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Pakistan hits back at ‘incomprehensible’ Trump tweet

ISLAMABAD — Pakistan angrily dismissed threats by US President Donald J. Trump to cut off aid as “completely incomprehensible” Tuesday, in the latest diplomatic row to rock the shaky alliance between Washington and Islamabad over militancy.

The “recent statements… by the American leadership were completely incomprehensible as they contradicted facts manifestly,” read a statement issued by the prime minister’s office after a meeting of the National Security Council.

Mr. Trump’s comments “struck with great insensitivity” and “negated the decades of sacrifices made by the Pakistani nation,” it added.

The statement was the first formal comment from Pakistan since Mr. Trump lashed out on Monday, making Islamabad his inaugural Twitter target of 2018.

“The United States has foolishly given Pakistan more than $33 billion in aid over the last 15 years, and they have given us nothing but lies and deceit, thinking of our leaders as fools,” Mr. Trump said.

“They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!”

Pakistan, which says it has lost more than 62,000 lives and $123 billion since 2003 in its war on extremism, disputed the $33 billion figure in the statement.

“(T)he huge sacrifices made by Pakistan… could not be trivialized so heartlessly by pushing all of it behind a monetary value — and that too an imagined one,” it said.

Foreign minister Khawaja Asif also mocked the figure on Twitter, suggesting Mr. Trump hire a US audit firm to check it “on our expense.”

Mr. Trump first hinted at cutting aid to Pakistan in an August speech charting his Afghan policy, and administration officials including Vice-President Mike Pence have also intimated cuts in recent months.

But the Pakistani statement said recent interaction with US officials had been “useful,” citing visits in recent months by Pentagon chief James Mattis and Secretary of State Rex W. Tillerson as “robust and forward-looking.”

Observers said that without further information the tweet could just be more hot air between the allies, whose often fractious relationship has taken a nosedive under Mr. Trump.

“Trump is in the habit of issuing hardline statements which only spoil the atmosphere and violate diplomatic niceties,” analyst Hasan Askari told AFP, adding that Pakistan should seek more information.

AMBASSADOR SUMMONED
The statement came one day after US Ambassador David Hale was called to the foreign ministry in Islamabad in a rare public rebuke. Neither US nor Pakistani officials have commented on what was said at the meeting.

After the September 11 attacks on the United States, Washington forged a strategic alliance with Islamabad to help in its fight against militancy.

But Washington and Kabul have long accused Islamabad of supporting militant groups including the Taliban, believed to have links to Pakistan’s shadowy military establishment which aims to use them in Afghanistan as a regional bulwark against arch-nemesis India.

Islamabad has repeatedly denied the accusations, lambasting the US for ignoring the thousands who have been killed on Pakistani soil and the billions spent fighting extremists.

On Tuesday China, which has stepped up a multi-billion dollar economic investment in Pakistan, spoke out in its defense, with a foreign ministry spokesman praising its “outstanding contribution to the global cause of counterterrorism.”

Mr. Trump’s August speech, in which he accused Islamabad of harboring “agents of chaos,” triggered a series of high-level diplomatic meetings in the US and Pakistan.

The Trump administration also told Congress it was weighing whether to withhold $255 million in earmarked aid to Islamabad over its failure to crack down more effectively on terror groups.

But though Islamabad said Tuesday that recent meetings had created a “better understanding,” it has given few signs of concessions since August.

Of foremost concern in the US is Islamabad’s attitude toward the powerful Haqqani network, whose leader Sirajuddin Haqqani is the deputy of the Afghan Taliban.

The group, accused of some of the most lethal attacks on US forces in Afghanistan, has been dubbed a “veritable arm” of Pakistani intelligence.

For many years it found safe haven in Pakistan’s tribal areas, however the military launched an operation there in 2014, and now insists it has eradicated all safe havens in the country.

For Pakistan, analyst Imtiaz Gul noted, the assumption is that arch-rival and fellow nuclear power India is fueling Mr. Trump’s hostility towards Islamabad.

India has long vied with Pakistan for influence in Afghanistan, and Mr. Trump and other administration officials have called on new Delhi to become more involved there — an idea that is anathema to Pakistan, which fears encirclement.

“Now Pakistan’s first attempt will be to neutralize India’s narrative of Pakistan,” Mr. Gul said. — AFP

Airlines unlikely to lower fares this year — report

WITH OIL PRICES expected to rise this year, airlines are unlikely to lower fares, which in turn may dent passenger demand, according to an aviation market intelligence provider said.

“Rising oil costs will stall fare decreases, dulling demand in what has become a highly price sensitive market,” CAPA said on its Web site for its outlook for 2018.

CAPA said that 2017 has “arguably been the sweetest spot for combined airline profitability and traffic growth ever experienced,” but this is unlikely to be maintained for 2018.

CAPA said the growth of the aviation industry can be attributed to both the “typical economic forces” and short-term forces.

While typical economic forces like gross domestic product (GDP) growth, business confidence, and trade flows all expectedly impact the aviation industry, these are not enough to determine the growth of the industry.

For the relationship between GDP growth and air traffic for example, a fair expectation would be passenger growth around two times the GDP growth, but growth has been at five times, not just 1.5 or two times GDP growth. Short-term influences particularly affect the aviation industry.

“Most recently, one of the biggest short-term influences has been the large fall in the price of oil. When oil prices were around $80 per barrel and above, airlines had adjusted their models to allow for that input cost. Capacity decisions, including aircraft retirement (or not); route planning; pricing, and staff hiring, were all influenced by the input cost of fuel, when oil prices dropped as low as the mid-$20s per barrel,” CAPA said. 

“Given that aviation fuel costs constitute anything from 20% to 30% — and, for LCCs [low cost carriers], even 40% or more — of total cost, a rapid reduction in the barrel price from $100 to $30 made a massive difference to the shape of the industry; particularly in an industry which typically enjoys such thin profit margins,” the report added.

Airlines which took advantage of very low fuel prices to hedge their future needs for 2018 will feel the impact of higher fuel costs gradually, but the effect will be almost immediate for those who have not hedged and are more fully exposed the price increases. If added by higher interest rates and increasingly suppressed demand, the effect will likely be worsened.

“The bottom line is that we have almost certainly passed the unusual sweet spot of high profitability and high traffic growth experienced in 2017,” CAPA said.

This will mean a greater challenge for the industry to refocus, given the price of fuel and a competitive market.

“As fuel prices rise, the industry will once again be in the mode of refocusing to adjust to a new cost and competitive environment. The more they rise, the greater the challenge, as price sensitive discretionary travelers are deterred,” CAPA said. — P.P.C. Marcelo


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Thomas returns

The standing ovation that greeted Isaiah Thomas’ entrance said it all. The atmosphere at the Q was electric as the capacity crowd of 20,562 took to their feet. It was the two-time All-Star’s first game in a Cavaliers uniform, and, judging from the reception he got, just the start of many others in which he will be the focus. He knew it, and he was pumped. After having slogged through the bitterness of being shunned by the green and white while convalescing from a hip injury, he found appreciation in wine and gold.

All things considered, Thomas couldn’t have scripted a much better debut. By the time he left the floor for good with 8:10 left on the clock, he had given all and sundry a glimpse of his worth to the Cavaliers. In 19 minutes, he put up 17 on six-of-12 shooting from the field (including three of eight from three-point territory), his 5’9” frame continuing to bely his value as a dynamic offensive player. For all his protestations that he still didn’t have his rhythm, he looked as if he, well, belonged. In fact, his fourth-quarter exertions turned a close contest against the Blazers into a rout.

Due to medical restrictions, Thomas will next suit up this weekend. As proof of his progress, he figures to start against the Magic. And as his minutes increase, so will his importance to the Cavaliers. Prior to yesterday’s set-to, they were suffering from a swoon. After his triumphant performance, however, the slump that had them absorbing five setbacks in six outings seems to be in their rear-view mirror.

For the Cavaliers, Thomas’ presence gives them optimism. They have a tough January schedule; today’s encounter against the Celtics kicks off a five-game road trip, after which they will then go up against the Warriors, Thunder, and Spurs. There will be no rest for the weary, but he’s seen to keep spirits up on and off the court, his unwavering confidence and leadership by example a boon to their quest for success.

 

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is the Senior Vice-President and General Manager of Basic Energy Corp.

A New Year’s wish: better social media

By Bloomberg Editorial Board

FOR the social media business, this new year is one of grim tidings. Every day, it seems, pioneers in the field are offering mea culpas — airing regrets, expressing caution, apologizing for a technology that seems to have run amok.

One former Facebook, Inc. executive recently conceded that the network is “ripping apart the social fabric.” A former engineer has warned of a looming “dystopia.” Another veteran admitted that the company is “exploiting a vulnerability in human psychology.” (“God only knows what it’s doing to our children’s brains,” he added, portentously.)

Across Silicon Valley, insiders have lately been raising similar concerns, and fretting that the business model of social media may be undermining the well-being of its users. A growing body of research suggests they have a point.

social media 1

Among the young, social media may be playing a role in rising rates of depression and suicide. It seems to induce feelings of envy, anxiety, and inadequacy. It appears to reduce self-esteem, inhibit sleep, interfere with schoolwork and (of all the ironies) encourage anti-social behavior. Some two-thirds of kids now say they wouldn’t mind if social media didn’t exist. And who can blame them?

The problem is that it’s hard to quit. Armed with vast troves of data, companies have deduced clever ways to keep users on their sites. They’ve developed powerful tools — push notifications, “like” buttons, auto-play videos, and so on — that exploit quirks in human psychology to create something close to addiction.

Add all this up and an uncomfortable truth emerges: People are being drawn inexorably to a product that’s making them feel terrible. A number of solutions have been mooted for this dilemma. Try “digital detoxes,” say some. Develop new ethics and standards for software designers, say others. Use Facebook more, says Facebook.

In the end, though, it is up to the social media business to make its products more humane and less exploitative. Its leaders might take a cue from an older and humbler technology.

social media 2

Inscribed on the wall of the Old City Post Office (now the National Postal Museum) in Washington is a relevant verse by Charles W. Eliot, called “The Letter”:

Messenger of Sympathy and Love
Servant of Parted Friends
Consoler of the Lonely
Bond of the Scattered Family
Enlarger of the Common Life
Carrier of News and Knowledge
Instrument of Trade and Industry
Promoter of Mutual Acquaintance
Of Peace and of Goodwill Among Men and Nations.

Those may seem like lofty aspirations for the business of clicks and likes. But fundamentally, writing a letter and logging onto Facebook are expressions of the same ancient desire: for human connection. As a new year dawns, it’s worth reflecting on how to meet that desire — without making everyone miserable in the process.

DoJ readying SC petition vs CPP-NPA

STATE PROSECUTORS have begun documentation of incidents that will support the Department of Justice (DoJ)’s petition for proscription to declare the Communist Party of the Philippines (CPP) and New People’s Army (NPA) as terrorist organizations, in accordance with President Rodrigo R. Duterte’s proclamations to that effect. “I have around 15 incidents. Baka i-zero namin ito sa (We might bring this down to) 10 or 12. These are very recent incidents,” Prosecutor Peter L. Ong said in a press briefing on Jan. 3. Mr. Ong said the prosecution will focus on the incidents that transpired “after (Mr. Duterte) assumed (the) presidency on July 1, 2016.” He added: “Kasi (Because) at that point, the President was extending his hand by showing good faith and sincerity for a just and lasting peace and yet…tactical offensives ang naging kapalit ng (were the response to) peace negotiations,” Mr. Ong said. The prosecutor said the DoJ is finalizing its petition and may submit this to the Supreme Court “within the month.” — Minde Nyl R. dela Cruz

PHL stocks soar past 8,700 on positive sentiment

By Krista A.M. Montealegre,
National Correspondent

STOCKS trekked higher to open the year, breaking past the 8,700 level for the first time to end at a fresh record high, on sustained buying momentum amid expectations of another year of strong gains.

The benchmark Philippine Stock Exchange index (PSEi) rallied to a new all-time high and intraday peak of 8,724.13 on Wednesday, surging 165.71 points or 1.93% from its previous close.

The broader all-shares index climbed 64.68 points or 1.29% to 5,054.65.

The local market extended a record-breaking rally to a third straight session after a late surge pushed the PSEi to all-time high at the close of 2017.

“Philippine markets resumed their bullish climb on opening day with another record high. Investors are continuing to make their bets on issues they believe will outperform for the rest of the year,” Luis A. Limlingan, business development head at Regina Capital Development Corp., said in a mobile phone message.

“There was strong momentum buying from last year. Investors are positioning themselves for another good year due to the tax reform program, strong economy and infrastructure projects taking off,” Astro C. del Castillo, managing director at First Grade Finance, Inc., said in a phone interview.

Coming off a two-day break, local stocks rode on the extended gains in Asian shares, buoyed by a rally in technology companies that lifted US stocks to record highs.

The Dow Jones Industrial Average went up 104.79 points or 0.42% to 24,824.01; the S&P 500 rose 22.18 points or 0.83% to 2,695.81; and the Nasdaq Composite gained 103.51 points or 1.50% to 7,006.90.

All counters ended the session in the green led by holding firms, which soared 253.88 points or 2.94% to 8,870.39.

Property added 90.31 points or 2.27% to 4,068.50; services increased by 16.94 points or 1.04% to 1,636.78; mining and oil advanced 96.22 points or 0.83% to 11,598.80; industrials jumped 68.08 points or 0.60% to 11,299.38; and financials inched up 10.47 points or 0.46% to 2,240.64.

Value turnover picked up slightly to P7.29 billion from P7.26 billion, as 712.83 million shares changed hands.

Advancers edged out decliners, 118 to 102, while 38 issues were unchanged.

Foreign investors remained in buying territory albeit at a slower pace of P348 million compared to the P1.79 billion registered in the prior session.

“The market will eventually correct — that’s the art of supply and demand. Investors are looking for an excuse to take profits but as of now, wala pa (there are none),” First Grade Finance’s Mr. Del Castillo said.

Most Southeast Asian stock markets also rose on Wednesday as a bevy of strong manufacturing data that underscored an upturn in world economic growth boosted risk appetite, lifting broader Asian stocks to a fresh decade high. — with Reuters

Americans to eat record amount in 2018

FOR ALL THE BUZZ about pea protein and lab-grown burgers, Americans are set to eat more meat in 2018 than ever before.

To be precise, the average consumer will eat 222.2 pounds (100.8 kilos) of red meat and poultry this year, according to the US Department of Agriculture (USDA), surpassing a record set in 2004. Meanwhile, domestic production will surpass 100 billion pounds for the first time, as livestock owners expand their herds on the back of cheap feed grain.

Though the USDA’s per-capita measure isn’t a true gauge of consumption, it serves as a common proxy. It shows egg demand reaching an all-time high as well in 2018. Dairy items like cheese and butter have also been growing in popularity.

“If you look at the items that consumers say they want more of in their diet, protein tops the list,” said David Portalatin, a Houston-based food industry adviser for NPD Group.

Prices have gotten cheaper at the grocery store as supply grows. Chicken breast costs in November were the lowest in five years, and steak and ham are getting less expensive, government data show.

Many Americans are actively shunning carbohydrates in favor of protein, though any health benefits may be outweighed by the sheer volume of meat, eggs and dairy being consumed. While the government recommends that adults eat 5 to 6.5 ounces of protein daily, the USDA forecasts the average person will down almost 10 ounces of meat and poultry each day in 2018.

It’s a sharp turnaround from 2007 through 2014, a time when per-capita meat and poultry demand slumped 9% as rising corn-based ethanol demand and a drought sent commodity prices sharply higher. Though cattle and hogs are now far cheaper than their 2014 peak, prices have staged a rebound. US meat exports have soared as the global economy improves, outpacing the gains in domestic demand.

Most-active cattle futures in Chicago rose 4.7% in 2017, the first gain in three years, and hogs climbed 8.5%. Cash livestock prices may fall in 2018, the USDA forecasts.

Meat substitutes have gained attention in recent years amid concerns about the impact of a carnivorous diet on health, animal welfare and the environment. For example, Chicago-based Epic Burger, Inc. last year started selling the Beyond Burger plant-based patty that mimics meat. Protein from plants, insects or cultured meat are a top food trend to watch, though the category isn’t expected to significantly dent animal product sales just yet, according to a November report from CoBank.

“Ten years from now, there will be higher plant consumption, but beef will always be king,” Epic Burger founder David Friedman said. “People are always looking to put more protein into their diets. But they want high quality and transparency in the food they’re eating.” — Bloomberg

ASEAN manufacturing purchasing managers’ index, December

THE PHILIPPINES’ manufacturing performance bested those of Association of Southeast Asian Nations (ASEAN) counterparts for the third straight month in December, according to a monthly survey conducted by IHS Markit for Nikkei, Inc. Read the full story.
Philippines stays in SE Asian manufacturers’ lead

Fukushima looks to top-tier sake to beat stigma, lift economy

IN AN AREA OF JAPAN still decimated by a nuclear disaster, sake is giving cause for hope.

For the past five years, the sake brewers of Fukushima, on a two-decade quest to develop premium products, have captured the most gold medals in a key national competition and have won numerous international awards. Drinkers worldwide have noticed the rising quality, with the result that sake exports from Fukushima have more than doubled since 2012.

Now the prefectural government and local brewers are promoting their success. The hope is that Fukushima’s championship sake — made from local rice and water — will serve as a symbol of the safety of local agricultural and fishery products and of the prospects for the prefecture’s broader revival.

“If we can show that Fukushima makes the best sake in the world, surely we can overcome the stigma,” said Hiroyuki Karahashi, the president of Homare Sake Brewery Co., which won first place in the sake category at the 2015 London International Wine Challenge.

Fukushima’s challenge is enormous. The earthquake, tsunami and nuclear meltdown that devastated the region in March 2011 killed 4,000 people in Fukushima alone. Many of the 50,000 people forced to leave their homes have no plans to return. The local economy has been largely propped up by reconstruction spending the years since, but that spending is expected to fall in the years to come.

Meanwhile, local companies still struggle with lingering public fears of radiation contamination. Only around 30% of businesses in the important fisheries and food processing sectors have seen their sales rise to pre-disaster levels, according to the nation’s reconstruction agency. 

All agricultural products from Fukushima — including every bag of rice — are tested for radiation using internationally accepted standards before shipment. Since 2015, no rice has registered radiation above the safety level, national broadcaster NHK has reported.

Still, 55 countries have some kind of restriction or requirement for additional documentation on imports of Fukushima products, according to Japan’s Foreign Affairs Ministry.

Takahiro Ichimura, a director of trade promotion at the Fukushima Prefectural Government, who’s spearheading efforts on the sake promotion efforts, said the importance of ingredients in the sake should help change people’s perception of Fukushima.

“Water and rice are crucial,” he said. “Once Fukushima’s sake gains broader recognition and more people drink it, we think that overall appreciation for Fukushima should also increase.”

The surge in sake exports follows a plunge in consumption in Japan — by half over the past 20 years, as consumers broadened their tastes.

Fukushima is trying to increase sales in the US and Europe, including with promotional tours, Ichimura said. It has allocated ¥100 million ($880,000) this fiscal year to promote local sake at events in major cities in Japan and abroad, as well as at trade shows and promotional Web sites, in a campaign run by a private public relations agency. It plans to increase the budget 10% next year.

One event near Shimbashi station, a Tokyo business area teeming with salarymen, drew 30,000 people this year, up from 20,000 last year, according to the prefecture.

Behind the brewers’ recent success lies a shift in strategy toward premium products. Twenty years ago many of Fukushima’s breweries produced cheap sake that included distilled alcohol, earning them a poor reputation in Japan’s northeast, historically a major sake-producing region.

The prefectural sake academy, established in 1992, changed the game. The various breweries’ heirs came together there to pool their secret brewing techniques, raising the bar for the entire prefecture. At one three-century old brewery, the focus is now on using organic rice, while at another an older, more time-consuming technique to create yeast mash — a key ingredient — is being revived to improve flavor.

To be sure, changing Fukushima’s image will be a struggle. While Japan’s latest national budget included billions of yen for the purpose, 13% of Japanese respondents to a recent survey said they would hesitate before buying produce from Fukushima due to worries about radiation.

Ichimura remains optimistic.

“Fukushima’s sake is a symbol of its recovery,” he said. “It’s managed to achieve results despite the odds. My hope is that people will see this, and see how Fukushima is moving forward.” — Bloomberg

BDO still largest bank in asset terms at end-Sept. 2017

BDO Unibank, Inc. (BDO) remained the biggest bank in the Philippines at end-September 2017 in terms of assets, capital, deposits and loans, data from the Bangko Sentral ng Pilipinas showed.

BDO was the largest lender in the country in asset terms with P2.49 trillion as of September, followed by Metropolitan Bank & Trust Co. (Metrobank) founded by banker George S.K. Ty with P1.63 trillion.

Ayala-led Bank of the Philippine Islands (BPI) regained the third spot with assets worth P1.54 trillion, pushing government-run Land Bank of the Philippines (Landbank) to the fourth spot with P1.48 trillion in assets.

Security Bank Corp. remained at fifth place as its assets stood at P796.96 billion at end-September last year, followed by Lucio C. Tan, Sr.’s Philippine National Bank (PNB) with P758.92 billion, and Sy-led China Banking Corp. (China Bank) with P607.57 billion.

State-run Development Bank of the Philippines (DBP) finished at eighth place, booking P557.46 billion worth of assets at end-September, followed by Aboitiz-led Union Bank of the Philippines (UnionBank) with P488.05 billion and Rizal Commercial Banking Corp. (RCBC) of the Yuchengcos with P420.35 billion.

BDO also led the sector in terms of total stockholder’s equity with a capital of P293.99 billion, followed by Metrobank with P199.94 billion, BPI with P174.86 billion, PNB with P106.03 billion and Landbank with P101.94 billion.

Security Bank ranked sixth in terms of capital with P101.5 billion, then China Bank with P75.95 billion, UnionBank with P65.94 billion, RCBC with P64.86 billion and DBP with P46.55 billion.

In terms of total deposit liabilities, BDO also dominated the industry as it booked P2.02 trillion worth of deposits at end-September, followed by Landbank (P1.31 trillion), BPI (P1.27 trillion), Metrobank (P1.26 trillion) and PNB (P574.52 billion).

The Sy-led bank also led the ranking in terms total loans and receivables with P1.67 trillion, followed by BPI (P919.89 billion), Metrobank (P915.3 billion), Landbank (P599.13 billion) and PNB (P415.54 billion).

BDO booked a P20.4-billion net income in the first nine months of 2017, up 5% from the P19.3 billion booked in the comparable 2016 period. The increase in its earnings was mainly attributable to higher income from its core and fee-based businesses.  K.A.N. Vidal

Keep us from a bumpy TRAIN ride

The government, particularly the Transport department, reportedly made significant progress at the close of last year in addressing the woes of the commuting public with respect to the Metro Rail Transit (MRT) Line 3.

In his desire to bring the country to a brighter destination, President Rodrigo R. Duterte also ended 2017 by paving the way for the other TRAIN (Tax Reform for Acceleration and Inclusion).

On Dec. 19, the President signed Republic Act 10963, or the TRAIN law, which amends certain provisions of the 1997 National Internal Revenue Code (NIRC). To make the ride smoother for taxpayers, the President made some repairs to the TRAIN as assembled by the legislature by vetoing some parts of the law.

The Constitution grants the President the power to veto any item of legislation. This is an integral part of the law-making process. It is said that while the legislature has the affirmative power to enact laws, the President has the negative power in which he may defeat the will of the legislature by objecting or vetoing any bill passed (Benzon vs. Secretary of Justice, G.R. No. 42821, Jan. 18, 1936).

Of course, the legislature can override the President’s veto by a two-thirds vote by the House, and also a two-thirds vote of the Senate. However, given that the President enjoys Congressional support, it is unlikely that the latter will override the veto.

One of the items vetoed is the preferential tax rate of employees of Regional Headquarters (RHQs), Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs) and petroleum service contractors or subcontractors. The President particularly vetoed the following proviso of Section 6(F) of the TRAIN:

“Provided, however, that the existing RHQs/ROHQs, OBUs or petroleum service contractors or subcontractors presently availing of preferential tax rates for qualified employees shall continue to be entitled to avail of the preferential tax rate for present and future qualified employees.”

Notably, the President did not veto the first part of the Section 6(F) which states that the preferential tax treatment provided in Subsections (C), (D) and (E) of this section shall not be applicable to RHQs/ROHQs, OBUs and petroleum service contractors registering with the Securities and Exchange Commission after Jan. 1, 2018. Clearly, as far as newly formed RHQs/ROHQs, OBUs and petroleum service contractors are concerned, the 15% special compensation tax rate is no longer available.

The President explained in his veto message that the above proviso violated the Equal Protection Clause of the Constitution, as well as the rule on equity and uniformity in the application of the burden of taxation. According to the President, the overriding consideration is the promotion of fairness of the tax system for individuals performing similar work. Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rate applicable to other individual taxpayers.

A cursory reading of the President’s veto message on this item may lead one to immediately think that the veto effectively removed altogether the 15% special tax rate on qualified employees. This has created some confusion and differing views as to the real effect of this veto.

However, looking more closely at the President’s veto can lead to only one conclusion (assuming it is not overridden), and that is, retaining the status quo for qualified employees of existing RHQs/ROHQs, OBUs and petroleum service contractors. In other words, such employees would still enjoy the 15% preferential tax rate unless an amendment to the NIRC is passed categorically removing such a tax regime and subjecting them to the regular tax rate.

This is because the President specifically vetoed only the proviso under Section 6(F) of the TRAIN without vetoing Subsections (C), (D) and (E) which contain the existing 15% special tax rate of qualified employees of these firms. Thus, if the vetoed provision is adopted by our lawmakers, the 15% tax regime would still subsist because Subsections (C), (D) and (E) would remain intact.

To take the President’s veto of Section 6(F) of the TRAIN as a withdrawal of the 15% special tax rate altogether and to subject the qualified employees to the regular tax rate would, I believe, allow the President to make an affirmative act of legislation which is beyond his power. A scenario that would likely create complications and legal controversies. This brings to mind the incident that occurred sometime in August 2014 where one MRT train overshot the track causing injuries to the passengers. Thus, in taking this direction, the ride could be very bumpy, if not dangerous.

On the other hand, the status quo view would admittedly represent a glitch in the TRAIN law since this would leave behind the intended amendment of the taxation of qualified employees of RHQs/ROHQs, OBUs or petroleum service contractors or subcontractors. Nonetheless, given that this is just the first of five tax reform packages, there is always the next trip, another opportunity to amend the NIRC to give way to the desire of the President.

This one line-item veto alone is an indication that the TRAIN ride could be a bumpy one. I hope that those who will implement the TRAIN (the Department of Finance and the Bureau of Internal Revenue) will conduct a thorough study of how the veto should be effected with minimal complications so as not to disrupt the entire journey of the TRAIN. Let’s just hope that, as drivers of the TRAIN, they will hold on firmly to the wheel and deliver us to our final destination safely. Most important, let us pray that God blesses our trip.

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.

Brando C. Cabalsi is a Director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PwC global network.

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brando.cabalsi@ph.pwc.com

How PSEi member stocks performed — January 3, 2018

Here’s a quick glance at how PSEi stocks fared on Wednesday, January 3, 2018.