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Senate support for e-vehicle industry heralds showdown over incentives

THE Senate is consolidating five bills seeking to jump-start the electric vehicle industry, with subsidies for the sector the common theme of the legislation which a key Senator hopes will make it out of committee by next month.

Senator Sherwin T. Gatchalian, the chamber’s energy committee chairman, said at a briefing Monday: “We’ll enter into a technical working group two weeks from now and by November magpa-file na tayo sa (we will report it out on the) floor.”

“Hopefully, ma-approve ‘to within the year, considering na limang Senators ang may ganitong bill (We hope to have this approved within the year, considering that five Senators have filed bills on this matter).”

The committee tackled five Senate Bills which all propose to provide incentives for the production of e-vehicles and other green vehicles, heralding a possible showdown with the Department of Finance (DoF), which is currently seeking to simplify the tax incentive system.

“The challenge is cost. Mahal ang e-vehicles, kaya ang request ng industriya tulungan sila with subsidies at fiscal incentives, ibig sabihin tanggaling ang excise tax, tanggalin ang import duties (E-vehicles are expensive, which is why the industry has requested assistance in the form of fiscal incentives like the removal of excise tax and import duties),” Mr. Gatchalian said.

The bills have been supported by the Department of Energy (DoE), but opposed by the DoF.

According to the DoE’s Energy Utilization and Management Bureau, incentives, such as free charging and free parking, are needed to support the industry.

“Based on our studies, other jurisdiction were able to jump-start with government taking a more proactive role in having and offering free charging facilities,” bureau director Patrick T. Aquino told the committee.

Other non-fiscal incentives he cited were exemption from number coding and other traffic management schemes.

DoF fiscal policy planner and economist Charmaine B. Odicta said the Department does not support incentives for e-vehicles which will run against current efforts to streamline fiscal incentives under the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA).

Ms. Odicta said e-vehicles are already included in the 2017 Investment Priorities Plan. “Based on our data in 2017, there were nine manufacturers, but only three enterprises availed of the fiscal incentive… we would like to note that fiscal incentives alone are not effective in advancing the development of the industry,” she said.

“Another point is that the proposal for the fiscal incentives, contradicts the DoF’s efforts in reforming the tax system. For the VAT (Value-Added Tax) exemption, we agree that the excise tax is a better policy tool to incentivize the production of e-vehicles,” she said, noting that this issue was addressed by Republic Act no. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law. — Charmaine A. Tadalan

House sees passage of water dep’t bill by Jan.

THE House of Representatives is expected to approve on final reading by January a bill that seeks to establish a Water department, Rep. Jose Ma. Clemente S. Salceda of the second district of Albay 2nd said Monday.

Mr. Salceda, who chairs the ways and means committee and is part of the technical working group studying the creation of the Department of Water Resources Management, said that the chamber is “working very hard” to pass the measure.

“We want pasado na siya sa third (to pass the bill on third reading) by January,” Mr. Salceda said in chance remarks to reporters on the sidelines of the technical working group meeting.

He added, “…Baka ma-report na itong substitute bill (We might report out a substitute bill) by the first week of November when we return. So we are working very hard. Yung meeting ngayon (Today’s meeting) is more formal, but actually there have been a lot of exchanges and consultations.”

The Department of Water Resources Management will be the primary agency for planning, policy formulation, appropriation, utilization, development, conservation, and protection of water resources.

The bill also seeks to establish a Water Regulatory Commission which will be an independent, quasi-judicial regulatory body under the Department of Environment and Natural Resources.

The commission will have the power to impose price controls, invalidate contracts, and impose fines and penalties. It will also be the primary agency for the registration and licensing of all water supply and sanitation service providers.

Mr. Salceda, who also filed a similar bill, said that one of the plans for the department is to fold in the National Irrigation Administration (NIA) as an attached agency.

“Nung una sabi ko wag muna isama NIA kasi more on agriculture siya. Kaso kailangan din natin ng NIA, kasi marami po sa mga multi-purpose facilities katulad na pinagkukunan ng tubig natin, yung [La Mesa] Eco dam ay ginagamit sa kuryente, sa agri[culture], ginagamit din as domestic water, so ang importante sa amin na yung mga multi-purpose asset facilities, water assets ay mapunta dito sa Department of Water (At first I did not want NIA to be included because its role is more focused on agriculture. But we need NIA, because many of the facilities are dual purpose for agriculture as well as water. We consider it important that the Department of Water handle such multi-purpose facilities like La Mesa Dam,” Mr. Salceda said.

He said the creation of the department will help the government efficiently utilize the country’s water resources.

“Marami tayong tubig actually pero hindi natin nagagamit gawa nga po ng hindi nama-manage kaya kailangan ng Department of Water. Like yung mga flood waters, yung mga tubig sa mga lakes, although nagagamit pero hindi systematically nao-optimize ang kanilang utilization (There’s a lot of water which we cannot use because it is not properly managed… like flood water or lake water. We do use these resources but not optimally),” Mr. Salceda said.

President Rodrigo R. Duterte said in his State of the Nation Address in July that the creation of water agencies are needed, noting that “the El Niño wreaked havoc on the agricultural sector and caused water shortage in the greater Metro Manila area.”

The creation of a Water Department was also part of a wish list of measures submitted by 14 business groups to Congress. — Vince Angelo C. Ferreras

Davao business chamber backs reclamation to create industrial park

Davao City Chamber of Commerce and Industry, Inc. (DCCCII)

DAVAO CITY — The Davao City Chamber of Commerce and Industry, Inc. (DCCCII) said land reclamation is the “ideal” option for the development of an industrial park near the city center.

“It is a challenge to find space in the city because most of the properties are owned by private owners… and also because of the escalating prices of real property,” DCCCII President Arturo M. Milan said in an interview on the sidelines of the Japanese Community 100th Anniversary at the Marco Polo Davao on Oct. 3.

“It is quite a challenge because of the increasing prices of real property in Davao, plus it’s difficult to convince local owners to go into a joint venture because most of the industrial park developers want a joint venture,” he added.

He also noted that Cebu City reclaimed land and developed this into an industrial park.

The need to establish an industrial park was highlighted during last week’s Japanese Community celebration as investors from Japan expressed interest to set up manufacturing plants in Davao City.

Miwa Yoshiaki, consul general of Japan in Davao, said among the potential locators are metal and plastic manufacturers aside from processors of agricultural goods.

“Manufacturing industry has a very wide range… I understand that DCCCII thinks that manufacturing is very important and I agree… but of course agri-business is also important such as processing agriculture (products),” he said.

Mr. Milan said if Davao City can develop the industrial space, foreign partners could bring in the equipment and technology for processing local agricultural resources.

“We will just marry the two and put them in an industrial park where we can process. That is the ideal to help the farmers,” he said.

Mr. Milan also clarified that they would not like Davao City to go into heavy industry.

“Maliliit lang (Just light industry) such as manufacturing plants for cell phone chips,” he said.

DCCCII, he added, has been in discussions with the Semi-conductor and Electronics Industries of the Philippines, Inc. (SEIPI), which is looking at Davao as a future expansion area.

“Only that we don’t have an industrial park at mas gusto nila na (and they prefer an) established industrial park… An industrial park is like a one-stop-shop and the incentive is already bundled in the offering,” Mr. Milan said.

Mr. Milan said the chamber hopes that the government will take the lead in the establishment of an industrial park, which would open doors for value-adding to agricultural products, generate employment, and contribute to overall economic growth. — Maya M. Padillo

BSP to subsidize production of blank cards for national ID

THE Bangko Sentral ng Pilipinas (BSP) has signed a deal with the Philippine Statistics Authority (PSA) to subsidize production of blank cards for the Philippine Identification System (PhilSys), a national ID scheme which the bank hopes will remove a major hurdle to opening bank accounts.

According to the Memorandum of Agreement (MoA) signed on Monday at the Philippine International Convention Center (PICC), the BSP will produce blank cards for the national ID while the PSA will maintain and secure the database of ID owners, safeguarding the confidentiality of their data.

BSP has set aside P3.4 billion to subsidize production of 116 million blank cards for issuance until 2022, equivalent to about P30 per card. The ID will initially be issued free of charge.

Bank rules pose a hurdle to financial inclusion because the current Know-Your-Customer (KYC) set-up, opening a bank account requires two government IDs.

“Now with this national ID, all you need is this to open an account. So that is very helpful for most of our unbanked sectors because as you know, farmers don’t have passports or driver’s licenses,” BSP Governor Benjamin E. Diokno said in a news conference following the MoA signing, adding that the national ID is a program “30 years in the making.”

Pilot-testing for the national ID was launched in September. PSA Undersecretary Claire Dennis S. Mapa said that the tests will run until May, with the formal rollout of the ID registration by July.

Mr. Mapa said the tests have revealed that registration time is shorter than expected at 15 minutes, though seniors might take longer.

“The expected time to register was shorter in the pilot than what we have been expecting. Right now we are talking about 15 minutes to register [on] average,” Mr. Mapa told reporters.

He added that the target is to issue 14-15 million IDs in 2020, 50 million in 2021, and the remainder needed by 2022.

The national ID is authorized by Republic Act. No. 11055 or the Philippine Identification System Act, which establishes a unified identification system for both Filipinos and resident aliens. — Luz Wendy T. Noble

Philippines brings largest-ever exhibitor delegation to German food show

THE Department of Trade and Industry (DTI) said brought its largest contingent thus far of food exporters to the world’s biggest food show in Germany this week.

In a statement issued Monday, the DTI said its Center for International Trade Expositions and Missions (CITEM) organized the delegation of 36 food producers and manufacturers to the Anuga Food Fair in Cologne on Oct. 5-9.

The biennial Allgemeine Nahrungs- und Genussmittel-Ausstellung (General Food and Beverage Exhibition) or Anuga, which attracted over 165,000 visitors from 198 countries.

DTI Undersecretary for Special Concerns and Trade Promotions Abdulgani Macatoman said that the Philippine contingent grew to 36 from an initial roster of 31 exhibitors.

“Many of our local firms are looking to leverage the increasing food demand in the global market and what better way to do that than to be at the world’s biggest food show,” he said.

Of the 36 participants, 21 were first-timers. To feature delicacies from various Philippine regions, 17 of the exhibitors are so-called “One Town, One Product” (OTOP) companies.

OTOP is a DTI stimulus program for micro, small, and medium-scale enterprises that identifies and promotes products specific to their communities.

“Along with the well-known exporters, local food producers under the OTOP section will elevate the country’s iconic and quintessential flavors from local farms and grass roots communities to surprise and delight the global palate,” CITEM Executive Director Pauline Suaco-Juan said.

The Philippine delegation in Germany exhibited “creative applications” of the country’s “Premium 7” export products: banana, cacao, coconut, coffee, mango, pineapple, and tuna.

The delegation also brought salmon, sardines, oriental noodles, shrimp, gluten-free pasta, confectioneries and baking ingredients, fruit beverages, sauces, spices, and condiments.

The Philippine delegation to Germany consisted of partners in various programs run by CITEM and OTOP, supported by the Foreign Trade Services Corps (FTSC), the association of trade attaches worldwide, and the Philippine Trade and Investment Center (PITC) in Berlin. — Jenina P. Ibañez

Difficult times or best moments ahead?

My son, Khalil, will celebrate his 17th birthday next week. He now stands at five feet and 10 inches and is in senior high school. I had Khalil when I was very young. I was then a pregnant adolescent, still navigating through college, definitely lost and amiss. It was a very difficult period in my life. Without the guidance and support of my family and friends, I am not sure if I would have been able to get through such challenging times.

It is in the middle of this reminiscence that I thought about the topic for this article. Tax is a difficult topic in itself, but recent developments in our tax landscape can easily make one feel lost and amiss. Just like difficult times in our lives, however, we have to find the support and guidance that will help us navigate through these never-ending challenges.

The Bureau of Internal Revenue (BIR) recently issued the transfer pricing (TP) audit guidelines, placing TP considerations front and center. To the uninitiated, TP refers to the setting of prices for transactions between related parties, and applies to the sale, purchase, transfer, and use of tangible and intangible assets, the provision of intra-group services, interest payments, and capitalization. The cornerstone of transfer pricing is the “arm’s-length principle,” according to which, the conditions of a transaction between related parties may not differ from those of a transaction between independent companies under similar circumstances. Hence, profits and expenses must be adjusted to reflect the conditions that would have been obtained between independent companies for comparable transactions and under comparable circumstances.

With TP audits, we can expect that noncompliance with TP regulations will give rise to deficiency income tax assessments, as the BIR may either impute additional income or disallow part of the taxpayer’s expenses. Let us note that TP is not an exact science; hence, tax authorities may claim more leeway in imposing TP adjustments and recalculating taxes payable. Companies that are part of a group must, therefore, have strong arguments — organized in their TP documentation — that intra-group transfer prices are arm’s-length and not used to artificially cut revenue or increase expenses.

For many companies, this is a difficult development. Additional costs will be incurred in ensuring proper TP documentation and maintaining proper accounting systems to support them. Studying and analyzing costs in our imperfect market can be very complicated and time-consuming. The lack of publicly available information among unrelated parties makes benchmarking especially problematic. It gets even more difficult when intangibles, such as intellectual property and services, are involved as, really, how do we begin to quantify the value of intangibles?

But let’s face it: compliance with TP regulations is fast becoming a necessity if we want to be ready for the coming TP audits. Compliance means reducing audit controversy and avoiding hefty fines. But more than that, in this day and age when the world is becoming more and more integrated, the call for more ethical TP has become stronger. Many firms face backlash for TP manipulation. Today, TP is evolving into becoming a corporate governance issue.

Interestingly, the increased focus on TP coincides with a relatively recent shift in business ideology. Just a few months back, a group of US corporate leaders voiced the need to move away from the mantra of shareholder primacy toward a new culture of shared prosperity. The Business Roundtable (BRT), an American nonprofit association whose members are chief executive officers of major companies, finally announced that profits for shareholders are no longer the only purpose of a corporation.

In its new formulation of corporate purpose, the BRT declared that “delivering value to customers, investing in employees, dealing fairly and honestly with suppliers, supporting communities and protecting the environment all have equal billing with generating long-term value for shareholders.” But, of course, no matter how big these words are, words alone will not make the change happen.

It may be difficult, but perhaps we can view our compliance with TP regulations as part of this general shift in business objectives. There will be added costs, and perhaps some revenue will be lost. Sacrifices will be necessary to prove our concern for all the firm’s stakeholders, and not just stockholders. Perhaps it is something we can do to create a world where prosperity is indeed shared.

Hopefully, in conducting the TP audits, the BIR will not rely on oversimplified assumptions and focus on short-term collection goals. Rather, we hope that the tax authorities will provide clear guidance to taxpayers on determining acceptable arm’s-length prices.

The coming TP audits may really be trying but, if effectively managed by both taxpayers and tax authorities, it may just encourage companies to trade in a way that maximizes value for the company and society. Difficulties after all, are often the catalysts for our best moments.

I may have gone through one of my most difficult times early in my life but I would not trade it for any comfort or ease, as it has also brought me one of my greatest joys.

To my Khalil, happy birthday! I know commuting without the LRT is difficult, but just take the jeep and learn to be more street smart. I pray that, as you have always inspired me, you too will always have the inspiration, strength, and hope to live a good and purposeful life. And that you may you live in a world that is more equitable and prosperous. ILY!

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Diana Elaine Bataller-Simbulan is a tax manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com.

Rational decision-making can make the difference

Lately, the Bureau of Corrections (Bucor) has been the subject of comprehensive Senate inquiries. The problems and issues unearthed are so complex that they are beyond comprehension. It is very evident that management has been remiss in the exercise of the decision-making process. If one does not act immediately due to indecision, the opportunity vanishes unless a radical change is undertaken.

The decision-making process starts with the identification of the problem. The other significant components are the mission, exercise of authority, assumption of personal responsibility, and a decisive influence on the courses of action. The focus must be on the causal or root causes over the effect problems. The Senate inquiry exposed the gross ineptness of the office. Management focused on remedial and corrective measures through the iteration and sugar-coating of existing policies, a recycling of past failed solutions, running around in circles, the more frequent of which reduces the quality of the decision. The outcome is a carry-over of past decisions. Past decisions were influenced by past events and not the future; therefore, there is an absence of creativity and innovation. In short, past decisions were just rehashed.

Decision must be based on knowledge and data. When it comes to the Bucor case, the decision-making process is slanted towards the whims and caprices of officials and inmates. Management ignored warnings that led to a host of problems affecting the quality of the decision. The integrity of data was doubtful. The internal alignment of the decisions with the organizational vision was incongruent. This is also one reason in the development of a negative mindset and the compromising of organizational cultures. It unmasked a serious information flaw. All data as bases in decision-making were compromised if not reconstructed to adjust to administrative loopholes.

Officials lack the appreciation of the importance of the integrity of records. They cannot discriminate between the implied or expressed effects of indecision as long as their personal greed is satisfied. It has become a rule rather than an exception. Related to information management is the absence of an efficient communication channel system. Since almost all employees, management or rank and file levels, act on their own initiative, the official channels of communication are bypassed. Information becomes turf for influence and power which is rarely shared because each one is jealous of the other. It is one means to pursue personal selfish interests. The conflicting statements of the Bucor officials who testified revealed conflicting data, a consequence of the lack of coordination and teamwork. The leadership did not express any remorse or acceptance of command responsibility.

Failure to execute is the byproduct of indecision. They failed not because of bad policies, but because they did not carry out the policies well enough. In the execution of policies, efficiency does not rest only on the higher echelons of leadership, but likewise must be present and manifested in all levels of the chain of command, from the lowest rank to the topmost executive. A break in the chain collapses the common thread that links the organizational hierarchy. All levels have been infected with graft, inefficiency, ineffectiveness, and complacency. This is one major reason why, in spite of the appointment of generals with distinguished military and police service records, honed on leadership of the highest order, their stewardship was not good enough to influence the situation.

Experience can improve decision. Past chiefs possess vast experience but sometimes over-experience may lead to over-confidence, arrogance, and inaccurate perception which in turn limit creativity. It is an epidemic, its control and eradication are still in the research and development stage. The root cause of any breakdown is simply failure to execute. The operational breakdown had much to do with the underlying culture of the institution. It has metamorphosed into a culture of apathetic attitudes. The executives were not trying hard enough. The command staff, and rank and file employees have the necessary skills and training that defines their tasks and responsibilities. The real problem is that they do not try hard enough. Their motivation to perform is predicated on monetary consideration. They are callous about the consequences which their institution may suffer as a result. In short, they lack the corporate citizenship that defines strength and stability. When personal interests are disoriented relative to corporate goals, the operational and strategic outcomes will always be a disaster and end in failure. Its effects on governance and management will be irreversible. That is what the majority of Filipino people see in Bucor — a fractured and hopeless bureaucracy. If it is compared to a publicly listed corporation, it could have crashed long time ago. Appointing the best, the brightest, those with a distinguished track record is no guarantee for success if reforms are done on a piecemeal basis.

FREEPIK

How many Bucor chiefs have passed through its portal under different administrations? No value-added has ever been infused. The organization’s members lack the understanding of the concept of professionalism and meritocracy. The colossal blunders that resulted in the Senate investigation are not isolated cases. In fact, they appear in clusters. Those in Bucor are content with mediocre performance. It has become the domain of failed governance. Probably, only a miracle can reverse the tsunami of misdeeds and underperformance.

The unmasking of corruption of unimaginable proportions surfaced due to the timely intervention of the President. Had the exposure been kept under wraps, probably cover-ups and justifications would have swept the anomalies to the dustbin. The President once again manifested his decisive leadership. It must also be emphasized that this issue is a carryover of past administrations increasing in arithmetic progression through the years.

Is the Bucor situation a hopeless case? If a cancer has metastasized and affected the vital organs of the body, no amount of palliatives or chemotherapy will reverse the situation. Is it logical to compare an organization to a human body? In simple parlance, the disease at Bucor has metastasized and has affected the inner recesses of its existence.

The strength of an institution depends on the quality of the decision mode at various levels in the organizational hierarchy. Peter Drucker said: “The great majority of decisions will lie between two extremes, a choice whether to act on a problem or not.” It means that one has to act when a situation is about to deteriorate or when an opportunity arises. Inaction, and if one does not act due to indecision, are the inputs to failed governance. As the saying goes, indecision is worse than a wrong decision.

The grim reality must be viewed as a challenge. It must start from the rational application of the decision-making process. It can gradually develop traction that may reverse the situation.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Lt. Gen. Jaime S. de los Santos (Ret) is a Member of MAP National Issues Committee, a former member of the military, a farmer, and a professorial lecturer of management (part-time) at UP Diliman.

jaime_dlsantos@yahoo.com

jimmydlsantos@gmail.com

map@map.org.ph

http://map.org.ph

Property rights and agrarian lefts

“CARP has instead effected a massive de-formalization of agriculture! Time to allow agriculture to march out of the informal into the formal sector. It is time, in other words, to stop redistributing poverty!”

— Dr. Raul Fabella,
“CARP: Time to Let Go,”
UPSE Discussion Paper 2014
February 02, 2014

Unlike agrarian reform in Japan, South Korea, and Taiwan that lasted only for several years before forced land redistribution was halted, the Philippines’ agrarian reform is endless, with no timetable — a forever program.

Former President Marcos declared his own agrarian reform in 1972 and when he was ousted, former President Cory Aquino implemented another version, the Comprehensive Agrarian Reform Program (CARP, RA 6657, June 1988). CARP should have ended by 1998 but it was extended under RA 9700 (August 2009). So from 1972 to 2019, there have bee 47 years of agrarian reform and there is no plan to end it.

Endless agrarian reform is wrong because it creates endless business uncertainty in two sectors, agribusiness and mass housing programs.

First, an agribusiness person develops an idle or ugly piece of land into a productive, revenue-earning fruit orchard. Rural jobs are created, food production is expanded, and that is also where the Department of Agrarian Reform (DAR) can come, knock on the person’s door to inform him/her that the land will soon be forcibly distributed to the workers. And this contributes to why many rural areas remain planted to traditional low-value crops.

Second, real estate developers endure many years of waiting for the DAR to approve land conversion from agricultural to mass housing projects.

I spoke with Jeffrey Ng, a fellow alumni of the UP School of Economics (UPSE) and President of our UPSE Alumni Association. He is also the Chairman of the Subdivision and Housing Developers Association (SHDA). Jeff said that they have to “get approval from National Irrigation Administration, Philippine Coconut Authority, Sugar Regulatory Administration, then the Department of Agriculture itself. Only then can we apply for actual conversion with DAR. After which comes LGUs, DENR (Department of Environment and Natural Resources) and HLURB (Housing and Land Use Regulatory Board). All these delays cost money and interest, which unnecessarily raises the cost of socialized and mass housing projects.”

President Rodrigo Duterte has ordered that this entire land conversion process should not take more than 30 days. Jeff said that it can be done if all these government agencies and departments will put up a one-stop shop under the new Department of Human Settlements and Urban Development.

Some 6.5 million Filipino families do not own a house yet, so the supply of buildable land for affordable mass housing should increase. And DAR and endless agrarian reform is part of the problem. This is agrarian and property leftism.

Related to this is the low score and global ranking of the Philippines in property rights protection like land. Small- and medium-size landowners are unsure if they can continue ownership and control of their land in the next 10 or 20 years.

In the International Property Rights Index (IPRI), an annual study by the Property Rights Alliance (PRA, Washington DC), the Philippines ranks low. The index is composed of three components: Legal and Political Environment (LPE), Physical Property Rights (PPR) and Intellectual Property Rights (IPR). LPE has four sub-components, IPR has three, and PPR also has three — Protection of physical property, Registering property, and Ease of access to loans.

In overall IPRI, the Philippines ranked 77th out of 118 economies in the 2010 Report, improved to 70th out of 125 economies in the 2018 report. In PPR, the Philippines has significantly improved over these years, ranked 80th in the 2010 Report and 63rd in the 2018 Report (See Table).

IPRI 2019 will be launched on Oct. 16 at Fairmont Hotel. How will the Philippines rank then, both in IPRI overall and PPR?

Report author, Dr. Sary Levy-Carciente, an economist from the Universidad Central de Venezuela, and a Fulbright Visiting Scholar at Boston University, Center of Polymer Studies, will come to discuss the report. PRA Executive Director Lorenzo Montanari will accompany her. The local partners of this event are the Foundation for Economic Freedom (FEF) and Minimal Government Thinkers.

The words of Dr. Fabella, a National Scientist, my former teacher, and our former Dean of UPSE, should be heeded by legislators and the administration, to finally end the endless forced redistribution of private lands.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

Does name-dropping still work?

By Tony Samson

IN OUR status culture that reflect wealth, power, and celebrityhood (entertainers and sports figures), claimed associations with icons is an indirect way to achieve instant status. So, knowing somebody, even tangentially, is a bid for reflected glory, a sort of “gilt by association.”

But does name-dropping still work?

The practice of professing closeness, affinity, shared experiences, even friendship, loosely defined as knowing each other’s nicknames, with someone powerful or exerting influence in an organization for the purpose of extracting favors and benefits or at least opening doors to such possibilities, no longer seems to work. Maybe powerful people are beginning to resent their names being abused and repeatedly invoked. With so many personalities using powerful people as license to break the law, the invoked ones are fighting back — please arrest anybody claiming I am behind their improper requests.

We can credit social media for the decline of intimidation using a claimed connection, which may or may not exist. Through the wonders of search engines, assertions are easily verified and declared spurious. (They weren’t even in the same school.)

The reason why anybody needs to drop names, other than his own, is a lack of personal clout. The name dropper is a non-entity. He simply can’t get past the reception desk manned by some Valkyrie disguised as security staff — what business do you have with our demigod? Does he know you?

The same few names, sometimes initials, are dropped by the anonymous herd. And with the acquisition of companies under fewer and fewer owners, the list of droppable names is shrinking. Former owners of businesses, the deceased, and those still under the social radar are excluded from the list. So, mathematically speaking, the name of one who controls a third of the GDP of this country is likely to be mentioned too many times by too many people to be even taken seriously — sure, you saw his face on TV.

Shakespeare scoffs at name-droppers. In Henry IV, a scene touches on this topic. Glendower: “I can call spirits from the vasty deep.” Hotspur replies: “Why, so can I or so can any man. But will they come when you call them?” This exchange can be roughly translated in digital terms as: sure you can text her but will she text back? (Who’s this?)

The owner of the dropped name is rarely queried to find out if he indeed knows the name-dropper, and are they as tight as brothers? The time of the venerable one is too valuable to be taken up by such a mundane query by someone from HR vetting an applicant. The leader is put on the spot if he acknowledges that truly he knows the person, though vaguely. He may ask why the caller is checking with him. Does this underling think the only qualification for the job is a claimed connection to the chief? Can this querying insect please give her name, employee number, and direct report?

Name-dropping seldom sways anyone to be more favorably disposed towards the offender. If the mighty one really endorsed your project, he would have called or sent an emissary. Thus, persons in authority simply ignore anyone who resorts to this overrated approach for securing favors.

A subtle version of name dropping involves story telling. A seemingly aimless narration of invitations received, dinners shared, gifts exchanged, vacations planned, opinions sought can accidentally include names. (Please keep this to yourself.) A touch of reluctance and shoulder shrug helps: I didn’t even accept the invitation. This indirect approach can be more effective, especially if true. No specific request is even mentioned in the conversation. It is capped by a throwaway line to further dazzle the listener — these days, it’s so difficult to differentiate between mere name-droppers and genuine friends.

Instead of borrowing other people’s fame, what about making a name for yourself? This simplifies the whole thing about being given a good seat in a restaurant, not having to produce an invitation to crash a party, and avoid being frisked before entering a building. Establishing your own bona fides brings a new problem of others now dropping your name, which presents a different sort of challenge.

Anyway, name droppers eventually tire of the exercise when it doesn’t work… or the names they’ve dropped are already passé.

 

Tony Samson is Chairman and CEO, TOUCH xda.

ar.samson@yahoo.com

Purpose-driven inquiry

By Raju Mandhyan

IN MY last article I wrote about the importance of learning to learn. Yes, nothing in life helps us evolve better than learning to learn. And, one of the fundamentals of learning to learn is being innately curious about things and then using questions and the process of inquiry to satiate that curiosity.

I am a life-long proponent of asking questions. I believe questions, the right questions, are the answer to everything — to growth, to development, and for human betterment.

Yet, besides knowing the difference between closed or open questions and besides knowing how to use the five “W’s” and that one “H” well, how in heaven’s name do you position your questions to heal rather than cut?

In the movie, Finding Forrester, based on a book by James W. Ellison, William Forrester is a successful author of a literary piece of work called Avalon Landing. The success of Avalon Landing brings him a lot of media attention. Shy by nature, he turns inwards away from the limelight. He begins living the life of a recluse, holed up in a tiny apartment in the Bronx, New York. There he spends his time reading, writing, reflecting, and washing his windows. While doing these, Mr. Forrester would get entranced every now and then by a game of basketball played on the neighbourhood streets by African-American kids.

One day, the ball they were playing with landed in his room through an open window. One of the boys came up to get the ball. The boy, Jamal, hailed from a simple family but had been lucky enough to get a scholarship in a good school. As he walked away after retrieving the basketball from William Forrester, he happened to forget his little backpack by the author’s door.

Hours later, the author noticed the backpack and as he carried it in, a large bunch of handwritten notes fell out from it. Out of curiosity, William Forrester began to read. He found the essays engrossing and unconsciously began to scribble comments and editorial notes on the papers. The next day Jamal picked up his bag and noticed the comments and suggestions by the recluse author. Soon the simple but talented boy and the ageing author became good friends, spending time in the author’s apartment, talking and writing about school and life.

One day, over a cup of soup Jamal asked the author for the recipe so he could prepare the same soup for his mother and brother. Forrester happily shared the secret recipe with the young boy.

Weeks later, while discussing Jamal’s writing submissions at school, the African- American boy asked the author, “Say, how come you live alone up here and have no wife or anyone else?” This infuriated Forrester, and in a rage he told Jamal to get out. An apologetic Jamal voiced his surprise and confusion. “Why does it upset you? What is the issue? Man, all I asked is how come you live alone and have no wife?”

Forrester cooled down and responded, “A few weeks ago you asked me how to make a good cup of soup and that was a good question. It was a question that had a purpose, preparing soup for your mother. Your question today serves no purpose other than being intrusive.” Jamal realized his error and stayed silent upon hearing the truth.

From the story, we learn that every time we form a question we must first run it through the filters of our own mind. We must ask ourselves the same questions Mr. Forrester and Socrates asked.

Questions like:

• Will the question bring out useful facts?

• Will the question draw answers that benefit my customer?

• Will the question evoke answers that will help me help the client?

• Will the question take our business and partnership further?

• Are the questions well thought out to get answers that stir up new thought and actions?

And the most important question we need to ask ourselves before articulating our inquiries is:

• Are we making any unqualified, unverified assumptions about our client’s mindset, his intentions, and his character?

Running your questions through your mind prior to voicing them out will filter and clarify your intentions and result in strong, purpose-driven questions like Jamal’s soup question.

This specific awareness on how to direct and focus your questions such that they heal more than they cut makes them purpose-driven and evolutionary. Asking the right questions at the right time will place us all miles ahead in our dreams and desires to live out a purpose-driven life and generate values that are co-created.

 

Raju Mandhyan author, coach and learning facilitator.

www.mandhyan.com

Endo: When and how does it end?

By Benjamin R. Punongbayan

THE NATIONAL issue of “endo” (short for end-of-contract or the termination of a worker’s fixed short-term employment) has been in the limelight for some time now, but has not seen its conclusion yet.

Ending the practice of “endo” was reportedly a campaign promise of President Duterte. In fulfilling this promise, the Department of Labor and Employment (DOLE) issued a Department Order in March 2017 that provides a set of implementing rules for Articles 106 to 109 of the Labor Code, declaring the absolute prohibition of labor-only contracting. In addition, the President issued an Executive Order in May 2018 that emphasized the prohibition against illegal contracting or subcontracting of labor.

Then, sometime in June 2019, Congress submitted to the President for signing into law a bill that explicitly prohibits labor-only contracting and broadens its meaning by specifying the requirements for job contractors who may be allowed to do job contracting.

The passage of the bill elicited strong objections from the business sector, as a strict reading of the bill indicates it would prohibit most forms of contractual labor that, historically, various businesses need to access to suit the peculiarities of their operations.

The President vetoed the bill in late July 2019 and expressed that “…while labor-only contracting must be prohibited, legitimate job-contracting should be allowed, provided that the contractor is well capitalized… Businesses should be allowed to determine whether they should outsource certain activities or not…”

The labor sector, of course, strongly disagreed with the veto. The business sector was relieved.

I thought I would delve into this matter to try to contribute to the debate. Many may consider the issue as mainly legal in character, but I think it is more in the realm of economics.

I find that the issue, as repeatedly reported in the press, to be unclear. I thought the “endo” issue related exclusively to the fixed short-term employment of workers, which is continually renewed and also known as “5-5-5.” Under such a practice, a worker’s employment, which is done through job contracting or by direct hiring by employers, is only for five months and then their employment ends. The same worker may again be contracted for or hired by the same employer for another five months and so on. In the case of job contracting, the contractor pays the workers’ compensation, social security, and other employment benefits.

I looked at the Labor Code and discussed this matter with a friend who is a practicing labor lawyer to gain a better understanding of “endo” and the issues surrounding it.

Under Article 106 of the Labor Code — the main article that was amended under the vetoed bill — the Secretary of Labor and Employment can issue regulations to prohibit certain contractual labor practices as “labor-only contracting” as defined in the Code. And this is exactly what the DOLE Secretary did in 2017, although the Order did not specifically identify “endo” or “5-5-5” as labor-only contracting.

A large business organization has indicated publicly that the said DOLE Order effectively prohibits “endo.” My own reading of the Order indicates that “endo,” as described above, is indeed labor-only contracting and is, therefore, prohibited.

If, indeed, the issue is just about “endo” as described above, the DOLE Order and the subsequent Presidential veto message should have ended it. But these actions did not.

Obviously, there is a wider issue. Because of their nature, contractual and fixed-term employments, of which “endo” is just a part, is discontinuous and, therefore, the workers lack security of tenure (SOT). And here lies the wider issue. The labor sector is seeking SOT for workers under contractual and fixed short-term employments.

And the pursuit continues. Right after the Presidential veto, a bill was filed in the Senate which is essentially the same as the vetoed bill. A bill was also filed in the House of Representatives that prohibits all forms of contractualization and fixed short-term employment. DOLE also prepared its own proposed bill that expresses that job contracting is generally allowed, except for “core business activities or functions unless in cases of seasonal and project work arrangement.” Core business activity and function is defined as “An activity or function that is an integral part of the principal line of business of the contractor.” This DOLE draft bill also emphasized that the contractee shall not exercise control over the workers. This draft bill appears to prohibit most job contracting work. Fixed short-term employment is also prohibited, except in certain cases.

There was a recent news item reporting that a coalition of the country’s largest labor groups sent a position paper to DOLE indicating that the Coalition finds its draft bill unacceptable for certain reasons. I could not obtain a copy of the position paper, but it may be similar to the provisions in the House bill.

Here is where the wider “endo” issue stands today.

In trying to resolve the issue, it may be helpful to list the various forms that “job contracting,” the term that floats around and is used in the Labor Code and DOLE Order, may encompass.

Job contracting may include contract manufacturing, which is commonly used in the pharmaceutical and electronics industries and maybe in a few more. In this business activity, the contract manufacturer has its own facilities, including machinery, and hires its own workers. Then there are service providers that mainly provide labor service but maintain some facilities to enable them to carry on their business, such as janitorial services providers, messengerial services providers, and the like. Professional firms, such as accounting, law, and maybe other professions, also provide a similar form of services. There may also be temporary worker agencies that provide other types of temporary labor. In all these types of service organizations, the workers are employed by the service firm as its employees and whose work are generally not controlled by the contractee, except in temporary work agencies, where control is exercised by the contractee.

There are also contracted construction workers. The DOLE Order indicates that this activity is governed by a separate set of rules. Seasonal agricultural workers compose another group.

And finally, there is the “endo” or “5-5-5” — the type that triggers the current wider issue of SOT. In this type of job contracting, the contractee exercises control over the workers.

In a direct way of stating it, the central issue is whether all forms of contractual or fixed short-term employment are to be prohibited in order to provide workers SOT. This is exactly the position taken in the House bill.

It should first be noted that contractual and fixed short-term employment are part and parcel of any national economy. It is more prevalent in a setting where there is an abundance of labor, a condition that creates opportunities for business-minded people to organize workers in a manner that offers a cheaper source of manpower supply to business entities. Businesses, on the other hand, always seek lower cost of operations. Moreover, their needs necessarily vary. There are peaks and valleys in their businesses and, as a prudent measure, they maintain an optimal workforce that is below the peak and above the valley. When business is low, it absorbs the cost of unproductive labor; when business is high, they seek contractual labor.

That’s the macro view. Let’s look at the details.

Contract manufacturing is resorted to by a principal, generally, a foreign company, because it needs only a low volume of production and it is a cheaper alternative as opposed to building its own facility in the country. Under that contractual arrangement, the principal can sell its products in the country at a lower price as opposed to producing them itself or importing them. This type of work arrangement appears to be prohibited under the House bill and the DOLE draft bill. If this type of contracting is disallowed, the principal will either import the products or discontinue selling them in the Philippines. In either case, the country loses job employment and suffers a reduction in economic output.

The general language in the House bill may be interpreted to mean that service providers, such as messengerial and janitorial services and professional services, are also prohibited. The DOLE draft bill allows them if the contractee does not exercise control over the workers. Whatever is prohibited, such activities will cease to exist. Those businesses that used to access these services will very likely get the work done by their existing employees or by adding a few workers. But the net effect is reduced employment and decreased output.

Other kinds of temporary services are accessed by business entities to meet some unplanned and unanticipated needs and emergencies; the contractees exercise control over the workers. This type of contracting is clearly prohibited in both the House bill and DOLE draft bill and, therefore, will cease to exist. The effects will be the same as those discussed for other types of prohibited contractual work.

“Endo” is a cost minimization pursuit where labor demand is matched by adequate supply. It is prohibited in the DOLE Order, as well as in the House bill. It is also prohibited in the DOLE draft bill, because it is an arrangement where the contractee has control over the workers. Such a prohibition will result in higher labor costs and, as such, will likely result in reduced employment to temper the effect of the higher cost.

Under the House bill, project workers — which most likely include construction workers — and seasonal workers are deemed regular workers. They will not earn any pay and, presumably, social security benefits between projects and seasons, but they stay in the labor pool and have the right of first refusal for the next project or season. By being regular workers, they may be entitled to retirement benefits under the amended Labor Code. If so, these benefits will add to the cost of their employers. Under the DOLE draft bill, they are considered regular employees only during the time they are at work.

In sum, the prohibition of contractual and fixed short-term employments, with or without any exception, will lead to reduced employment and economic output. In some cases, it may also lead to higher labor costs.

I cannot find a ready measurement of the size of temporary employment in whatever form this is defined. But there is an alternative, although rough, indicator — the underemployment rate. As reported for July 2019, the underemployment rate is 13.9% (15.6% in January 2019). This proportion of underemployed workers to total workers is high, indeed and, therefore, the economic effects mentioned above cannot be ignored.

There is a more compelling consideration why prohibiting contractual work must be studied carefully. The two principal pillars of our economy are the millions of Overseas Filipino Workers (OFWs) who remit their earnings to the country, and the foreign jobs that are outsourced to our shores that create millions of local employment. OFW work is clearly contractual and fixed-term, while business processing work that is outsourced to the Philippines is similar to contract manufacturing. If we find foreign contractual work acceptable, why do we find such work arrangements unacceptable for Philippine business? It is a case of having double standards.

Perhaps, we should define the wider “endo” problem differently and move away from the fixation on SOT. Firstly, we must find and list abusive practices in job contracting and fixed short-term employment and prohibit them, instead of prohibiting entirely these work arrangements themselves. Secondly, we should change our laws to permit contractual and fixed short-term workers to earn wholly portable and higher retirement benefits. I will leave the first one to the experts. Lack of space does not permit me to expound further on the second one. However, it can be done by somehow combining the retirement benefits provided under the Social Security System (portable) and the retirement benefits under the amended Labor Code (non-portable) into the former.

The wider “endo” issue, because of its nature, is a big challenge. The government needs to show brilliance in providing a resolution to it — a fair resolution that will redound to the greater good of all of our citizens. This is not difficult to find.

 

Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.

ben.buklod@yahoo.com

PSEi declines on fears of US growth slowdown

By Denise A. Valdez, Reporter

THE MAIN INDEX slumped on Monday as investors were cautious amid fears of a slowdown in the world’s largest economy, which boosted bets of another rate cut by the US Federal Reserve.

The bellwether Philippine Stock Exchange index (PSEi) slid 0.27% or 21.38 points to close at 7,683.22 on Monday, as the broader all-shares index also went down 0.2% or 9.43 points to 4,666.17.

“Philippine shares began the week on a slightly negative note, with fears of a recession lingering and enough evidence of a slowing economy to maintain market expectations for another Federal Reserve interest rate cut in late October,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a mobile message.

The sentiment on another rate cut comes even as Federal Reserve Bank of Kansas City President Esther L. George said there is no need for another lowering of interest rates, insisting the US economy is “in a good place” in a speech on Sunday.

For Papa Securities Corp. Sales Associate Gabriel Jose F. Perez, the decline in the PSEi also reflects the investors’ focus on the listing of Axelum Resources Corp. (AXLM).

The initial public offering of the coconut products manufacturer was initially expected to drive excitement among retail investors, but its shares went down 6.2% or 31 centavos at the market’s close on its debut.

“It was a quiet day for the PSEi as all eyes were on Axelum’s extremely poor debut, as the stock had fallen by as much as 16% at its intraday low of P4.19, before only being bought up at the close to end at P4.69,” Mr. Perez said in an e-mail.

“AXLM shares fell more than 6% as investors preferred to remain in cash in the meantime. Though the prospects remain sound for the company, investors have been selling the market in general, and the company may have been the result of collateral damage,” Regina Capital’s Mr. Limlingan said.

Three sectoral indices ended in the red on Monday, led by financials which slipped 0.86% or 15.59 points to 1,790. It was followed by holding firms which fell 0.62% or 47.33 points to 7,504.25, and industrials which decreased 0.15% or 16.37 points to 10,460.89.

Gainers were the mining and oil sub-sector which rose 1.58% or 140.15 points to 8,983.22, property which increased 0.59% or 23.65 points to 4,034.55 and services which rose 0.38% or 5.74 points to 1,516.38.

Value turnover was at P5.84 billion with 712.03 million issues changing hands, slightly higher than Friday’s P5.08 billion

Decliners outpaced advancers, 97 to 86, while 57 names were unchanged.

Papa Securities’ Mr. Perez said for the coming days, investors are expected to continue reacting to the movement of the US market, especially with the country’s trade talks with China scheduled to resume on Thursday.

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