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Folks, meet Erin

With the Supreme Court under pressure to grant the wishes of Malacañang and a House of Representatives acting as its virtual rubber stamping, the Senate is the lone body that mitigates and provides checks and balances on the executive branch. Hence, having a strong Senate composed of competent lawmakers is vital to setting the nation on the right course.
Selecting senators should not be based on their popularity, their political alliance or who their relatives are. Rather, it should be based on the candidate’s qualifications and body of work. Let us not forget the role that a senator plays: A senator authors, co-authors, sponsors and passes laws. He scrutinizes bills/acts and evaluate its long terms effects. He amends, provides addendums and revises proposed laws. A senator approves and/or ratifies international treaties. He approves or rejects presidential appointments. He adjudicates impeachment proceedings and conducts inquiries on the missteps of presidential appointees.
To put it into metaphor, the Senate acts like the brakes and its steering wheel of national policy while the executive branch acts as its accelerator.
The demands of the job requires senators to have qualifications that are both diverse and extensive. Qualified senators must have a legal background, an economic background and exposure in social development work. They must have a working knowledge of how government operates and a deep understanding of the Philippines’ position in global geopolitical affairs. Above all, a senator must be beyond reproach in integrity, neither doubted for committing graft, let alone convicted for it. A senator must be young enough, healthy enough and lucid enough to meet the physical demands of the job. Comedians, actors and athletes should not be supported but looked upon for what they are, opportunists.
Political alliances should not matter. In fact, the more diverse the political leanings of our senators, the more advantageous it is for us. A politically diverse Senate assures us that bills are vetted without political bias and that inquiries are conducted without regard for political favor. It assures us that checks and balance are firmly in place.
A handful of incumbent senators have proven their independence, competence, diligence and moral integrity. They are the senators who have served the public well and whom I reckon deserve another term. They are: Senators Cynthia Villar, Grace Poe, Sonny Angara, Serge Osmeña and Bam Aquino. These five senators are real work horses whose loyalty to the Filipino people supersede party interest.
I also support certain candidates, who, while lesser known, possess the qualification of a good senator and whose presence in the Upper House will make it stronger. I intend to write about them one at a time in the hopes that it will give you, my readers, a chance to know them better. I already wrote about Chel Diokno (son of the late senator and nationalist Pepe Diokno) some weeks ago. I chose Chel because he has one of the sharpest legal minds in the country and because he is determined to fix our broken and corrupt justice system.
Another candidate I endorse is Lorenzo “Erin” Tañada III.
Erin’s name may sound familiar to some as he was a member of the House of Representatives in the 13th, 14th and 15th Congress. He is the son of senior statesman and former senator Wigberto Tañada, another leading light in the nationalist movement of the Rectos, Tañadas and Dioknos, among others.
Erin is a product of the Ateneo and also a lawyer like his father and his illustrious grandfather, Lorenzo Tañada, the Grand Old Man of the political opposition to the Marcos dictatorship in the 1970s.
Last week, Erin and I met for coffee, as I wanted to find out what he had been up to since ending his stint in Congress back in 2013. Erin has spent the last few years providing free legal consultation through his morning TV show at UNTV. He does pro bono legal work also for distressed listeners of DZMM. A dad of two children, Erin feeds the family by practicing corporate law.
People should be reminded about Erin’s impeccable body of work in Congress. He is best remembered as the champion of the Freedom of Information Bill, a bill that would have made all government transactions (except those that relate to national security, executive privilege, etc.) transparent to the public. But differences with the Aquino administration then, over that initiative, was a sensitive point in their alliance. FOI would have been a game changer in good governance. The bill made it past the bicameral hearing but fell short of being enacted into law due to lack of Palace support.
Other bills authored or co-authored by Erin were the Cheaper Medicines Law, Renewable Energy Law, CARP Extension Program, Anti-Torture Act and Amendment of the Amusement Tax, among others. Erin was one of the more prolific and hard-working congressmen of his time.
What will he bring to the Senate, if elected? Apart from his profound knowledge of the law, Erin’s purpose in the Senate will be to challenge the status quo. He intends to ask the hard and uncomfortable questions about the state of affairs today and come up with better alternatives. We talked about three issues, in particular, during our short time together.
One of them is why the country has not achieved food security despite more than 30 years of land reform and bestowing upon the Department of Agriculture one of the highest budget allotments year after year.
The time has come to change our agricultural policies as they are obviously not working, opined Erin. Not only have we been unable to achieve food security, our local agricultural products are among the most expensive in the region, unaffordable to the poorest among us. Our farmers are aging and there is no program to develop the next generation of agricultural workers. Productivity of the agricultural sector is so low that it is a drag to the economy.
There seems to be no relief in sight as Agricultural Secretary Emmanuel Piñol only offers excuses, not solutions, to the bleak realities of the agricultural sector.
We need to revolutionize the agricultural industry by investing in technology-based farming and post-harvest facilities, said Erin. We also need to incentivize the industry to attract investors engaged in large-scale industrial farming. What we need are more operations like that of Dole, Del Monte and Tadeco (banana plantations in Davao del Norte).
As for small-scale farmers, he says fertilizers should be subsidized by the state in order to make it more profitable for farmers.
Another question that Erin is keen to ask relates to foreign policy. While he agrees that the move of the President to adopt an independent foreign policy is correct, the reality is that the country has in fact tilted away from the US and leaned towards China. It is by no means an independent foreign policy — it is a pro-China policy.
The agreements entered into by Malacañang with China, particularly the Memorandum of Agreement to jointly explore the West Philippine Sea for oil and natural gas, should be carefully scrutinized. Neither the Senate nor the House has been furnished copies of the agreement and many fear that it may have sold the country to China for a song. Erin wants to make sure that Philippine sovereignty and Philippine interests are protected in all dealings with China.
China has expansionist ambitions and they have engaged in a creeping invasion of our territories. They cannot be trusted.
Contrary to Malacañang’s propaganda, it is not true that the Philippines has no options given China’s military strength and bullying tactics. Why should this government accede to everything China wants like a coward with its tail between its legs?
We have options. We still have the mutual defense treaty with the US. We can coalesce with other claimants of the West Philippine Sea — Vietnam, Indonesia, Brunei and Taiwan. We can go the diplomatic route and enforce our victory at the United Nations Arbitration Court in the Hague. The motives behind Malacañang’s red-carpet treatment towards China are suspect and should be looked into.
The state of corruption in government is another issue that needs to revisited.
Why have the triad of senators — Revilla, Estrada and Enrile — in the Napoles pork-barrel scam be allowed to walk away as free men?
Amid all the corruption going on, not the least of which are large-scale smuggling of drugs by Chinese nationals, why has there only been a handful of cases filed by the Ombudsman? And for whose benefit is that performance, as such? These are the hard questions that need to be answered.
A man like Erin will add substance to the Senate. By asking the inconvenient and uncomfortable questions, policies and laws will be better thought out.
 
Andrew J. Masigan is an economist.

The prophet motive

By Tony Samson
THE TV interview format has become quite a staple. These are now accompanied by visuals like graphs, charts, picture windows in the background with trees and moving traffic, and videos of people walking fast along the sidewalks to enhance the drabness of talking heads. The interviewer features a designated resource person to provide some expertise on the topic at hand.
Not only are such experts supposed to explain the jargon and context of any topic, say, on economics, they are also asked to give forecasts on GDP growth, tourist arrivals, exchange rate of the peso, inflation, stock market prices, and the property market. And they unhesitatingly oblige. Seldom do they demur — that’s not my area of expertise.
But how are these experts chosen to serve as resource persons? Is the claimed expertise vetted by an objective process, like an exam? (What are the components of GDP?) Is there a group that bestows legitimacy on an interviewee’s expertise, like maybe “Experts R Us”?
Certain areas of knowledge require formal education such as medicine, engineering, or law. These disciplines/careers involve at least a four-year academic preparation and require passing government tests to be bestowed a title. The method ensures a minimum level of knowledge on a subject. Even here, a civil rights lawyer may not be able to explain the legal aspects of mergers and acquisitions. Neither can an obstetrician explain the dementia of public officials.
Softer areas like political analysis, film criticism, writing, or physical fitness rely on a mix of reputation, word of mouth, work experience, citations, dissertations, awards, and taste. Such porous standards allow the glib ones to claim appropriate knowledge, needing only the endorsement of someone known to the production assistant of the talk show.
As a resource person, it is important to appear to know what you are talking about. The ability to dazzle requires the dispensing of a fair amount of male cow manure.
Let’s take a presumptive expert on digital marketing. It is not necessary for her to understand concepts, only to confidently use buzz words like condiments to spice up an otherwise bland piece of meat. The farther off from ordinary English something strays, the better. Thus, “share of market” may be too readily understood. It’s better to use “big data” and “customer insighting” in one sentence. While these sound like ordinary words, they will seem unfamiliar when combined to come up with unrelated meanings.
More often, resource persons on TV hew to political analysis. Somebody with the appropriate jargon can talk about random samplings and share of mind, the effect of perception on reality, and how to address a drop in “positives.” This talking head, usually from academe, is identified in the character generator crawling below his face as a “political analyst.” If he is insistent, he can even choose his own of “political strategist” to achieve credibility with potential clients.
Claims of expertise in soft fields are not as life-threatening as feigning mastery of brain surgery in a hospital. No life is at risk if a worthless opinion is proffered on national TV. The illusion of knowledge can even be entertaining.
TV moderators don’t mind guests losing their cool. Ironically, it is the most knowledgeable and informed guest who is so overwhelmed by the patent ignorance of his co-panelists that he can comes across as incoherent. Frustration with non-experts can render the truly conversant guest apoplectic and yes, discombobulated. He then gets to look like the blubbering idiot in the group of ignoramuses.
The hardest to catch are the prophets of boom who exhibit the enthusiasm of a used car salesman. They back up their forecasts with stats — 20% of new office buildings ready for occupancy in three years have already been locked up. Follow-up question: At what prices?
What is the motivation of the faux expert for this version of a con game? The illusion of expertise can translate into commercial consultancies. The false prophet can have a financial motive after all.
The poseur manages to get invited again and again on TV to offer his voodoo analysis. However, repetition, especially of the same jokes, in different programs (with the same audience profile) can send this resource person to the sidelines. He resurrects himself much later for his fake expertise, also known as artificial intelligence. Now, there’s another topic to sink his teeth into. It just takes machine learning.
 
Tony Samson is chairman and CEO, TOUCH xda.
ar.samson@yahoo.com

UHC-Tobacco Tax, an #AlagangAngara Legacy?

The bill to substantially increase the tobacco tax has gained momentum. President Rodrigo Duterte and the Cabinet have certified as urgent Senate Bill 1599, sponsored by Senator Manny Pacquiao, which will increase the current rate of tobacco tax from P35 to P60. Senators JV Ejercito and Wyn Gatchalian have filed separate bills that have higher tobacco tax rates than the Pacquiao bill.
The clamor or support for this measure is driven by the goal to save the lives of Filipinos and reduce the economic burden brought about by tobacco-related diseases. According to a study conducted by Antonio Dans et al., spending for four smoking-related diseases alone, namely lung cancer, chronic obstructive pulmonary disease (COPD), coronary artery disease (CAD), and cardiovascular disease (CVD), amount to P210 billion annually. The costs are incurred from health care, productivity losses and premature death losses.
Further, Action for Economic Reforms (AER) projects half a million (0.56 million) new smokers next year if the current tobacco tax rate is not raised at the level proposed by Senator Pacquiao. This figure is equivalent to 1,540 new smokers as each day passes.
In terms of revenue, government can generate in 2019 the amounts of P41.2 billion (Pacquiao bill), P55.48 billion (Gatchalian bill), and P82.20 billion (Ejercito bill). In short, a huge tobacco tax increase will serve two primary purposes — discourage people from smoking and generate revenue to fund the Universal Health Care (UHC) law. Without the increase of taxes in tobacco and alcohol, we expect a funding gap of P128 billion for UHC.
The House of Representatives passed House Bill 8677 that features a measly increase of P2.50 per pack. (Barya, which is woefully deficient to save lives!) This will result in 0.41 million more Filipino smokers in 2019 alone or 1,131 new smokers daily.
But there is still hope. The Senate has a chance to nullify the House bill by passing a much higher tax rate. As mentioned earlier, the three Senate bills which will increase the current rate of tobacco tax per pack from the current P35 to P60 (Pacquiao bill), P70 (Gatchalian bill), or P90 (Ejercito bill). The figure here provides the data on how the Senate bills can have a big impact on health and revenues.
Health and Revenue Impact of Proposed Bills
At the minimum then, a Senate counterpart bill that will impose at least P60 per pack is necessary to meet the desired health and revenue goals. In fact, both the Departments of Health and Finance have raised the bar by declaring that P73 per pack is the optimal tax rate, or the “sweet spot.”
Senator Sonny Angara, the Chair of the Ways and Means Committee, has made a commitment that the Committee Report will endorse a rate that will sufficiently fund the UHC and will reduce smoking prevalence. We do hope that this corresponds to the rate endorsed by the Department of Finance, Department of Health, the medical professions, the economists and technocrats, and other civil society organizations.
The challenge is to have the bill passed after the midterm elections, given that the window of opportunity has become narrower.
Senator Angara is the key person to have the tobacco tax increase passed in the Senate. In truth, the Senate deliberation on the tobacco tax has been slow, leading to the fear that the bill is being killed.
Senator Angara is seeking reelection, and he is aware of the popularity of the tobacco tax. In this critical period, he will be put to test. He has professed himself to be a long-time health champion, even using #AlagangAngara as his campaign promise. True enough, Senator Angara has co-authored pro-health bills such as the National Integrated Cancer Control Act, Mental Health Act of 2017, and even the Universal Health Care Act, the success of which is contingent on the increased tax rates for tobacco and alcohol.
It is expected of him to support the increase in the sin taxes. To break his commitment will be a big blow to his reputation and credibility.
But by resisting the influence of industry and vested interests and asserting the high rates for sin taxes, the senator and his #AlagangAngara will be remembered not just as a campaign promise but as an enabler of Philippine comprehensive health reforms.
 
Rio Dayao is an advocate for youth empowerment and works currently as a researcher of Action for Economic Reforms.

Diokno rejects bid to ‘pressure’ Duterte into budget veto

BUDGET Secretary Benjamin E. Diokno said President Rodrigo R. Duterte should not be “pressured” into drafting a veto message for the budget, amid threats by some legislators to question the 2019 spending program before the Supreme Court.
“Legislators should not pressure the President on how he will exercise his constitutional duty,” Mr. Diokno told BusinessWorld in a phone message on Sunday.
“Congress has done its constitutional duty. DBM (Department of Budget and Management) and the executive department will provide the President the facts and his options,” he added.
Key legislators from both Houses of Congress expressed their intent to challenge the budget in the Supreme Court to contest alleged “pork” insertions.
The P3.757-trillion General Appropriations Bill of 2019 was passed on Friday by the Bicameral Conference Committee and was ratified on the same night.
Mr. Diokno rejected allegations that he is working with Cabinet Secretary Karlo Alexei B. Nograles to draft a veto message that will result in the restoration of the P75-billion alleged “insertion” in the budget of the Department of Public Works and Highways (DPWH).
“We are awaiting the enrolled copy of the budget bill. The President cannot veto what is not provided for in the bill,” he said.
House Appropriations Committee Chair Rolando G. Andaya, Jr. of the 1st district of Camarines Sur on Sunday alleged that there have been efforts to restore the P75-billion budget, which the House and Senate have since realigned.
He said if the restoration is made “I will join Sen. (Panfilo M.) Lacson and Sen. (Franklin M.) Drilon in questioning the veto message before the Supreme Court,” he said.
Senators Lacson and Drilon were among the five who voted against the ratification of the budget bill. The others were Senators Paolo Benigno A. Aquino IV, Risa N. Hontiveros-Baraquel, and Francis N. Pangilinan. — Charmaine A. Tadalan

DBP tapped as financial advisor for projects endorsed by MinDA

By Carmelito Q. Francisco
Correspondent
DAVAO CITY — The Mindanao Development Authority (MinDA) has tapped the Development Bank of the Philippines (DBP) as financial advisor for 12 major projects and as a possible loan provider for other proposed ventures in the southern islands.
At the signing of the memorandum of understanding Friday, MinDA chair Abul Khayr D. Alonto said the partnership with the government-run bank is expected to improve access to funding support for projects that “will improve Mindanao and create jobs, particularly in the Bangsamoro areas.”
The 12 projects described as “catalytic” are: the P735 billion Mindanao Railway System, whose first segment — Tagum-Davao-Digos — is set to started construction this year; a P16 billion portion of Marawi City’s rehabilitation, including livelihood and business components, land resource management and social services; P42 billion agro-economic zones in Zamboanga del Norte, Zamboanga del Sur, Zamboanga Sibugay, Agusan del Sur, Maguindanao, Lanao del Sur, and Basilan; a P15-billion Tawi-Tawi Integrated Development Project; the P25 billion Picong FreePort and Ecozone in Picong, Lanao del Sur; the P39.2 billion Mindanao River Basin integrated flood control projects; the P300 million Mindanao Executive Leadership Academy in Maramag, Bukidnon; P75-billion Mindanao Development Corridors Interregional Connectivity projects for roads and bridges; the P100 million Tourism Assistance Center projects in 20 strategic areas; the P9.8 billion New Zamboanga Airport in Mercedes, Zamboanga City; the P100 million Polloc Freeport and Ecozone in Maguindanao; and the P9.8 billion General Santos Aerotropolis, whose feasibility study has yet to be started.
DBP President Cecilia C. Borromeo said the bank is ready to provide financial support to MinDA, particularly for projects in “infrastructure that will make transportation of goods easier, also infrastructure that will cater to social services like hospitals.”
On the provision of loans for other projects that will be put forward, MinDA and DBP will be discussing how to proceed.
Ms. Borromeo said among the ventures that DBP is prioritizing for funding support are those in power, and bulk water supply and distribution.
“We are, after all, designated by the national government as the infrastructure bank of the Philippines,” she added.
Assistant Secretary Romeo M. Montenegro, deputy executive director of MinDA, told BusinessWorld after the agreement signing that he is hoping that “small renewable energy projects in Mindanao will get funded by the bank.”
“We need financiers for these (about 270 green energy projects) so that we can eventually balance our (power) mix,” he said, noting that power generation in Mindanao has been dominated by fossil fuel with the entry of new coal-fired plants in recent years.
ISLAMIC BANKING
Meanwhile, Ms. Borromeo also noted the urgent need to establish an Islamic financial framework, especially now after the ratification and impending implementation of the Bangsamoro Organic Law.
“We hope the legislators in this part of the country (Mindanao) will pursue an Islamic banking framework of the Philippines so that we can optimize the opportunities that are made available to Al-Amanah,” said Ms. Borromeo, referring to Al-Amanah Islamic Investment in the Philippines, a wholly-owned subsidiary of DBP.
The House of Representatives approved on final reading Bill 8281, An Act Providing for the Regulation and Organization of Islamic Banks, while the counterpart Senate Bill No. 668, the Philippine Islamic Financing Act, is pending. Senator Sherwin T. Gatchalian also filed on Nov. 21 Senate Bill No. 2105, which seeks to establish a regulatory framework for the development of Islamic banks.
The DBP head said “the entire board (of directors)” of the bank, if given authority by the Department of Finance, “is willing to offer the Al-Amanah Bank as its contribution to the Bangsamoro.”
Al-Amanah was established in 1973 to help fund projects in conflict-affected areas in Mindanao that were predominantly Moro-populated. In 2008, DBP acquired 99.9% of its shares by taking over the shares of the national government, Social Security System, and the Government Service Insurance System.
MinDA has been pushing for an Islamic framework, which is seen to open windows for international Islamic financing institutions and foreign Islamic nations.
“We have been pushing for the establishment of Sukuk fund mechanism as this will allow to come and fund key projects in the Bangsamoro Autonomous Region in Muslim Mindanao,” Mr. Montenegro said.
DBP itself has started lending using the Islamic system, although only for micro loans, said bank Director Maria Lourdes A. Arcenas.
One of these involved a P5 million loan to Mothers for Peace, a group of women advocating peace and helping women in Marawi City to recover from the destruction brought about by the 2017 siege.
At present, the Islamic funding portfolio has about 300 borrowers, Ms. Arcenas said.

CTA rejects BIR appeal of Ayala Land unit tax ruling

THE Court of Tax Appeals (CTA) denied for lack of merit a motion for reconsideration filed by the Bureau of Internal Revenue (BIR) over a cancelled P29-million tax deficiency assessment against Ayala Land International Sales, Inc.
In a resolution dated Feb. 4, the CTA special third division upheld its Sept. 28, 2018 decision which cancelled the tax deficiency assessment against Ayala Land International for 2009 due to the defective waiver that supposedly extended the period to assess the company.
“Wherefore, there being no ground to reverse, much less modify the assailed Decision of Sept. 28, 2018, respondent’s Motion for Reconsideration dated Oct. 18, 2018 is denied, for lack of merit,” the CTA ruled.
In its motion for reconsideration, the BIR said that the first waiver dated Feb. 6, 2012 which would extend the assessment period was in compliance with the Tax Code and the failure of the Notary Public to state the name of the affiant and other details “did not render the notarization defective since it is presumed that the affiant appeared before the Notary Public.”
It also said that the signing of an officer of the Ayala Land in the waivers binds the company to the agreement.
However, the CTA found that under the Tax Code, the government is given three years from the filing of tax returns to assess a taxpayer of its deficiencies although the assessment period could be extended through the agreement of both parties. Ayala Land International only received the assessment for 2009 on April 15, 2014.
Waivers, meanwhile, must be notarized and signed by the authorized person assigned by a company’s board of directors.
On the other hand, the CTA said the first waiver was not acknowledged by a Notary Public due to the absence of the name of persons who appeared before it. There was nothing in the records scrutinized by the court which showed that the signatory in the five waivers was authorized by Ayala Land’s board of directors.
“To conclude, the BIR has the onus of ensuring compliance with the requirements of RMO (Revenue Memorandum Order) No. 20-90, as they have the burden of securing the right of the government to assess and collect tax deficiencies. This right would prescribe, absent any showing of a valid extension of the period set by the law,” it said.
The resolution was written by Associate Justice Esperanza R. Fabon-Victorino and concurred in by Associate Justice Ma. Belen M. Ringpis-Liban. — Vann Marlo M. Villegas

Bill discounting OFW remittance fees passes House on 2nd reading

A MEASURE granting migrant workers discounts on remittance fees has been approved on second reading at the House of Representatives.
House Bill No. 9032, or the “Overseas Filipino Workers (OFWs) Remittance Protection Act,” which passed via voice vote, proposed a 10-50% remittance fee discount depending on the amount being remitted.
It intends to ensure “effective mechanisms be instituted to ensure the protection of rights and interests of OFWs.”
The bill provided that OFWs are entitled to 50% discounts for remittances of not more than $500 or its equivalent in other currencies; a 40% discount for $500-1,000; a 30% discount for $1,000-1,500; a 20% discount, for $1,500-2,000; and a 10% discount for over $2,000.
In exchange, it proposed that establishments granting discounts on remittance fees may claim tax deductions “based on the cost of services rendered to OFWs,” as stated in Section 5.
A mandatory financial education program will be provided to OFWs and their families by the Department of Finance (DoF), Bangko Sentral ng Pilipinas (BSP) and the Philippine Overseas Employment Administration (POEA) and other agencies.
The program shall include financial management, budgeting, investment options and other related topics to educate covered individuals with regards to earnings and remittances.
The bill also prohibits banks and non-bank financial intermediaries from raising remittance fees without consultation with the DoF, BSP, and the POEA.
The bill will also penalize, among others, misappropriation or conversion of foreign exchange remittances, taking remittances without the consent of the OFW or the beneficiary, and imposition of fees in excess of those allowed.
If found guilty of the prohibited acts, the bill proposes a P50,000-750,000 fine and subject offenders to 2 months to 20 years of imprisonment. — Charmaine A. Tadalan

Dealing with common issues in a BoC Audit

When shipments are “cleared” at the border after payment of duties and taxes, importers often assume that the Bureau of Customs (BoC) will simply move on without double-checking the shipment. This assumption is inaccurate. The BoC can actually conduct an audit of past transactions, similar to the function of the Bureau of Internal Revenue (BIR). This exercise is the Post-Clearance Audit (PCA). It usually covers the last three years of importations and the PCA is undertaken to check the correctness of importers’ goods declarations, and the accuracy of their tax payments.
The BoC recently issued Customs Administrative Order (CAO) No. 1-2019, which sets new rules in the conduct of PCAs effective Feb. 15. The CAO and its related topics have been written about in the three previous Suits the C-Suites columns. We will now focus on the following:

• What exactly will the BoC look for?

• What are the common issues that importers should anticipate?

• How should importers deal with the common issues in a PCA?

RECORD KEEPING
After an Audit Notification Letter is issued, the first order of business is for the importer to submit various importation documents identified in a checklist. The most common documents required are those that pertain to shipping, importation, and transport. These are the Single Administrative Documents (SAD) or the actual goods declarations, commercial invoices from foreign suppliers, supply agreements, import licenses and permits (for regulated imports), bills of lading or airway bills, packing lists, freight and insurance documentation, and Certificates of Origin (if lower duty rates under Free Trade Agreements or FTA were used). The BoC can also require other documents such as Audited Financial Statements, filed tax returns, and schedules of importations for the period covered by the audit. The auditors also have the authority to visit the company for verification purposes.
In this documentation exercise, the BoC will assess if the importer complies with the obligation to keep importation records. Lack of or incomplete documentation could lead to penalties, including a surcharge of 20% of the value of the goods for which no records are kept or maintained. To overcome this issue, importers should gather importation documents and ensure that they are complete before the PCA begins.
The significance of proper record keeping bears repeating, because the BoC will identify the core common issues in an import transaction on the basis of the documents you present to them.
VALUATION
When an importer declares the value of imported goods at the border, it does so based on its own assessment. Hence, it becomes necessary during a PCA for the BoC to evaluate if the importer’s assessment is correct and compliant with existing valuation methods.
Valuation involves a wide range of sub-issues. Here are some of the most common ones:

• Proper declaration of value, in general — For transactions between a related foreign supplier and importer, the BOC will inquire if the price of the goods is arms-length; meaning, it was not influenced by the relationship between the parties. Similarly, for transactions between unrelated parties, the BoC can question the value declared by the importer based on existing reference values available in the BoC database, or elsewhere.

• Accurate declaration of the cost-insurance-freight (CIF) — The BOC counterchecks if the CIF per invoice, insurance, and freight documentations tally with the CIF declared in the SADs, applying the specific rules on the proper declaration of such items.

• Existence of additional payments to suppliers — Additional payments made after importation can form part of the dutiable value of the imported goods. These include items such as transfer price adjustments, dutiable royalty payments or license fees, and proceeds of subsequent resale of imported goods.

• Proper declaration of all other components of the dutiable value of imported goods — The BoC can likewise check if the importer properly included all adjustments to the price of imported goods, such as dutiable commissions, packing costs and charges, assists, interests, and transport costs, among others.

CLASSIFICATION OF GOODS
In all importations, the importer should be able to properly ‘classify’ goods under the applicable 8-digit tariff code, or Harmonized System (HS) code. Each unique code has a corresponding duty rate that applies to goods classified under such code. In a PCA, the BOC will check if the importer captured the correct classification and used the applicable rate when it paid the duties.
In case of doubt in the applicable classification, the BoC may ask the importer to establish proof of proper classification, such as details of the imported goods and tariff classification rulings obtained in the past. For importers who make use of lower duty rates available under existing FTAs, the BoC can perform a more detailed assessment. This involves a validation of compliance with the origin rules under the FTAs, as well as the availability of the supporting document called the Certificate of Origin (CO). If they fail to refute questions on origin or present COs, the importers may end up losing the privilege of using the lower duty rates.
WHERE THE IMPORTER ENJOYS DUTY AND TAX INCENTIVES
There is a common misconception that importers who enjoy exemption from paying duties and taxes (such as economic or freeport zone locators, or even importers through a bonded warehouse) are relieved from customs audits. In fact, the BoC remains strict in its audits of special importers, to verify if there are any duty and tax leakages in their activities.
Some of the common issues specific to importers with incentives are:

• Actual entitlement to incentives — The BoC checks if importers have proof of entitlement to the incentives such as their Certificates of Registration and Registration Agreements. Normally, there is a determination if the importations are within the limits of the registered activity.

• Domestic sales — Goods imported into an ecozone, freeport zone, or bonded warehouse are normally destined for export. In the case of domestic sales, the BoC would like to see if duties and taxes were paid on such sales.

• Proper liquidation of raw materials — The BoC asks importers to completely account for the raw materials imported free from duties and taxes. Failure to do so can trigger a deficiency assessment.

• Availability of records — In relation to the record keeping requirements, the BoC checks if there is proper entry documentation, particularly import permits for ecozone locators.

OTHER RELEVANT ISSUES
The BoC also typically raises other issues, such as the proper computation of duties (components of dutiable value and forex conversion) and VAT (components of landed cost), payment of excise tax for certain articles, among others.
Upon looking at values declared per SAD, AFS, VAT returns, and other relevant schedules, the BoC also identifies discrepancies for possible reconciliation. The importer is then required to reconcile discrepancies which could be a lengthy exercise. For failure to fully reconcile, issues may be raised such as incompleteness of records, underpayment of taxes, and in extreme circumstances, allegation of smuggling.
Needless to say, there are many other issues that the BoC may raise, depending on the circumstances of each audit. Now that PCAs are well on their way, the most prudent action for importers is to perform a self-assessment for an early detection of potential issues. When importers are “audit ready,” they will be able to better remedy or mitigate any consequences before a PCA commences.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
 
Victor C. De Dios and Josephine Grace R. Sandoval are Tax Principal for Indirect Tax (Customs and Global Trade) and Tax Manager, respectively, at SGV & Co.

Power rates to go up in February

By Arra B. Francia, Reporter
THE Manila Electric Company (Meralco) on Friday announced power rates in February will rise by P0.5682 per kilowatt-hour (kWh), mainly due to higher generation charges.
For households consuming 200 kWh a month, the increase to P10.4067 per kWh from January’s P9.8385 per kWh will mean an increase of about P114 in their power bill this month.
Consumers using 300 kWh can expect their monthly electricity bills to jump by P170. Households that consume 400 kWh and 500 kWh will experience an increase of P227 and P284, respectively.
Meralco said that generation charge went up by P0.9820 per kWh to P5.8939 this month, pointing to higher charges from plants under Power Supply Agreements (PSA) and Wholesale Electricity Spot Market (WESM).
The utility noted that the increase follows the reduction in PSA charges in January following the early completion of annual capacity fee payments for the previous year. Capacity fees have now returned to normal levels as prescribed by the Energy Regulatory Commission.
“The return to normal levels of capacity fees, particularly of Sual Unit 1, Ilijan, Pagbilao Unit 1 and PEDC, was the main reason for the P1.9217 per kWh increase in PSA charges this February. The share of PSAs to Meralco’s total requirement this month was at 37%,” the company said.
Charges from WESM also went up by P1.4141 per kWh, as several large power plants went on scheduled maintenance outages made for tighter supply conditions. WESM provided 18% of Meralco’s supply needs.
The cost of power from independent power producers meanwhile went down by P0.0042 per kWh thanks to the peso’s strength against the greenback. To note, 96% of IPP charges are dollar-denominated.
Meralco noted that it does not earn from these pass-through charges such as generation charges go directly to power suppliers, while transmission charges to to the National Grid Corp. of the Philippines. Taxes and other public policy charges are remitted to the government.
It also added that transmission charge of residential customers, taxes, and other charges went down by P0.4138 per kWh for this month. On the other hand, distribution supply and metering charges have remained unchanged for 43 months since July 2015.
Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls.

Hanjin Philippines set to lay off over 3,000 workers

By Janina C. Lim, Reporter
OLONGAPO — With over 3,000 workers set to be laid off next week, Hanjin Heavy Industries and Construction Philippines Inc. (HHIC-Phil) is facing a total shutdown due to the lack of working capital.
HHIC-Phil’s rehabilitation receiver Stefani C. Saño on Friday said the company’s hopes of staying afloat is pinned on securing additional loans.
During the initial hearing at the Olongapo Regional Trial Court Branch 72, HHIC-Phil said claims from banks, suppliers and other service providers reached over P48 billion as of Feb. 1.
However, the amount does not include those from least two more companies that filed claims beyond the said date, and a few more that have not determined the full amount of their claims, according Mr. Saño.
Mr. Saño said HHIC-Phil’s on-going negotiations with creditor-banks are aimed at securing additional loans to be used for the completion of four more ships which will generate cash flow and payment to Hanjin’s obligations.
“Whether or not the vessel will be constructed, we’re still undergoing negotiations with banks,” Pocholo L. Poso, HHIC-Phil’s in-house legal counsel, said during the hearing.
Asked how this will affect workers, Mr. Saño said: “Malalayoff actually sa (Feb.) 15. Mahigit 3,000 malalayoff. Matitira 300 (They will be laid off on Feb. 15. Over 3,000 will be laid off. Only 300 will remain).”
With only 300 workers left, Mr. Saño noted HHIC-Phil will “definitely not” be able to build a ship.
“Ang isang possibility pa niyan, ibang bangko outside of the creditor-banks. Ang suggestion ko kasi per ship ang financing and then may kasulatan na ang iba-bayad ng buyer sa bank pupunta tapos siya magremit kay Hanjin to build another ship (One possibility is for a bank outside of the creditor-banks to extend a loan. My suggestion is to provide funds per ship, then there will be an agreement that the buyer will pay the bank directly. Then the bank will remit the funds to Hanjin to build another ship),” he said.
Mr. Saño remains as rehabilitation receiver pending the appointment of a new one by the court. He resigned last week over opposition from creditor-banks.
HHIC-Phil’s five creditor-banks have pushed for the appointment of their own nominee, a certified lawyer, to be the rehabilitation receiver.
During the hearing, the lawyers of the five banks said they will nominate lawyer Rosario S. Bernaldo, managing director of RS Bernaldo & Associates, as receiver.
“(Ms. Bernaldo) is really experienced in rehab,” Charlemagne Rae P. Chavez, who represented Metropolitan Bank Trust & Co. which filed opposition to Mr. Saño’s appointment, told BusinessWorld.
Should HHIC-Phil discontinue operations, its rehabilitation program will be rendered useless.
“Wala nang usap-usap if stopped na operations (There will be no more talks if it stopped operations),” Mr. Saño said.
During the brief watch of Mr. Saño, HHIC-Phil saw its $412 million debt to local creditors trimmed with the remittance of $45 million from Korea Development Bank for the payment of two vessels.
Some $32 million covered the security for the loan granted by Metrobank to HHIC-Phil, while the remaining amount will be used by HHIC-Phil for administrative expenses.
This brings HHIC-Phil’s debt to Metrobank to $38 million from the $70 million before the rehabilitation procedure.
HHIC-Phil’s debts to others are unchanged: Rizal Commercial Banking Corp. at $145 million; Land Bank of the Philippines, reported at $85 million; BDO Unibank, Inc. at $60 million; and the Bank of the Philippine Islands at $52 million.

Congress ratifies 2019 budget; rejects cash-based budgeting system

CONGRESS on Friday finally ratified the proposed P3.757 trillion national budget for 2019.
THE House of Representatives and the Senate ratified the spending bill on the last session day before both chambers go on a break from Feb. 9-May 19. The House conducted a voice vote (viva voce), while at the Senate, 15 senators voted in favor of the ratification of the bicam report, while five voted against.
The 2019 budget bill will then be forwarded to Malacañang for President Rodrigo R. Duterte’s signature.
The bicameral panel, led by Senate Finance committee chair Loren B. Legarda and House Appropriations chair Rolando G. Andaya, Jr., on Friday afternoon signed the report which reconciled the conflicting provisions of the 2019 budget.
“We are proud to have a budget today on the last day of session, which we call socially-inclusive, pro-poor and pro-people,” Ms. Legarda said during the bicameral meeting.
The bicameral conference committee also rejected the implementation of the cash-based budgeting system that was supposed to start this year.
Mr. Andaya said the Senate and House panels agreed to not adopt the cash-based budgeting system in the 2019 national budget and revert to the obligations-based system.
“I would like to confirm that we are in agreement that the cash-based budgeting system is already abandoned. That was our agreement two meetings ago. So I would like to reconfirm that there’s no objection from both sides,” Mr. Andaya told reporters.
The approval of the budget had been delayed over criticism of the shift to a cash-based appropriations scheme from a two-year obligation-based system, as well as alleged illegal “insertions” that favored certain districts and families.
Mr. Andaya said the House of Representatives expects Mr. Duterte to veto some of the provisions of the national budget.
“We eagerly await the veto message and we will take it from there,” he said, without elaborating.
Senate Minority Leader Franklin M. Drilon, a member of the bicam panel, expressed his dissenting vote and did not sign the bicam report.
Senator Risa N. Hontiveros-Baraquel, who voted against the bicam report’s ratification, noted “the brazen display of political bullying by a House that refuses to budge and explain the allocation of unconscionable amounts to certain favored geographic units without going through the usual evidence-based planning and budgeting process.”
“Despite efforts to remove these anomalies, these remain in the budget. This budget confirms the democratic deficit in our process that still allowed the old system of patronage and the lack of transparency in the budgeting process,” she said in a statement.
The final version of the budget bill, according to Ms. Legarda, included the additional funding for the Department of Health’s (DoH) health facilities program, additional allowances for teachers, as well as new funding for landmark measures, such as the school-based feeding program, the Bangsamoro Organic Law, and the rice tariffication bill. — C.A.Aguinaldo

Andaya says Diokno offered P40-B for lawmakers to ignore ‘insertions’

HOUSE Appropriations committee chair Rolando G. Andaya on Friday accused Budget Secretary Benjamin E. Diokno of offering money to lawmakers to keep silent about the alleged “insertions” in the P3.757 trillion national budget for 2019, which the Cabinet official denied.
“I told him (Mr. Diokno) that we have a problem. I repeated the problem, told him the red flags, told him the problems we’re encountering. He then, Secretary Diokno, tries to buy our cooperation. He offered the House P40 billion for us to shut up about the P75 billion insertion,” Mr. Andaya said during the House hearing on the budget practices of the Department of Budget and Management (DBM) on Friday.
He said Mr. Diokno offered the money during a meeting with him, Budget Undersecretary Amenah F. Pangandaman, and another person Mr. Andaya did not name.
“Now I have the 2019 budget in my hand. I do not see any P40 billion there. He told me, ‘I will get it from the savings in the 2018.’ That is the reason why I’m asking for documents on the 2018 savings,” he added.
Sought for comment, Mr. Diokno said the lawmaker’s claims against him were “another wild and baseless allegation.”
“Absolutely false. It is again one of his wild and baseless accusations. If I were trying to silence the Committee, why would I even bother to submit to them the 2017 and 2018 savings for their review?,” he said in a text message to BusinessWorld.
The Budget Secretary did not attend the congressional hearing on Friday despite being issued a subpoena by the House committee on appropriations.
Mr. Diokno was ordered to appear at the hearing to account for the large amount of government savings in 2017 and 2018, as well as to answer the controversial insertion of P75 billion in the Department of Public Works and Highways (DPWH) budget under the 2019 national budget.
A statement issued by the DBM said that Mr. Diokno sought for a reset of the hearing in a letter addressed to House Speaker Gloria M. Arroyo and invoked the DBM officials and staff’s right to proper notice and a fair and just hearing. He cited a House of Representatives’ rule which requires subpoenas to be issued to a witness at least three days before a scheduled hearing.
“Whatever is the real purpose of the House in calling me, I will appear in Congress. However, I take my duty to the people very seriously,” Mr. Diokno said.
“It is only right that we prepare in order to give the Filipino people a complete and clear picture of the matter, and avoid giving information that only suits a specific agenda. We are definitely cooperating but it is imperative that we be given the proper amount of time to prepare,” he added.
In a separate statement released after the hearing, the DBM reiterated that the agency “has done its part in ensuring the concerned officials were consulted regarding changes in the proposed budget throughout the budget preparation phase.”
The DBM also cited the statements of DPWH Undersecretary Catalina E. Cabral that the P75 billion in question was just an adjustment, which underwent the proper process with DBM and the DPWH.
“This is all part of the budget process,” the agency stated.
For his part, Mr. Andaya said he would continue to hold hearings into the issue despite the fact that Congress will be on break from Feb. 9 to May 19. He also called on Mr. Diokno to appear in the next hearing.
“I appeal to you, one more time, in the next hearing, even in the middle of the (election) campaign, let’s meet again. Explain it properly,” he said. — Camille A. Aquinaldo