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China-funded Kaliwa dam, LGU surveillance projects seen making progress

THE GOVERNMENT is readying the procurement of contractors for more China-funded projects this quarter, the Department of Finance (DoF) said.
“We have a lot of projects in the pipeline… the next one will be the awarding of the contractor for the Kaliwa Dam [New Centennial Water Source project] that will supply water for the Metro Manila area,” Finance Secretary Carlos G. Dominguez III told reporters Tuesday afternoon on the sidelines of the groundbreaking ceremony for the Binondo-Intramuros and the Estrella-Pantaleon bridges granted by China.
“And there will be the Safe Philippines project — this is basically with the DILG (Department of the Interior and Local Government) will be probably be bid out within the month… end of July or early August,” he added.
Several China-funded projects started gaining traction this year, after the grant and loan agreements for the two bridges as well as that for the Chico River Pump Irrigation Project were signed in April.
Construction of the P4.37-billion Chico River project in northern Luzon began last month, and is contracted to China CAMC Engineering Co. Ltd. CAMC is to install electric pumps, build pumping stations and irrigation canals, and other facilities.
The loan for the irrigation project bears an interest rate of 2% with a maturity period of 20 years, inclusive of a seven-year grace period.
The P12.2-billion Kaliwa Dam project, meanwhile, is an integrated dam in Rizal with a 600 million-liter per day (MLD) capacity, as well as a raw water conveyance tunnel with a 2,400 MLD capacity, which will help relieve the capital’s dependence on Angat dam.
The Safe Philippines project, costing P20.31 billion, involves the construction of 18 integrated operations and command centers with video surveillance systems and a remote backup data center to improve the capabilities of local government units in managing public security and safety.
Although the President has approved the Kaliwa Dam and Safe Philippines projects, the loan agreements between the Philippines and China have yet to be signed.
Also among projects being proposed for Chinese funding include the P57.6-billion Subic-Clark Railway, the P25.63-billion Davao City expressway, and the P27.16-billion Panay-Guimaras-Negros Inter-Island Bridge. — Elijah Joseph C. Tubayan

DoST expands science scholarship program

THE Science and Technology department said it is expanding its department scholarship program in 2019 by admitting more participants and upgrading benefits.
The expansion was announced by the Department of Science and Technology — Science Education Institute (DoST-SEI).
DoST Secretary Fortunato T. de la Peña said in a statement: “Through the new benefits in our Scholarship Program, we hope to get more scholars and graduates who will eventually work in the science and technology (S&T) field for the country.”
DoST hopes to support 33,256 scholars overall next year, with a target of 26,935 undergraduates by 2019. It did not provide comparative figures.
Undergraduate scholars will enjoy “an increased monthly stipend of P7,000 per month, in addition to P40,000 per year tuition and other school fees subsidy, P10,000 per year book allowance, a one-time P1,000 uniform allowance; a one-time graduation allowance, one economy-class round trip fare per year for those studying outside of their home province, and group insurance” DoST said.
It did not say what the previous benefits were.
DoST is authorized to support S&T students under Republic Act 7687, or the Science and Technology Act of 1994. In exchange, scholars agree to a service obligation, which requires them to practice S&T in the Philippines. Any periods of overseas study require the signing of a commitment to return.
The service obligation takes effect “immediately upon completion of a Bachelor of Science course,” according to the law, with scholars required to serve full-time in his or her selected field “for a minimum period equivalent to the length of time a scholar enjoyed the scholarship.”
The eligible activities for service obligations are “organizing technology-based livelihood activities or enterprises, teaching, or such other service related to the course or training he has completed, and, for this purpose, requiring the execution of a contract between the Government and the scholar incorporating the details of the said service obligation.”
“Some 80% of our undergraduate scholars come from poor or near poor families,” said DoST-SEI Director Josette T. Biyo.
“We believe that a degree is the greatest equalizer,” she added.
“Through the scholarship programs, we aim to increase the pool of competitive young scientists (and) experts and also improve the lives of the Filipinos,” Ms. Biyo said.
The 2019 DoST-SEI Undergraduate Science and Technology Scholarship is open to Grade 12 students.
Interested applicants must be Filipino citizens and Grade 12 students in the STEM (science, technology, engineering and math) strand in the 2018-2019 academic year or a qualified Non-STEM Strand student in AY 2018-2019.
The application period started on July 2 with a filing deadline for applications of Aug. 31, 2018.
The applicant can obtain and file an application through the Science Education Institute, Provincial Science and Technology Centers, and DoST Regional Offices.
A downloadable application form is also available in SEI’s website www.sei.dost.gov.ph. Qualifying examinations will be on Oct. 21, 2018. — Gillian M. Cortez

Foreign nationals and the practice of real estate service

The real estate industry is rapidly changing. Shared workspaces and serviced offices are sprouting to meet demand for mobility, connectivity, and flexibility. Townships and mixed-use developments are sprawling inside and outside Metro Manila. Aggressive government infrastructure projects and road network expansions advance real estate development.
This growth must ideally be complemented by skilled real estate service practitioners. Currently, aspiring real estate service practitioners (i.e., brokers, appraisers, and consultants) must graduate from a four-year degree program and pass the related licensure examination. Unlicensed real estate service practitioners may suffer a penalty of not less than P200,000 or imprisonment of not less than four years, or both, upon the discretion of the court.
Real estate services may be performed through a corporation. However, authorized persons acting for the corporation must be composed of duly registered and licensed real estate brokers, appraisers, or consultants, as the case may be.
Foreign citizens may also practice real estate services in the Philippines, subject to conditions imposed by the Professional Regulations Commission (PRC) and foreign treaties on reciprocity. A special/temporary permit may be issued to foreign citizens whose services are urgently needed in the absence or unavailability of local real estate service practitioners.
Given the advent of international real estate brokerage and consulting corporations in the Philippines, can foreigners invest in corporations engaged in the business of real estate services?
According to an opinion by the Securities and Exchange Commission (SEC), no foreign participation is allowed in this industry. Hence, corporations engaged in the practice of real estate service should be 100% owned by Filipinos based on the provisions of the 1987 Constitution, earlier versions of the Foreign Investment Negative Lists (FINL), and previous decisions of the SEC.
While the SEC took note of the 10th FINL which expressly allows foreigners to participate in real estate services, it did not adopt the shift to a liberal policy; instead, the SEC sought clarification from the National Economic and Development Authority (NEDA), the lead agency tasked to endorse the amendments to the FINL. Incidentally, the issue may be settled in the forthcoming 11th FINL, which is currently under review by the Office of the President.
At present, the Senate is also planning to review Republic Act 7042, or the Foreign Investments Act of 1991 — the law which requires the formulation of the FINL. The Senate wants to determine whether the 27-year-old law is still “appropriate to the present times” and whether the Philippines is reaping the rewards envisioned by our lawmakers when it was drafted.
The penalty for violating the Foreign Investments Act is steep. Any person who participates, aids, or abets any violation of the law shall be subjected to a fine not exceeding P100,000. If the offense is committed by a juridical entity, the fine will be assessed as a fraction of 1% of total paid-in capital but not more than P5,000,000. The president and/or officials responsible for the violation shall also be subjected to a fine not exceeding P200,000.
In reviewing the Foreign Investments Act, the Senate must also look at Commonwealth Act No. 108, or the Anti-Dummy Law, which prohibits foreigners from being appointed or elected to management positions in wholly or partially nationalized industries. The Senate should review whether foreign practitioners can be allowed to hold management positions in corporations practicing professions.
Historically, government intervention tends to increase given the passage of time. However, the current administration’s policy towards liberalization of foreign investment is obvious in how it is openly encouraged. Perhaps this is its way of attracting foreign investors to activities which significantly contribute to the economy. The shift in policy may also be an implied admission that a prohibitory nationalistic policy is a handicap in the current global marketplace.
In fact, the Office of the President issued Memorandum Order No. 16, directing NEDA and its member agencies to exert utmost efforts to lift or ease foreign equity restrictions in various areas. This includes the “practice of professions where allowing foreign equity participation will redound to the benefit of the public.”
Understandably, local professionals are concerned about the influx of foreign practitioners — being competitors in their area of expertise. But lest we forget, competition is necessary for a healthy and vibrant economy. After all, they can bring their skill, knowledge, and experience to complement the local work force.
Ultimately, we have to accept that foreign real estate brokers, appraisers, and consultants are drivers of foreign investment, as well as real estate innovators who can introduce foreign practices and trends in the local market. However, most of them will not be coming to hand out flyers on the street — but participate in large real estate service corporations in the country.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
 
Al Whilan A. Baljon is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
+63 (2) 845-2728
al.whilan.a.baljon@ph.pwc.com

Taxation under the draft ConCom Constitution

By Benjamin R. Punongbayan
I WAS very surprised about the final output of the Consultative Committee to Review the 1987 Constitution. The resulting proposed constitution is not federalism at all!
I would describe the resulting document as providing a bit more decentralization and a slightly increased internal revenue allocation (IRA). I equate federalism to a government structure with a high level of local autonomy. The draft constitution does not have it.
The central government retains much of the government powers: taxation; national economic planning; police; elections; science and technology; civil, property, and commercial laws; prosecution of graft and corruption; and even basic education. The significant additional powers given to the regions (the term “state” was avoided) are infrastructure development; economic zones; and land use and housing within the region. The list of regional powers does not even include health care and the responsibility for the region’s environment and natural resources. I assume these were reserved for the central government.
The key element in region (state) autonomy under true federalism is the power to levy taxes — the direct collection of taxes to create the dynamism within the region to propel its economic growth. This principle and intent has been much expressed earlier by federalism proponents. There were then repeated statements that the regions (states) will directly collect much of the taxes and give a share of the total region tax collections to the central government to cover its needs. Well, that did not happen.
In general, the various changes in the draft constitution could all be made under the present government structure without calling it federalism. I guess the proponents started with federalism and wanted to end with federalism even when the output is not federalism.
Insofar as taxation is concerned, nothing much has changed.
The imposition of existing national taxation in almost all of its entirety has not been brought down to the region level. The central government continues to impose the large lines of taxes, like income tax; value-added tax (quite likely, includes percentage tax); excise tax; and customs duties. Very little has been added to the sources of direct region taxation. Additional sources come from documentary stamp tax; amusements and gaming tax; vehicles tax; and a few more. These sources provide a small amount of taxes. Moreover, these additional local taxes favor the rich regions.
Double taxation is not allowed so that the regions cannot impose taxes similar to national taxes. For example, the regions cannot impose income tax or any form of sales tax.
The regions’ main source of revenue will continue to come from an allocation of total national tax collections. This allocation was increased from the present 40% IRA to 50%, which is not much. In anticipation that, the share of the poor regions will not be enough for their needs, an equalization fund of 3% of total national tax collections is to be established. But this is quite small as I will show later.
To show a picture of these tax sharing and allocations, I made some calculations using the actual national tax collections in 2017. The Bureau of Internal Revenue collected P1,744 billion; Customs P457 billion; or a rounded off total of P2,200 billion. From this total, let us deduct the 3% equalization fund and the 5% annual Block Grant to Bangsamoro that is provided in the legislation currently being worked out in Congress, leaving 92% of which half goes to the 17 regions, excluding Bangsamoro.
That one half of 92% is equivalent to P1,012 billion to be divided among 17 regions. The current division formula for IRA is a weighted system based on population, geographical area, and a portion divided equally. The resulting allocation among the regions will, therefore, show a wide range. But let’s look at the average. On average, each of the 17 regions gets P60 billion and Bangsamoro, P110 billion. (The calculation of the Bangsamoro share has been simplified, but the result will not differ much from a long calculation.) Clearly, the share of each of the 17 regions is rather small, particularly for poor regions that tend to have a smaller population and smaller geographical area.
In essence, the regions are being given a straitjacket. A region cannot increase its sources of direct region taxation; it will mainly depend on its share of the national tax collections. It is not difficult to see that a region’s economic growth will depend almost entirely on the growth of the entire economy. Its relative position among the other regions will remain practically the same, or may even worsen in the case of poor regions, because the rich regions have a better economic engine.
In comparison, under the current government structure, the national government has the flexibility to help the poor regions much more (if it wants to) by providing additional financial resources to them, because it does not have the constraints now imposed in the draft constitution.
Under the draft constitution, the tax revenue pie has been put in a rigid grid. Tweaking the grid to favor one or two regions, especially if done repeatedly, will certainly trigger protests from other regions. It should be noted that there are only three rich regions in the country and, therefore, 15 regions would want to have a share of the equalization fund, which is equivalent to only P66 billion based on the 2017 national tax collections. (Surprisingly, this small fund will be administered by a commission composing of 15 top officers of the Republic!) That amount is equivalent, on the average, to only P4.4 billion for each of the 15 regions.
Clearly, the earlier intent of making the regions dynamic to pursue higher economic growth on its own cannot be realized. A region is constrained by its inability to raise incremental money through additional sources of direct taxation. It can only roll in the same tempo, or even slower, as the entire national economy rolls.
Looking at it in another way, the increase in the spending money of the regions is practically only 10% of the total national tax collections. We are making huge changes in the government structure, not to mention the additional cost that those changes entail, just to take care of that small increase. It does not make sense.
The weakness of the draft document is that there is too much focus and emphasis on form and pontification, but it is short of substance, except on two commendable areas: restraining political dynasties and introducing political party proportional representation in the House of Representatives and regional assemblies. But even in these two areas, the document came up short. The framers pulled their punches. I believe that, if one needs to inflict pain to achieve an elusive objective, he has to do it deep and hard, but once only. Otherwise, he may not be able to do it again.
Is the new better than the old? I don’t think so. It is a case of trying to make something better, but actually making it worse. There is another worry, which is not directly related to the main point of this commentary. There is a perception that local government executives see the present IRA as a doleout and, therefore, tend not to take good care of it, because the accountability for its use is not clear: To the national government? To the entire Filipino people? To the citizens of the local jurisdiction? That tax share has now been increased, although modestly.
The specter of Imperial Manila, now Imperial Davao, remains lurking.
 
Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.
ben.buklod@yahoo.com

Road (Board) to nowhere

In September 2017, the President expressed the opinion that the Road Board, a government agency, must go. This was seconded by House Speaker Pantaleon Alvarez, who had noted that the board had lost or misused about P91 billion in public funds from 2001 to 2012. Unsurprisingly, by May this year, the House of Representatives approved a bill to abolish the board.
The Road Board was created in 2000 through Republic Act 8794. What Congress did at the time was to revise and raise the registration fees collected from car owners into what is now known as the Motor Vehicle User’s Charge or MVUC. And, all these registration fees collected by the government were earmarked primarily for spending on road improvements and road safety.
Section 7 of that law also stated that, “a Road Board to implement the prudent and efficient management and utilization of the special funds [MVUC] shall be organized by the President of the Philippines. The Road Board shall be composed of seven (7) members, with the secretary of the DPWH as ex-officio head, and the secretaries of the Department of Finance, Budget and Management, and the Transportation and Communication, as ex-officio members. The remaining three (3) members shall come from transport and motorist organization, which have been in existence and active for the last five (5) years prior to this Act. They shall be appointed for the term of two (2) years each by the President of the Philippines upon the recommendation of the secretaries of the DPWH and the DOTC.”
The same section also required that, “All monies collected under this Act shall be earmarked solely and used exclusively (1) for road maintenance and the improvement of the road drainage, (2) for the installation of adequate and efficient traffic lights and road safety devices, and (3) for the air pollution control”.
Of all MVUC fees collected, 80% will go to a Special Road Support Fund and 5% will go to a Special Local Road Fund. Both funds will be under the DPWH. Then, 7.5% will go to the Special Vehicle Pollution Control Fund under the DOTC. The remaining 7.5% will go to a Special Road Safety Fund.
Then, 70% of the Special Road Support Fund under DPWH should be used exclusively for the maintenance of, and the improvement of drainage of national primary roads. The remaining 30% should go to the maintenance, and improvement of drainage of national secondary roads throughout the country.
Meanwhile, the cost of installation of adequate and efficient traffic lights and road safety devices throughout the country, where such traffic lights and safety devices are needed, will come from the Special Road Safety Fund. It is unclear in RA 8794, however, which agency is to administer this safety fund.
But while RA 8794 appears to have been well-intended, the Road Board’s 18-year existence since 2000 has been mired in scandal and controversy, including allegations of misuse, abuse and corruption, as well as rumors that the ambush and death of a Public Works undersecretary in 2007 may have been connected to the Road Board as well.
In 2009, then senator Miriam Defensor Santiago even went all out against the Road Board for what she termed as “apocalyptic corruption” of about P60.5 billion in MVUC fees, or commonly known as road user’s tax. Miriam’s legislative inquiry resulted in the recommending the filing of charges against then Public Works and Road Board officials.
Miriam also recommended that RA 8794 or the Motor Vehicles User’s Charge Act should either be amended or repealed, in order to provide for the deposit of road taxes directly with the National Treasury, and for the inclusion of its appropriations in the national budget in order to assure legislative oversight. Santiago also wanted the creation of a Special Senate Oversight Committee on the Road Users’ Tax.
Last year, Speaker Alvarez alleged that audit reports indicated illegal use of funds by the board amounting to about P91 billion from 2001 to December 2012, including discrepancies amounting to P1.495 billion in what the Land Transportation Office claims to have collected in MVUC fees and what the Bureau of the Treasury has certified as amounts collected.
And just yesterday, the Philippine Star reported that billions of pesos in MVUC fees were wasted by the Road Board by mismanaging a highway lighting program that started in 2013. The Star reported that the Commission on Audit (COA), in a 2017 report, noted that the P3.97-billion National Road Lighting Program was not efficiently and effectively implemented in 2013-2016 because it was carried out by the Road Board Secretariat, which did not have the technical capability and was not mandated to implement infrastructure projects.
The Star quoted the audit report as noting the delayed implementation of projects, and the construction of lamp posts without luminaries or lights and non-replacement of busted and/or missing lights. “Consequently, the public was deprived of the benefits that could have been derived from eco-friendly and sufficiently lit roads,” the COA report reportedly read.
Given all this, I believe it is timely for Congress to finally act on this matter. I had believed in the value of having a Road Board, as with the practice abroad, and in earmarking car registration fees for road improvement and road safety projects. I also thought private sector representation in a government unit can help improve accountability and deter corruption.
However, I can now admit to being wrong. Experience shows us, through 18 years of the Road Board, that it takes only a few corrupt or incompetent officials to ruin even the best of plans or programs. In this line, I guess it is better to just get rid of the board now, than lose more government money to incompetence and corruption.
 
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council
matort@yahoo.com

A strategic framework for start-ups

When I started my small business seven years ago, I didn’t use any of the tools I teach in my Strategic Management class. It’s not that I went into it without much study because I did a lot of the usual trading area surveys, site feasibilities, and financial analyses. Maybe it was because the business is a franchise, or because the decision to start it was more tactical in nature. Regardless, I found the traditional strategy tools more suited for larger companies.
Like many entrepreneurs, I still dream of starting a venture that would change the world — or at least the Philippines. I often wonder if there are tools more suited for small businesses.
Recently, I came across the article “Strategy for Start-ups” in the May-June 2018 issue of the Harvard Business Review.
Authors Joshua Gans, Erin Scott, and Scott Stern propose the use of an Entrepreneurial Strategy Compass. They argue that every new venture must consider two competitive trade-offs: “Do we collaborate or compete with established players?” and “Do we build a moat or storm a hill?” An entrepreneur’s decisions on these two aspects will lead to any of four generic strategies depicted in the quadrant.
Under the Intellectual Property Strategy, the venture collaborates with existing players and works zealously to protect the product or technology it develops. Ray Dolby developed noise reduction technologies and started Dolby Laboratories. The company went on to become a global standard by licensing its proprietary technology to product developers and manufacturers such as Sony and Bose.
startup
The Disruption Strategy involves the decision to compete with the incumbents and work for the quick commercialization of the product or technology (“storm a hill”). Netflix disrupted the movie rental industry (and cable television eventually) and expanded rapidly in the United States. One can argue that Uber used the same strategy worldwide except that other players were quicker to establish similar services in other parts of the world (e.g., Didi Chuxing in China and Grab in Southeast Asia). Both companies are known for their high rates of cash burn as they aggressively sought customers. Netflix’s model became harder to replicate when Netflix built significant barriers by emphasizing high quality content.
Ventures that follow the Value Chain Strategy work with the industry by building unique capabilities to become preferred partners. Foxconn developed competencies to bring new products to the market at scale and on time, thereby becoming the preferred outsourced manufacturer of companies such as Apple.
The Architectural Strategy seeks to “design an entirely new value chain and then control the key bottlenecks in it.” They compete with existing players while bringing their innovation to market through a deliberate, planned process. Google and Facebook are the poster children for this quadrant. Both companies were adamant about not charging users, and instead devised innovative ways of earning money through the “eyeballs” generated by their sites.
The article is sure to provoke a lot of discussion regarding strategy and entrepreneurship. Some of the companies cited as examples can also be viewed from other quadrants. Google, for example, can also be thought of as using a Disruption Strategy because its decision to provide the product for free also led to rapid adoption.
Entrepreneurs tinkering with the “next big thing” would do well to consider the points raised by the authors. But they should be aware that other keen observers argue that there is no “science for start-ups.” Research by Anthony K Tjan and Julian Lange suggests that plans make no statistical difference in a start-up’s success. Disciples of this philosophy advocate the no-plan plan. They say that you should just launch your product, learn from your customers quickly, modify, and scale as quickly as you can.
Would I have used the Entrepreneurial Strategy Compass if I had known about it seven years ago? It does not apply to the franchise business I started given that franchise concepts are already tested in the marketplace. I will continue to look for tools that are better suited for such ventures. I may even develop my own set of tools! However, I will definitely think of this compass if ever I do discover the next big product or service.
 
Jose Eduardo Custodio is a Lecturer at the Management and Organization Department of the Ramon V. Del Rosario College of Business at De La Salle University.
jose.eduardo.custodio@dlsu.edu.ph

TRAIN 2 and the features of a good tax system

By Yasuyuki Sawada
ADEQUATE government revenues are critical for a country’s development, and the Philippines is no exception. Improving infrastructure, reducing poverty and inequality, and investing in health and education — all require strong public finances. The Asian Development Bank estimates that the Philippines will need to invest about 7% of GDP annually in infrastructure alone to support the country’s rapid growth. The Duterte administration is targeting reaching that level of infrastructure investment by 2022, more than doubling it from less than 3% of GDP on average over the past two decades.
At present, the Philippine government’s revenues are just under 20% of GDP, well below the 25% of GDP average for developing Asia and the 36% of GDP average for advanced economies. Ensuring adequate revenues — one of the key features of a good tax system — is one of the primary motivations behind the government’s five-part tax reform program. The tax reform and improvements in tax administration aim to raise up to 3% of GDP annually in additional revenues, with 70% of this earmarked for infrastructure and 30% for social spending.
Just as important as mobilizing revenue, however, is ensuring that the tax system works well. There are several other features of a good tax system beyond revenue adequacy. These are equity, efficiency, competitiveness, stability and predictability, ease of administration and compliance, and the need to ground policies in evidence. Let’s see how the tax reforms, and particularly the second legislative package known as TRAIN 2, fare along these seven dimensions.
Oftentimes when people think of equity in taxation, they focus on “vertical equity,” or how the tax system treats people with different incomes. Most tax systems aim for progressivity, where the rich pay a higher share of their income in taxes than the poor. The first phase of the tax reforms addressed this issue and succeeded in reducing personal income taxes for the bottom 99% of the population.
But another important element is “horizontal equity,” or how the tax system treats similar entities. The guiding principle is fairness — the playing field must be level, so that similar entities face similar tax rates. If we look at the current system, the incentives that some firms get but others don’t works against horizontal equity. Firms that manage to get tax incentives face much lower effective tax rates of 6-14%, whereas firms that don’t face a 30% rate. TRAIN 2 aims to improve horizontal equity by rationalizing fiscal incentives for businesses.
By rationalizing existing fiscal incentives, TRAIN 2 will allow for a reduction in the 30% corporate income tax rate, and this will help with the third and fourth features of a good tax system — efficiency and competitiveness. One of the principles in public finance is that distortions, or the decline in society’s well-being due to a tax, rise disproportionately with the tax rate. For this reason, it is more efficient to have a broader tax base and a lower rate, and that is what TRAIN 2 is trying to do for corporate taxation. A lower corporate tax rate will make the Philippines’ tax system more competitive, as it currently has the highest corporate tax rates in ASEAN.
One argument often leveled against TRAIN 2 and the tax reform program more broadly is that by changing things, the government is reducing the stability and predictability of the tax system — the fifth feature of a good tax system. But one cannot and should not keep a tax system fixed — especially a flawed one — simply for the sake of “stability.” The Philippines’ tax system is in dire need of fixing, and this is the first major tax reform in the Philippines in two decades. If we allow it to be done right, and done quickly, the Philippines will not need tax reform for another two decades.
When it comes to the sixth feature of a good tax system, ease of administration and compliance, two elements are very important — simplicity and transparency. TRAIN 2 aims to help by replacing the 123 special laws that govern tax incentives with a single law, and bring the 14 different investment promotion agencies under a single body, the Fiscal Incentives Review Board. One lesson from history is that the government should not be in the job of “picking winners” — the track record of countries around the world in doing this is not good, and it often stimulates lobbying for personal gain. Rather, incentives should be based on firms’ documented ability to deliver, whether it be creating more jobs, raising incomes, or increasing exports.
Which brings us to the final feature of a good tax system and of good policy more generally — that it be supported by solid evidence. The proliferation of large amounts of useful data have led to a “credibility revolution” in evidence-based policy making.
Thanks to the Tax Incentives Management and Transparency Act, it is now possible to analyze whether tax incentives — which reduced government revenues by P301 billion in 2015 — have delivered the employment, income, and export growth it promised. This lines up well with the objective of TRAIN 2 to make tax incentives more performance-based.
In sum, TRAIN 2 and the broader tax package are critical to strengthening the Philippines’ tax system. Passage of this important legislation will demonstrate the commitment of Congress, and the country more broadly, to the reforms that are needed to spur growth, reduce poverty and inequality, and achieve upper middle-income status. It will also set the foundations for stronger and more inclusive growth for the next generation of Filipinos.
 
Yasuyuki Sawada is the Chief Economist of the Asian Development Bank.

Bourse ends at one-month peak on Fed cues

By Arra B. Francia, Reporter
THE Philippine Stock Exchange index (PSEi) finished at a one-month high on Wednesday, drawing strength from Wall Street’s rise on Federal Reserve Chairman Jerome Powell’s optimistic remarks on the US economy and solid earnings results.
PSEi gained 69.69 points or 0.94% to close 7,451.37 — the best finish since June 18’s 7,414.11 — while the all-shares index climbed 27.13 points or 0.6% to 4,492.51.
Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a mobile phone message that PSEi’s “activity focused on the… statement from Powell and strong US macro data” that fueled the rise of all three major Wall Street indices.
Joining PSEi in its rise were Japan’s Nikkei (up 0.43%) and TOPIX indices (0.36%), while Hong Kong’s Hang Seng Index, the Shanghai SE Composite Index and the blue-chip Shanghai-Shenzhen CSI 300 gave up 0.23%, 0.35% and 0.52%, respectively.
China Bank Securities Corp. Research Director Garie G. Ouano said the PSEi’s rise was likely due to bargain hunting. “(The PSEi’s performance was) still likely just a continuation of broad bargain hunting after the index exited bear territory,” Mr. Ouano said in a text message. “The fact that the market largely ignored bad news today (e.g. more BSP rate hikes, weak auto sales) suggests that these developments have been price in already.”
Expectations have been mounting among bank economists that quickening inflation — which picked up for the sixth straight month to a fresh five-year-high 5.2% in June — will force the Bangko Sentral ng Pilipinas (BSP) to raise policy interest rates further next month after back-to-back increases of 25 basis points each in May and June.
All six sectoral indices moved to positive territory, led by the property sector which gained 1.35% or 48.83 points to 3,644.98, followed by holding firms that increased by 1.06% or 77.06 points to 7,307.31; mining and oil which climbed 0.84% or 81.67 points to 9,740.29; financials which rose by 0.64% or 11.77 points to 1,834.97; services which went up 0.52% or 7.53 points to 1,450.76; and industrials which added 0.33% or 35 points to 10,550.49.
Turnover picked up to P4.25 billion on Wednesday after some 1.24 billion issues changed hands, versus the preceding day’s 456.02 million issues worth P3.59 billion.
Stocks that gained outnumbered those that lost 108 to 76, while 52 others ended flat.
Overseas investors snapped their nine-day selling streak, ending Wednesday with P203.79-million net foreign buying.
Thirteen of the 20 most active stocks gained, including Ayala Land, Inc. (2.94% to P38.50); SM Investments Corp. (1.11% to P910) and SSI Group, Inc. (9.39% to P1.98) after announcing it will bring in New York-based burger joint Shake Shack by 2019. The five on the list that lost included Metropolitan Bank & Trust Co. (0.36% to P69.75) and Megawide Construction Corp. (6.59% to P17).

Peso declines vs dollar

THE PESO weakened after a hawkish speech by Federal Reserve Chair Jerome Powell. — PHILSTAR/MIGUEL DE GUZMAN

THE PESO weakened on Wednesday as the dollar gained ground following the upbeat testimony of US Federal Reserve Chair Jerome Powell.
The local unit ended Wednesday’s session at P53.49 versus the greenback, 10 centavos weaker than the P53.39-per-dollar finish on Tuesday.
The peso opened the session weaker at P53.44, slipping to as low as P53.525-per-dollar intraday. Its best showing stood at P53.42 against the US currency.
Dollars traded declined to $423.55 million from the $504.59 million that exchanged hands on Tuesday.
A foreign exchange trader said in a phone interview that the peso continued to consolidate on Wednesday.
“It’s still within the recent range for the dollar-peso so I think we’re still trading sideways,” the trader said. “We still saw consolidation for the local pair.”
Another trader attributed the peso’s weakness to the “hawkish” testimony of Mr. Powell before the US Senate.
“The peso depreciated following the hawkish remarks from the US Fed Chairman Jerome Powell which strengthened the gradual rate hike path of the US central bank,” the second trader said in an e-mail.
Reuters reported Mr. Powell said before the Senate Banking Committee that he sees the US on track for years of steady growth amid strong job market and steady inflation.
The central bank chief also discounted the risk that a trade war may derail the global economic recovery.
“The dollar grew stronger overnight due to some comments made by Powell. He reaffirmed the rate guidance for the US Fed,” the first trader said.
The trader added the peso weakened despite the Fitch Ratings’ affirmation of the country’s investment grade rating. The global debt watcher said Wednesday, July 18, that it has kept its “BBB” rating on the Philippines, a notch above the minimum investment grade. Fitch has also maintained its “stable” outlook.
For Thursday, the traders expect the peso to move between P53.35 and P53.55 versus the dollar.
“The peso is expected to strengthen due to likely stronger inflation reading from the euro zone and expectations of softer US housing data,” the second trader noted. — Karl Angelo N. Vidal with Reuters

Senators oppose ‘no election’ plan by Speaker

By Camille A. Aguinaldo, Reporter
SENATORS ON Wednesday rejected the proposal of House Speaker Pantaleon D. Alvarez for people’s initiative to amend the Constitution, calling the idea “self-serving,” a “lengthy process,” and even a “waste of resources.”
Senator Aquilino Martin L. Pimentel III, Mr. Alvarez’s ally in the ruling Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban), appealed to the House Speaker to reconsider the idea, noting the “time-consuming” prospect of the proposal. However, he said Mr. Alvarez was the proper person to lead such efforts.
“He has to carefully think about it. That is too cumbersome a procedure, hence time-consuming, plus the question if a law is in place which sufficiently implements people’s initiative. But he is the proper person to lead such an initiative because the procedure involves all the legislative districts of the country,” he said in a mobile phone message to reporters.
For his part, Senate President Pro Tempore Ralph G. Recto said the idea would not be a “real people’s initiative.”
“He can. But then it’s not a real people’s initiative but a Speaker’s initiative or political elite initiative….,The people will want to have elections scheduled,” he said in a text message to reporters.
Senate Minority Leader Franklin M. Drilon said the people’s initiative should not be used to change the terms of office among government officials.
“The people’s initiative is for minor amendments to the Constitution. Changing the term of office, for me, requires major amendments that cannot be done through people’s initiative…,Let’s bring the matter to the Supreme Court. We will question it,” he told reporters.
For his part, Senator Panfilo M. Lacson said resorting to people’s initiative does not remove the Senate’s participation in charter change. He said the provisions of the Constitution provide Congress to implement this alternative mode of Charter change.
“It goes without saying, majority of the senators, even those running for reelection will fight tooth and nail any attempt to cancel the 2019 midterm elections simply because it is wrong and self-serving,” he said in a text message to reporters.
Mr. Alvarez floated the idea on Monday, in response to the senators’ refusal to postpone the 2019 midterm elections. He said deferring the polls would allow Congress as a constituent assembly to focus on charter change.
The House leader then reiterated his statement on Wednesday, saying in an interview with DZMM that he wanted to have the people’s initiative to be conducted before the October deadline on the certificates of candidacies for the midterm polls next year.
“We are not making shortcuts. If the Senate disagrees (with the postponement of elections), the public may decide if they believe that it (the Constitution) must be changed,” Mr. Alvarez said in the radio interview.
Senators have also said the Constitution needed amendments to allow a “no election” scenario in 2019.
Aside from Congress convening into a constituent assembly and the holding of a constitutional convention to propose amendments or revisions to the Charter, the 1987 Constitution allows the public to directly propose amendments through a petition of at least 12% of the country’s total registered voters. Every legislative district must be represented by at least 3% of the registered voters.
For his part, Senator Francis G. Escudero was skeptical with the proposal, noting his confusion with Mr. Alvarez’s intent to postpone elections when the public and Malacañang were against it.
“That’s totally up to him. But I don’t think it can be done before the 2019 elections because they need the signatures of at least 12% of total registered voters with each congressional district represented by at least 3% of the registered voters therein,” he said.
“Quite frankly, I don’t know why he seems so obsessed with postponing the election when neither the people nor the Palace supports such postponement,” he added.
Senator Grace S. Poe-Llamanzares warned Mr. Alvarez not to commit “shortcuts and tricks” to pursue Charter change.
“This was tried in the past under GMA (former President Gloria Macapagal-Arroyo) but it was unsuccessful. It is a lengthy and tedious process. The Speaker should not try any shortcuts and tricks if he believes the proposed Charter is judicious and a true solution to the needs of our people,” she said.
Senator Sherwin T. Gatchalian called the idea a “waste of resources” and divisive while Senator Joseph Victor G. Ejercito believed the proposal might be a “futile effort” as the public expects for the midterm polls to push through.
“The people’s initiative to postpone the 2019 elections will just be a waste of resources and it will also further divide the country into deeper political abyss,” Mr. Gatchalian said in text message to reporters.
“People expect elections already to push through in 2019. That might be a futile effort,” Mr. Ejercito said in a phone message to reporters.
Senator Francis N. Pangilinan, chair of the Senate committee on constitutional amendments and revision of codes, said the government funds that would be spent for people’s initiative could be used to “better use” instead.

Bicam approves Bangsamoro law after six marathon hearings

By Charmaine A. Tadalan
THE Bicameral Conference Committee has approved on Wednesday night, July 18, the reconciled version of the Bangsamoro Basic Law (BBL), which will be called the Organic Law of the Bangsamoro Autonomous Region in the Muslim Mindanao.
The landmark bill, according to Senate Majority Leader Juan Miguel F. Zubiri, hurdled the bicameral level a year after the Bangsamoro Transition Commission (BTC) submitted the draft BBL to President Rodrigo R. Duterte.
“First of all, we’re addressing the aspirations of our brothers and sisters for self-governance, additional funding for the block grant, they’ll be able now to chart their own path,” Mr. Zubiri told reporters in a chance interview, following the approval.
House Majority Leader Rodolfo C. Fariñas, for his part, expressed confidence the Committee had addressed all possible constitutional breach.
“Definitely, we want them to bring it (to the Supreme Court), (so that) it will pass the test of constitutionality,” Mr. Fariñas said.
The Majority Leaders said a copy of the reconciled version will be provided to the Office of the Presidential Adviser on the Peace Process and will be subject for review of the President. “Both panels will be able to ratify it Monday morning, barring any unforeseen circumstances,” Mr. Zubiri said.
The Committee on Wednesday afternoon finalized the last five articles of the proposed Bangsamoro Basic Law (BBL) including the article on the economy and patrimony. The committee has held six marathon hearings on the draft law.
“(We’ll) discuss these five articles, and hopefully approve it by this afternoon,” Senate Majority Leader Juan Miguel F. Zubiri said in a press briefing. “We’re down to the last five articles and we see only one article that is contentious and sensitive, which is patrimony and natural resources.”
The senator from Bukidnon said the BBL has by far the longest bicameral meeting. “This measure probably has the longest bicam. Ito siguro pinakamatagal (This probably took the longest), longer than TRAIN (Tax Reform for Acceleration and Inclusion). TRAIN, we did in four days,” Mr. Zubiri said.
Earlier, he said the draft BBL, if approved, will only amend, not repeal, Republic Act 9054 on the organization of the Autonomous Region in Muslim Mindanao (ARMM).
Under the article on economy and patrimony, the proposed measure identifies the power, authority and control of the Bangsamoro government on the utilization of inland bodies of water, natural resources, and fossil fuels among others.
The panel agreed last week to allow the national government, through the Department of Energy (DoE), and the Bangsamoro government to jointly explore and utilize natural resources in the region.
It was also resolved that inland waters of the Bangsamoro region will be under the control of the Bangsamoro regional government, save bodies of water that contribute power outside the region. Case in point is Lake Lanao which produces power for about 30% of Mindanao. Further, the proposed measure provides that Bangsamoro waters in the Sulu Sea and Moro Gulf will extend up to 19 kilometers from the low-water mark at the coast.
Also resolved by the committee were issues concerning the Shari’ah courts. At present, according to Mr. Zubiri, the Shari’ah justice system does not require court members to be lawyers, but they must be experts on the Qur’an and Islamic Law.
“Right now, hindi needed na abogado dahil meron silang special exam na binibigay ng (it’s not required that they be lawyers because they take a special exam given by the) Supreme Court, (the) Special Shari’ah Bar Exam,” Mr. Zubiri said.
But he also noted that the proposed BBL expands the Shari’ah justice system, which will now have criminal jurisdiction on minor offenses.
“Hawak na ng Shari’ah Courts ang ibang (The Shari’ah Courts will have jurisdiction over) criminal cases involving Muslims to Muslims…, (on) which the penalty is Arresto Menor. I think that is six months and below,” Mr. Zubiri said. “Since may criminal aspect, dapat abogado naman po (Since there is already a criminal aspect, a lawyer should be placed) at the bare minimum.”
The other provisions the committee discussed are those on rehabilitation and development, the holding of a plebiscite, the Bangsamoro Transition Authority, amendments and revisions, and final provisions.
Mr. Zubiri also said the committee will take a final look at the Preamble, following debates on Tuesday among the House and Senate panels, the Moro Islamic Liberation Front (MILF) and the Bangsamoro Transition Commission (BTC).
“We’ll go back to the Preamble kasi pinagdebatehan namin kahapon (because we were debating on this yesterday). There (were) concerns (from the) BTC and MILF on the changing of the Preamble,” the senator said.
Mr. Fariñas said the Preamble should state “the Filipino People,” instead of “the Bangsamoro People,” which he said is not aligned with the 1987 Constitution. He argued that the people of the Philippines, in general, can order Congress to pass legislation. He then proposed that the preamble should read “the Filipino people, cognizant of the aspirations of the Bangsamoro people.”
The committee also had to assure stakeholders that last-minute amendments are not intended to diminish the ARMM.
“There was no agenda for diminishing the ARMM or diminishing the gains of the bicameral meetings we had last week. These were just correcting or cleaning up certain provisions…, to better stand the test of constitutionality,” Mr. Zubiri said.

DoJ junks petition to include law dean in Castillo hazing case

THE DEPARTMENT of Justice (DoJ) has dismissed a petition by the parents of slain law student Horacio Castillo III to include a dean at the University of Santo Thomas (UST) in connection with Mr. Castillo’s death by hazing on September 17 last year.
In a text message on Wednesday, Justice Secretary Menardo I. Guevarra said the Castillo parents’ petition for review filed against UST Faculty of Civil Law Dean Nilo T. Divina and other related petitions have been “all dismissed for procedural lapses.”
A resolution by then Justice Undersecretary Antonio T. Kho, Jr. (since appointed to the Commission on Elections) read in part that “We are constrained to dismiss appellants’ petition by reason that their appeal was clearly filed out of time. The mere filing of Appellants’ Motions for Extension did not extend the period to appeal.”
According to the resolution, Mr. Castillo’s parents, Carmina T. Castillo and Horacio M. Castillo, claimed “receiv(ing) a copy of the Assailed Resolution on 15 March 2018.” This pertains to an earlier DoJ resolution charging members of the Aegis Juris fraternity allegedly involved in the hazing and also clearing Mr. Divina, among others.
On April 2, the Castillos filed a Motion for Extension of Time to File Petition for Review to the DoJ, “praying for an additional period of fifteen (15) days, or until 14 April 2018, within which to file their Petition.”
Mr. Kho’s resolution further noted that Mr. Castillo’s parents “again requested for another period of five (5) days, or until 19 April 2018, within which to file their Petition.”
The resolution said “thirty-five (35) days after receipt of the Assailed Resolution,” the parents “filed their Petition with this Department.”
“The right to appeal may be exercised only in the manner and in accordance with the provisions of the law or pertinent rules of procedure,” the resolution added.
“Accordingly, the instant Petition should be denied due course for failure to comply with the requirements on appeal.” — Gillian M. Cortez

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