral messaging app such as Snapchat to take a photo, or when they’re told to delete the image manually. This suggested that memories aren’t simply offloaded, they’re merely dimmed when we put a camera between ourselves and an experience.

It gets even more complicated. The work of Alixandra Barasch from New York University, Kristin Diehl at the University of Southern California and Jackie Silverman at the University of Pennsylvania has shown that taking pictures tends to aid recall when people consciously look for specific details or aspects to photograph. They called this “volitional photo taking.” This doesn’t actually contradict Henkel’s work: She, too, found that people in her museum experiment tended to remember better when they zoomed in on specific details.

Thus, the question of whether the phone is a memory aid or a trash can for unwanted memories hinges on our level of engagement. We can behave somewhat like professional photographers, looking for the best angle, an interesting detail, an object among many that we want to bring back from an exhibition. Or we can just click that button indiscriminately. Soares of California-Santa Cruz, who found that Snapchat photos are forgotten as fast as the ones that remain stored, referred to the latter practice as “attentional disengagement.” Stepping away from a scene to take a picture, and thus losing touch with it, creates a false familiarity with the subject and makes us less likely to make an effort to remember it.

In another series of experiments, Barasch and Diehl, along with Gal Zauberman from Yale University, discovered that taking pictures tends to make any activity — from a bus tour to an ordinary lunch — more fun when it increases engagement with the experience rather than interferes with it or adds a new element to what’s already highly engaging. And, in a separate paper, they showed that the intention to share photos can detract from the enjoyment because it “increases self-presentational concern during the experience.”

Notably, all this science is consistent with the finding by a group of UK researchers that selfie-taking is positively correlated with smartphone dependency and anxiety. In addition, people who are less phone-dependent tend to take more photographs of nature. Those people also tend to be older. And, interestingly, somewhat older users, according to the Avast data, tend to store more photos on their phones than the youngest people. The average number of pictures on the phone of a person aged 18 through 24 is 836; a person between 25 and 34 keeps 1,067 of them.

Priceonomics offers a plausible explanation: The youngest people are more likely to use ephemeral messaging apps that don’t save photos by default. That means they take more photos with the purpose of sharing them. It also likely means more selfies, which are used as a means of visual conversation, and other low-engagement pictures. Snap, send, forget.

The higher accumulation of photos cluttering the memory of the phones of relatively older age groups isn’t necessarily a problem. Often, these pictures are taken in contemplation, as a way to study something closer, take in and remember more details. Then, the snapping habit isn’t just benign — it’s a private form of art, not necessarily shared with anyone. And even if we never return to our photo galleries, the intimacy of the contact we once established with our subjects can stay with us.

 

BLOOMBERG OPINION

BPOs seeking ways to maintain NCR footprint

By Jenina P. Ibañez

THE Information Technology and Business Process Association of the Philippines (IBPAP) is in talks with Metro Manila mayors to find ways to continue building outsourcing centers in the capital despite a national government suspension of economic zone approvals intended to divert the industry to the countryside.

In an interview Monday, IBPAP president and chief executive officer Rey C. Untal said IBPAP and representatives from organizations like the Makati Business Club met with Manila Mayor Francisco Moreno Domagoso to discuss the possibility of encouraging BPO firms to locate in the city.

“We are pushing for initiatives that are very targeted at the LGU (local government unit) level,” he said.

He said that Mr. Domagoso extended an invitation and offered incentives to the sector to increase its presence in the City of Manila, noting that the city currently only has one or two BPO facilities that are certified by the Philippine Economic Zone Authority.

“That’s strange considering Manila is where many of the graduates are produced. There’s a lot of universities there — their graduates are working in other cities” he said.

He said that the Business Process Outsourcing (BPO) industry is looking at developers’ plans to build townships or mixed-use developments of several hectares of land to be repurposed.

Mr. Untal said the ideal situation would be for BPOs to support the development the areas surrounding the office areas, with entertainment, retail, and food establishments growing as an “ecosystem.”

Last month, Mr. Untal said that he was meeting with Metro Manila mayors to seek ways to mitigate Administrative Order No. 18 from Malacañang, which imposes a moratorium on ecozone approvals to encourage BPOs to set up shop in the provinces.

The industry, which depends on ecozones for incentives that support its business model, has expressed support for the national government’s intent to divert growth in the countryside, but pointed to possible job losses during the transition period.

Mr. Untal has also met with Quezon City Mayor Maria Josefina G. Belmonte to discuss stronger links between academic institutions and the industry.

IBPAP is also working with Muntinlupa City on an upskilling partnership to make BPO jobs available to locals, and is setting up meetings with the cities of Makati and Pasig.

When asked if the industry is looking to expand further outside of Metro Manila, he said its efforts have been “aggressive.”

“The IT-BPM industry I think is one of those industries that has been quite aggressive in growing outside of Metro Manila,” Mr. Untal said, adding that there are almost 300,000 Information Technology and Business Process Management (IT-BPM) employees in 23 provinces outside of the National Capital Region.

Hog growers claim lost revenue of P10 billion since ASF outbreak

THE HOG INDUSTRY is claiming lost revenue of about P10 billion two months after the emergence of African Swine Fever (ASF) on farms in Luzon, the Samahang Industriya ng Agrikultura (SINAG) said.

SINAG also urged the government to charge the importers of two containers of allegedly infected meat products from China, which has been battling the virus for over a year now. The products were reported to be “misdeclared” and were seized at the Port of Manila.

“The industry has lost P10 billion in the past two months,” SINAG said in a statement.

In a text message, SINAG Executive Director Jayson H. Cainglet said that the average farmgate price of pork has declined to P70-80 per kilo for backyard growers, while commercial growers could command P90 per kilo as of the third week of October.

“We urge authorities na kasuhan kaagad ang (to immediately file charges against the) consignee and the people in government who are in cahoots with them, if any,” it added.

SINAG said Republic Act No. 10845, or the Anti-Agricultural Smuggling Act of 2016, defines large-scale agricultural smuggling as economic sabotage.

The two containers were declared as tomato paste and vermicelli, but were later discovered to be containing pork products like dimsum, dumplings, minced meat, and others.

Since 2018, the government has banned entry of pork and pork products from countries infected by the virus, which include China, Belgium, Bulgaria, Cambodia, Czech Republic, Hungary, North Korea, Laos, Moldova, Mongola, Myanmar, Poland, Germany, and South Africa.

The pig cull currently totals 52,000 hogs across Luzon, about 17,000 of which were confirmed to be ASF-infected and the remainder killed as a precaution. — Vincent Mariel P. Galang

DoST signs marine transport research tie-up in W. Visayas

THE DEPARTMENT of Science and Technology (DoST) has tied up with universities in the Western Visayas to develop modern seagoing vessels that meet international safety standards.

The DoST signed the memorandum of understanding (MoU) last week with the University of the Philippines Visayas (UPV), Northern Iloilo Polytechnic State College (NIPSC), Iloilo State College of Fisheries (ISCoF), University of Antique (UA), Aklan State University (ASU), and Guimaras State College (GSC), along with Metallica Shipyard.

The MoU formalizes the establishment of the Western Visayas Marine Transport Research and Development Network, which will also come up with a long-term research program for marine transportation.

DoST-Region 6 Director Rowen S. Gelonga said the department is positioning the Western Visayas to become the hub for marine transport research and development.

“We are very serious in addressing the modernization constraints to our shipping sector,” he said.

Within the informal network, the institutions and DoST-6 have been developing three new boat designs.

One currently being developed by ASU is a 150-seater hybrid trimaran, which will harness the ocean’s wave energy.

It will also be a roll-on/roll-off commercial vessel that can carry four vehicles.

Mr. Gelonga said a prototype of the vessel is being fabricated and is targeted for sea trials by April.

“(It’s an) experimental vessel, we are still not sure if we can generate profit, or power from ocean energy, but essentially we are exploring that possibility,” he said.

Following the ferry losses on the Iloilo Strait in early August, when three traditional outrigger motorboats capsized and 31 people died, the DoST has been working with GSC and a private institution develop an alternative to the wooden-hulled bancas plying the Iloilo-Guimaras route.

“The 60-seater modern passenger vessel would present an alternative to wooden-hulled bancas. Research is currently ongoing but we plan to present it once finished to the government of Guimaras,” Mr. Gelonga said.

A third project, involving NIPSC, aims to provide a safer and more durable vessel to fishermen.

“It is ironic that we supply a majority of seafarers and we are an archipelagic country yet wala kita sang (we don’t have a) viable shipping sector. But we have the talent, especially in fabricating our ships. That is why we are coming up with a very aggressive research program in Western Visayas,” he said. — Emme Rose S. Santiagudo

Next head of Asian Development Bank backs UHC, free university as inclusive measures

THE NEXT PRESIDENT of the Asian Development Bank (ADB) has told Philippine officials that he supports Manila’s attempts to expand social inclusion through universal health care (UHC) and free state university education.

In a meeting with Finance Secretary Carlos G. Dominguez III in mid-October in Washington, DC, Masatsugu Asakawa the former Special Advisor to the Japanese Prime Minister and Tokyo’s nominee to head the ADB, described the UHC program and free tertiary education at state universities and colleges as “really good” initiatives for social inclusion.

Mr. Asakawa was quoted as saying in a DoF statement that he is planning to expand social inclusion in his capacity as ADB head through improved education and health care across the region as well as developing a universal framework for a global e-commerce tax system.

“Securing high quality jobs for people could be a better instrument than transfer of money. So ‘social inclusion,’ which means providing more education, securing more health care to let them have better jobs is really important. So far ADB has done something but I would like to expand the conversation as well,” Mr. Asakawa was quoted as saying.

He said that a universal framework is important in taxing multinational companies “profiting from the highly lucrative electronic trade of goods in the global marketplace.”

He said there are “radical and innovative” proposals involving taxing such companies that derive a certain percentage of their earnings from e-commerce and sharing the proceeds with countries where the goods are traded.

Meanwhile, Mr. Dominguez also reiterated his desire for “closer coordination” between the ADB and World Bank to avoid duplication of efforts in extending assistance to countries.

“We want to continue that effort to make sure that cooperation and coordination between the two institutions are not duplicated,” he said. — Beatrice M. Laforga

Fisheries in national security spotlight as Esperon targets industry’s health

THE national security establishment has turned its attention to propping up the fisheries industry with a target of continuing the sector’s current growth track of about one percent a year.

National Security Adviser Hermogenes C. Esperon, Jr. said the initiative is part of efforts to build a “blue economy” around better fisheries management which seeks to reverse years of negative growth.

“Now that we have 24 managed fishery areas, if we can take care of that and if we have good fishing volumes from the locals and as well as the other groups, our fisheries industry will improve,” he told BusinessWorld.

“We are aiming for another, if it was positive last year by 1%, probably another 1% for this year then another year 1% then another year. Malaking bagay yun (That would be a big development).”

According to the Philippine Statistics Authority (PSA), the fisheries industry’s output rose 0.92% in 2018 to 4.35 million metric tons.

Mr. Esperon announced Friday that the government will soon release an updated version of the 25-year-old National Marine Policy (NMP). One of the major focuses under the updated NMP will the development of marine resources, including improving fisheries, canneries, shipbuilding, and tourism, among other industries.

He added that one of the strategies for growing the fisheries industry is developing a chain of cold storage centers. “We will be able to develop cold storage all over. Kasi ang limitation sa fishermen natin ngayon (Because the constraint on our fishermen) is their catch cannot immediately absorbed by the market, so we will need cold storage.”

Last week during a briefing in Malacañang, Mr. Esperon valued the fisheries industry’s potential at least P70 billion. He added that the government is also intent on addressing issues that destroy livelihoods, such as overfishing and cyanide fishing.

The National Marine Summit runs to Oct. 30 and will discuss the administrations goals in defending national patrimony and utilizing marine wealth. In relation to fishing, Mr. Esperon said the government is looking to declare a number of marine protected areas.

Mr. Esperon said shipbuilding also has the potential to contribute more to the economy. He added that the Philippine market can be larger than Singapore, which is currently one of the leading shipbuilding industries worldwide despite not having a large land or water territory. — Gillian M. Cortez

CTA upholds PAL refund on 2008 jet fuel imports

THE COURT of Tax Appeals (CTA) has upheld a P302-million tax refund granted to Philippine Airlines Corp. (PAL) in connection with its jet fuel imports in late 2008.

In a five-page resolution on Oct. 16, the court, sitting en banc, affirmed its May 10 ruling and denied the motions for reconsideration of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC) over the tax refund granted to the airline.

“This Court is categorical in the assailed Decision that there is no cogent reason to depart from the Court in Division’s ruling that PAL was able to comply with all the requisites under Section 13 of Presidential Decree No. 1590 for it to be exempted from excise tax on its importations of Jet A-1 fuel used for its domestic operations as the conclusion reached by the Court in Division is supported by evidence,” the court said.

It also said that the court in division “squarely discussed PAL’s compliance with requisites under PD 1590, PAL’s franchise and it is sufficient even if only one qualification is proved on whether the imported product is not locally available in reasonable ‘quantity, quality, or price.’”

Section 13 of PD No. 1590, as amended by Letter of Instruction 1483, authorizes the airline’s tax exemption on its aviation fuel imports for use of domestic operations.

The BIR claims that the Authority to Release Imported Goods (ATRIG) is not sufficient alone to prove that the Jet A-1 was used by PAL for its transport and non-transport operations and failed to comply with all the requisites under Section 13 of PD 1590 for tax exemption.

The BoC, meanwhile claimed that the BIR has no jurisdiction for the refund claim of excise tax on imported articles as it is vested upon its office, there was no proof that the imported fuel was actually used in transport operations and not available in reasonable quantity, quality or price at the time of importation.

Both claimed that the court has no authority to rule on validity of BIR Ruling No. 001-2003, which was the basis of the BIR to assess PAL for specific taxes on importations of Jet A-1 used for domestic operations.

In the May 10 decision, the court ruled that PAL was able to use the imported fuel in domestic operations from August to October 2008 based on evidence it submitted which included the ATRIG. — Vann Marlo M. Villegas

AMLC has frozen P1 billion worth of assets as of July

THE Anti-Money Laundering Council (AMLC) said it has frozen over P1 billion worth of assets and seized a further P600 million between January 2018 and July 2019, in the course of investigations into money laundering and terrorist financing.

AMLC Chairman and Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said the assets were discovered during the regulator’s own investigation efforts and cases brought to it by other law enforcement agencies.

Mr. Diokno was delivering a keynote message at the 18th AMLC Anniversary at the BSP on Oct. 23.

“All these investigation efforts helped in the development of 11 money laundering complaints, two terrorism financing complaints, 23 applications for bank inquiry for money laundering, and three applications for bank inquiry for terrorism financing,” Mr. Diokno said.

In 2018 the amended Implementing Rules and Regulations (IRR) of the Anti-Money Laundering Act (AMLA) were implemented, he noted. Under the new rules, covered persons will be held accountable for their violations of the AMLA and will be subject to “robust anti-money laundering and terrorism financial prevention programs.”

The IRR amendments include requiring casinos to report transactions bigger than P5 million within five working days which will also oblige gamblers to report bets beyond P5 million.

The AMLC has also rolled out guidelines for identifying beneficial ownership to promote transparency in the use of legal persons, legal arrangements, and nominee arrangements. Casino owners are now subject to compliance checks and investigation should they be implicated in money laundering or terrorism financing.

“This is to ensure that these types of arrangements will be legitimately used and not for the purpose of distancing one’s identity from the proceeds of crime,” Mr. Diokno said.

The AMLC is also currently gauging its level of technical compliance with international standards as well as the effectiveness of its current system related to anti-money laundering and counter-terrorism financing.

“The Philippines is in the latter stage of the Mutual Evaluation (ME)… Prior to the ME Report, (MER) the AMLC conducted a self-assessment based on the existing legal framework, operations of competent authorities, and statistics to forecast the evaluation results,” Mr. Diokno said, noting that the assessment revealed accurate ratings for seven out of the 11 Immediate Outcomes (IOs) and 34 out of 40 Financial Action Task Force (FATF) Recommendations related to technical compliance.

Aside from the MER, Mr. Diokno said that the Philippines also entered a one-year observation period which requires the country to submit a comprehensive progress report to the Asia/Pacific Group on Money Laundering (APG) focused on the implementation of its recommended actions by the end of the observation period.

“This 12-month observation period gives us an opportunity for the country to remedy identified shortcomings in the MER. We cannot afford to have the Philippines in the Financial Action Task Force’s list of high-risk and non-cooperative jurisdictions. Hence, we should be very strategic in our focus for the next 12 months,” Mr. Diokno said. — Luz Wendy T. Noble

Is there a sweet spot in the new tax laws?

(Second of two parts)

In the previous article, we discussed the salient points of the excise tax on Sweetened Beverages (SBs), the costs associated with its implementation, compliance with applicable regulations, and the applicability of the Prior Disclosure Program (PDP) to importers of SBs. In this second part of the article, we will examine some business considerations which importers as well as producers in the SB industry should consider, including possible opportunities brought about by the new excise tax law.

IMMEDIATE IMPACT
Given the law’s health objective, its impact was immediately felt upon implementation. According to Nielsen Retail Index, the sales of SBs weakened in the first few months due to the implementation of the excise tax. This was expected considering price increases normally push away consumers.

An importer should consider ways to manage the immediate short–term impact of the new tax while waiting for the market to adapt and adjust to the increase in prices. There should be initiatives to address additional costs, while at the same time, maintain market share.

For instance, sales efforts may become more targeted, such as towards SB consumers who are not price sensitive, or for whom promotional activities may be effective. At the same time, companies may wish to consider making price increases more gradual to ease the price impact on existing consumers and better manage their expectations.

An importer of SBs may also consider sourcing goods from suppliers in countries that have Free Trade Agreements with the Philippines to avail of lower or preferential tariff rates, if any. This would help manage the cost that would have to be incurred by the business and passed on to customers.

TAX SAVINGS VS IMPORTATION COSTS
Based on the letter of the law, the only way for an SB importer to be exempt from the tax is to use purely coconut sap sugar and purely steviol glycosides. Otherwise, the importation becomes subject to the excise tax.

Some companies have already gone this route and changed their formulations to use purely coconut sap sugar and steviol glycosides as sweeteners. Previously, this was considered a more expensive option, but with the imposition of the excise tax, these companies opted to reconstitute their imported products.

However, the importers should consider the actual costs of the sweeteners exempt from excise tax. For instance, stevia is more expensive compared to the sweeteners subject to excise tax. Importers will need to conduct proper cost-benefit studies specific to their processes and operations to weigh the benefits of a change in sweetener used.

Moreover, the importers should also consider the possibility of losing market share if there is a change in the sweetener used in the SBs, particularly if their market is taste-sensitive. While a change in the sweetening ingredient of the SB may result in possible tax savings, an importer should also factor in the preferences of the target market.

OPPORTUNITY TO TARGET A HEALTH-CONSCIOUS MARKET
The reality is that the Philippines is not the only country to implement a tax on SBs. Other countries have implemented or will implement similar taxes. The underlying factor among all these is the objective of improving the overall health of a country’s population.

Given this general direction among different jurisdictions, there is an opportunity for players in the SB industry to cater to a specific market, i.e. those who look for healthy alternatives to SBs. In fact, developing “healthier” SB brands or formulations may even present new market possibilities abroad, with local producers eventually exporting SBs to health-conscious consumers outside the Philippines.

In the Philippines, according to the National Tax Research Center, citing data from the Philippine Statistics Authority in 2015, the annual family expenditure on soft drinks reached as high as 20%. On the assumption that only half of this number would look for healthy alternatives, such number may constitute a good enough market size for an industry player to target.

Companies should also take notice of the change in the consumption behavior of Filipinos. In a recent study, Filipinos are slowly becoming more health conscious in their food and beverage choices, opting for “light” variants or those with more nutritional benefits. While the increase in product cost is solely attributable to the excise tax, the decline in sales, however, may not be solely attributed to the same as changes in consumer behavior may also be a substantial factor.

Resourceful companies can take this business gap as an opportunity to cater to the change in consumption behavior as well as meet the legislative intent to promote better health and address the alarming rates of diabetes and obesity in the country. In this way, perhaps a new “sweet spot” can be found that balances business gain with innovative product development and socially responsive market strategies.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Fahkriemar Limpasan is a Tax Senior Director of SGV & Co.

UP secures second spot, eliminates De La Salle, 71-68

By Michael Angelo S. Murillo
Senior Reporter

THE University of the Philippines Fighting Maroons secured for them the second spot in the elimination round of Season 82 of the University Athletic Association of the Philippines after defeating and eliminating in the race the De La Salle Green Archers, 71-68, in league action on Sunday at the Ynares Center in Antipolo City.

Key plays by Bright Akhuetie, Kobe Paras and Jun Manzo gave UP (9-4) the leverage it needed down the stretch to outlast the Archers (6-7), who with the loss saw their semifinal chances crushed.

Earlier in the day, the Far Eastern University Tamaraws (8-6) notched a Final Four spot after defeating the University of the East Red Warriors, 82-58.

UP got off to a fiery start led by Ricci Rivero who towed his team to a 7-0 advantage by the 7:30 mark of the opening quarter.

It would continue to build on it, stretching its lead to as much as 14 points, 17-3 with three minutes to go before settling for a 10-point cushion, 21-11, at the end of the first 10 minutes.

In the second quarter, the Maroons opened the proceedings with a 6-0 run to extend their to lead to 16 points, 27-11, with eight minutes to go in the frame.

But La Salle then exploded.

On the lead of Aljun Melecio, Jamie Malonzo and Justin Baltazar, the Archers went on a ferocious 21-0 run, to race to a 32-27 lead with a minute left in the quarter.

Reigning most valuable player Akhuetie helped steady the ship for the Maroons, racking up five straight points to level the count at 32-all with 30 seconds remaining.

Baltazar handed the lead back to La Salle, 34-32, with a bucket only to be answered by UP guard Jun Manzo with a triple as the second-quarter time expired to give the Maroons the upper hand, 35-34, at the half.

Shell-shocked by the La Salle rally in the second canto, UP came out on firmer footing to begin the third with Noah Webb and Paras on the firing end.

The Maroons went on a 7-0 run to build a 42-34 advantage with just two minutes passing.

La Salle tried to claw its way back but Akhuetie and the Maroons were steady in staving its opponents off, still taking control, 48-39, with four minutes to play.

Malonzo was undeterred and kept pulling the Archers, who came to within four points, 48-44, with 2:30 to go.

When the third-quarter smoke cleared, the Maroons were still on top, 55-45.

Sensing that the game was slipping from their hands, the Archers came out of the fourth quarter with more aggressiveness.

The Maroons though continued to hold sway, 60-55, with five minutes to go.

But La Salle kept fighting its way back, going on an 11-2 run in the next two minutes and a half to seize the lead, 66-62.

Manzo and Akhuetie conspired for four points for UP to level the count at 66-all entering the last two minutes.

Encho Serrano scored for the Archers to make it, 68-66, with 1:35 remaining.

UP sued for time after to set up a play.

Akhuetie tied the count for the Maroons, 68-all, with 1:25 to go.

La Salle had a chance to reclaim the advantage but turned the ball in the ensuing play.

UP made the Archers pay as Paras scored off a slam sunk with 54 ticks to go to make it, 70-68, for the Maroons.

The Archers had their chances to get back the lead but muffed them.

A split on the charity lane by Manzo with two seconds remaining gave UP a 71-68 advantage from which La Salle could not recover from.

Akhuetie led UP with 17 points and 10 rebounds with Manzo and Rivero adding 12 points apiece. Manzo also had eight assists. Paras finished with 10 points.

La Salle, meanwhile, was paced by Malonzo with 17 points, followed by Melecio with 12 and Baltazar 10.

UP plays the defending champions Ateneo Blue Eagles (13-0 )on Oct. 30 while La Salle wraps ups its campaign against the Adamson Soaring Falcons (4-9) also on the same date.

Meanwhile in the first game, FEU secured a semifinal spot with a win over also-ran UE (3-10).

Wendell Comboy led that barrage for the Tamaraws with 17 points on a 5-of-7 shooting from threes, while also hauling down four rebounds. Royce Alforque had 13 points while L-Jay Gonzales had a double-double of 12 points and 10 boards.

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