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Shares rise on dovish Fed bets ahead of CPI data

REUTERS

PHILIPPINE STOCKS went up on Monday, tracking US shares’ rise, on bets that the US Federal Reserve is done hiking rates and as investors await the release of August Philippine inflation data.

The Philippine Stock Exchange index (PSEi) went up by 33.62 points or 0.54% to close at 6,214.68 on Monday, while the broader all shares index rose by 14.47 points or 0.43% to end at 3,356.44.

“This increase was attributed to positive cues from Wall Street last Friday, where higher unemployment rates provided investors with optimism that the Federal Reserve might consider pausing its monetary tightening measures in response to the data,” Philstocks Financial, Inc. Research Analyst Claire T. Alviar said in a Viber message.

US stock indexes settled for a mixed close after a US jobs report showed an uptick in unemployment, cementing expectations that the Fed will let interest rates stand at its September meeting, Reuters reported.

The Dow Jones Industrial Average rose 115.80 points or 0.33% to 34,837.71; the S&P 500 gained 8.11 points or 0.18% to 4,515.77; and the Nasdaq Composite dropped 3.15 points or 0.02% to 14,031.81.

The Labor department’s payrolls report showed the US economy added more jobs than expected last month, but the rising unemployment and participation rates, along with a welcome cool-down in average hourly wage growth, solidified expectations that the Fed will let key interest rates stand this month.

“Philippine shares were bought up ahead of the local CPI (consumer price index) [on Tuesday], and as others started taking positions with the week ahead,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

A BusinessWorld poll of 18 analysts yielded a median estimate of 4.9% for August headline inflation, near the lower end of the central bank’s 4.8% to 5.6% forecast for the month.

If realized, this would be faster than the 4.7% print in July, but lower than the 6.3% seen in August 2022.

It would mark the 17th straight month of inflation exceeding the Bangko Sentral ng Pilipinas’ 2-4% target for the year.

Sectoral indices rose on Monday except for financials, which dropped by 3.07 points or 0.16% to 1,833.81.

Meanwhile, property rose by 37.70 points or 1.46% to 2,604.86; mining and oil went up by 136.43 points or 1.36% to 10,132.72; holding firms increased by 41.86 points or 0.71% to 5,910.55; services gained 4 points or 0.26% to end at 1,507.30; and industrials climbed by 23.13 points or 0.26% to 8,759.89.

Value turnover went down to P11.32 billion on Monday with 2.30 million shares changing hands from the P11.51 billion with 2.11 million issues seen on Friday.

Advancers outnumbered decliners, 94 to 82, while 42 names closed unchanged.

Net foreign selling went down to P1.20 billion on Monday from P5.69 billion on Friday. — SJT with Reuters

Peso weakens against dollar as market awaits August inflation report

BW FILE PHOTO

THE PESO inched down against the dollar on Monday as the market awaited the release of the August consumer price index report on Tuesday.

The local currency closed at P56.62 versus the dollar on Monday, weakening by 2.50 centavos from Thursday’s P56.595 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Monday’s session weaker at P56.65 per dollar. Its intraday best was at P56.49, while its worst showing was at P56.66 against the greenback.

Dollars traded went up to $1.59 billion on Monday from the $1.48 billion on Thursday.

The peso weakened ahead of the release of August inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“[On Tuesday], we’ll get domestic inflation, which could hint at the BSP’s (Bangko Sentral ng Pilipinas) own policy path,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

A BusinessWorld poll of 18 analysts yielded a median estimate of 4.9% for August inflation, near the lower end of the central bank’s 4.8-5.6% forecast for the month.

If realized, this would be faster than the 4.7% in July, but lower than the 6.3% print in August 2022.

It would also mark the 17th straight month that inflation exceeded the central bank’s 2-4% target.

The BSP last month kept benchmark interest rates steady for a third straight meeting, but signaled it is prepared to resume tightening if needed amid risks to inflation.

The Monetary Board left its overnight reverse repurchase rate unchanged at a near 16-year high of 6.25%. Interest rates on the overnight deposit and lending facilities were maintained at 5.75% and 6.75%, respectively.

The BSP has raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023 to help bring down elevated inflation.

The Monetary Board will hold its next policy meeting on Sept. 21.

“We did note some inflows, possibly from remittances, over the long weekend helping offset anxiety over the outlook for the Fed policy stance,” Mr. Mapa added.

The US Federal Reserve raised interest rates by 25 bps in July, bringing its benchmark overnight rate to a range between 5.25% and 5.5%.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

The market expects the Fed to keep rates steady and possibly end its tightening cycle this month following soft economic data.

For Tuesday, Mr. Ricafort sees the peso trading from P56.50 to P56.70 against the dollar. — AMCS

Metal output up 8% by value as nickel volumes ramp up

GLOBAL FERRONICKEL

METALS production rose 8.06% by value in the first half due to a drastic increase in nickel output, which offset a decline in the average price for the ore, the Mines and Geosciences Bureau (MGB) said.

In a report on Monday, it said production was valued at P123.07 billion, up from P113.89 billion a year earlier, with nickel ore and nickel byproducts accounting for 46.57% of the total, generating P57.32 billion.

The average nickel price fell during the six months to $10.98 per pound from $12.95 per pound a year earlier.

“Despite the sluggish nickel price in (the first half of) 2023, nickel ore, together with its nickel products, continued to dominate production,” the MGB said.

Gold accounted for 41.62% by value, generating P51.22 billion. The price of gold rose by $59.48 year on year to $1,933.95 per troy ounce.

Silver, chromite, and iron ore accounted for P1.79 billion, or 1.46% of the total.

By volume, nickel production increased 40% year on year to 16.87 million dry metric tons (DMT).

Gold output rose by 3% to 15,102 kilograms in the first half.

Chromite production increased by 20% to 47,449 DMT.

Copper output rose 6% to 133,072 DMT while iron ore production rose 17% to 56,131 DMT;

Silver production declined 12% to 23,316 kilos during the half.

“Nickel ore production is expected to expand further as the MGB expects four nickel mining projects to commence mining operations between 2023 to 2025,” it added. — Adrian H. Halili

Domestic nickel processing critical for clean tech ambitions — DTI

REUTERS

THE PHILIPPINES needs to develop the capacity to process nickel domestically if it is to make progress in its transition to clean technology, the Department of Trade and Industry (DTI) said.

In a statement, Trade Secretary Alfredo E. Pascual urged the private sector to invest or seek global partners in the downstream processing of nickel, which he said will help position the Philippines in the supply chains of the clean technology industry.

Speaking at the ASEAN Investment Forum in Jakarta on Saturday, Mr. Pascual was quoted in a statement as saying that companies need to climb the value chain by investing to upgrade the semiconductor industry.

“Part of our strategic approach is to leverage these resources and enable us to move to higher-value activities by developing domestic middle to downstream processing of minerals, with high regard to sustainability,” Mr. Pascual said.

He added that the process of developing domestic capacity will require reliable partners for technical and financing capacity.

“Part of the development strategy of the Philippines to enhance economic performance and global value-chain participation is to work with global partners and to increase international engagements to create a more conducive environment for investments,” he said. 

“We are engaging with several partners at the multilateral, regional, and bilateral levels to pursue a framework that could mobilize sustainable investment in the Philippines,” he added. — Justine Irish D. Tabile

MWSS allocation for Sept. raised to 50 cms

THE Metropolitan Waterworks and Sewerage System (MWSS) said that the National Water Resources Board has agreed to raise its water allocation to 50 cubic meters per second (cms) in September.

“The approved allocation of MWSS for September 2023 is 50 cms. Last month’s allocation is 48 cms, so the approved allocation this month is higher,” Patrick James B. Dizon, head of the MWSS Angat/Ipo operations management division, said in a Viber message.

Mr. Dizon said that the 50 cms provides an adequate buffer, though the final amount is subject to calibration if Ipo Dam needs to release water in the event it reaches spilling level.

“We will request Angat to reduce the releases to us if ever the watershed inflows are strong,” he said.

As of 6 a.m. on Monday, the water level in Ipo Dam declined to 101.01 meters from 101.07 meters a day earlier, according to the Philippine Atmospheric, Geophysical and Astronomical Services Administration’s website.

The water level remains slightly above the dam’s normal high water level of 101 meters. Ipo Dam is part of the Angat-Ipo-La Mesa water system.

Meanwhile, Angat Dam’s water level increased to 202.23 meters from 201.43 meters previously. Its normal high level is 210 meters.

Angat Dam is the main source of water for Metro Manila, accounting for about 90% of the capital’s potable water.

Jennifer C. Rufo, head of corporate communications of Maynilad Water Services, Inc., said in a Viber message that the west zone water concessionaire is in discussions with the MWSS on the appropriate sharing of the water allocation to ensure sustained uninterrupted supply for consumers.

“The 50 cms allocation is still enough for… our required volumes, especially since rains over the watersheds have been filling Ipo Dam,” she said.

Maynilad serves the city of Manila, except portions of San Andres and Sta. Ana. It also operates in Quezon City, Makati, Caloocan, Pasay, Parañaque, Las Piñas, Muntinlupa, Valenzuela, Navotas, and Malabon.

It also supplies the cities of Cavite, Bacoor, and Imus, and the towns of Kawit, Noveleta, and Rosario, all in Cavite province.

Manila Water Co., Inc. Group Director for Corporate Communications Affairs Nestor Jeric T. Sevilla, Jr. said the allocation will allow the company to offer uninterrupted service.

“This will enable us to continue to sustain the provision of 24/7 water supply to our 7.6 million customers in the East Zone,” he said in a Viber message.

Manila Water services Metro Manila’s east zone, which consists of Marikina, Pasig, Makati, Taguig, Pateros, Mandaluyong, San Juan, portions of Quezon City and Manila, and several towns in Rizal province. — Sheldeen Joy Talavera

Test-based SUC admission policy will magnify middle-income students’ advantages — PHINMA Education

PHILSTAR FILE PHOTO

By Luisa Maria Jacinta C. Jocson, Reporter

A PROPOSAL to amend the free state university law to admit applicants based on test performance will play to the strengths of middle-income students, who have always enjoyed advantages in test preparation, PHINMA group’s education unit said.

PHINMA Education Country Head for the Philippines Christopher A. Tan said in an e-mail that “A merit-based test will not change much. The free tuition law has always disproportionately benefited middle-income students who received good K-12 educations and are able to pass rigorous state university entrance exams. The poorest of the poor are only a small portion of those benefiting from the program because they are more likely to be unprepared to enter college.”

He said the choice is between “merit-based” admissions, such as test scores, and a “needs-based” approach, which will consider policy goals such as educating the poor.

“We need to see how new standards to judge who is ‘deserving’ (of a place at a state university are implemented) … whether this is a merit-based test or a needs-based one,” he added.

The Department of Finance (DoF) has proposed to use test scores to determine who gets access to free tuition for state universities and colleges (SUCs), a Duterte-era entitlement enacted before the pandemic, when the government’s finances were more robust.

Finance Secretary Benjamin E. Diokno has said he wants a review of the Republic Act No. 10931 or the Universal Access to Quality Tertiary Education Act.

Mr. Diokno, who was on the economic team of the Duterte administration, is proposing a national test to determine who gets free tuition. Those who meet the test standard will be granted a four-year voucher for tuition.

Mr. Diokno said that the present system is “unwieldy, inefficient, and wasteful,” and that the proposal will optimize the use of government funds.

“An indicator of wastefulness is the rising dropout rate. The proposed reform also aims to reduce the threat to the robust private school system,” he added.

Under the constitution, the government is required to allocate the biggest share of the national budget to education.

The 2024 National Expenditure Program allocates P924.7 billion to education, up 3.3%.

Of this, P51.12 billion or around 5.5% of the total will be allocated to roll out the Universal Access to Quality Tertiary Education program.

“The call to review the free tuition policy is unsurprising because concerns about the sustainability of the program were raised by the education sector when the policy was first proposed,” Mr. Tan said.

“Free tuition for college students is a massive undertaking and needs to take into account the increase in demand for education as the years go by. What we’re seeing now is increasing demand and not enough resources to go around,” he added.

Mr. Diokno has said that the government’s focus should be on basic education instead of tertiary.

“The poor have a better chance of entering college, and completing the same if they have a good foundation. That’s one of the goals of the K-12 program. That’s the key — excellent basic education. That should be our focus,” Mr. Diokno said.

Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said the government should concentrate on subsidizing basic education tuition.

“Free education for public elementary and secondary education is understandable. But not so in public tertiary education,” he said in a Viber message.

Mr. Tan also noted that Mr. Diokno’s proposal to focus on basic education is “more critical at this point in our development,” given the limited fiscal space.

“A four-year college voucher program is a good, cost-effective solution for the government. Under such a program, students are given a set amount while being allowed to choose which institution to attend — this reduces the burden on state universities while still ensuring that students receive quality education through private schools,” Mr. Tan added.

Mr. Diokno is also pushing to reduce the number of SUCs through mergers.

“The mergers of SUCs can be done over a period of years, say five years. Initially, it can be started by having the same set of trustees in all SUCs within the same region. Note that there are several SUCs in a region,” Mr. Diokno said.

Mr. Tan said that SUC consolidation will ensure that “quality is being maintained and resources are being maximized.”

Meanwhile, Mr. Oplas recommended privatizing state universities.

“All state universities including the University of the Philippines should become private, not abolished. Then all university students will become scholars via government vouchers, say P60,000 per year per student. If a student enrolls in a P150,000 a year university, his or her parents or guardian must pay the balance of P90,000. If a student enrolls in a P60,000 a year university, then no additional payment,” he said.

Mr. Oplas said that this way, the government funds students, and not state universities.

He said such an approach would result in “equal privilege for all tertiary students, no budgetary favoritism as in the current system.”

“All universities will compete to attract more students, improve their education services,” he added.

David Michael M. San Juan, a professor at De La Salle University and convener of Professionals for a Progressive Economy, said that Mr. Diokno’s proposal is “anti-poor and anti- development.”

“Mr. Diokno’s claim that the free college education program is wasteful has no basis. The rising dropout rate is not due to college education being made free, but rather, because of the program’s inadequacy. Despite the fact that SUCs are now tuition-free, students still have to pay for so many things like books, dormitories, uniforms (in some cases), etc.,” he said in a Facebook Message.

Mr. San Juan said that the proposed filtering process to determine who gets to attend an SUC would make the process more inefficient.

“Imposing a filtering process for those who plan to attend college is also an administrative nightmare. There would be additional administrative expenses for processing documents and confirming information in the documents. That’s way more wasteful than just allowing everyone who wants to enroll (subject to admission requirements of course) to be admitted and enrolled,” he said.

All poor students deserve a free education, Mr. San Juan said.

“Moreover, with the government’s laughably low poverty threshold, it is very possible that if the government imposes a filtering system, very few students will be able to comply,” he said.

“Hence, Mr. Diokno’s filtering system will just be a synonym for ensuring that only very few students will be able to enroll tuition-free — which will be tantamount to re-imposing the previous financial barriers to poor students who would want to enroll. Any talk of ‘the deserving poor’ is intolerable,” he added.

Mr. San Juan recommended that the government provide more financial assistance to the poorest to support them during their schooling.

“The free college education system is in fact an investment in our human resources. We want more college graduates so that we will have more innovators, leaders, industry disruptors, inventors, visionaries,” he said.

ARTA compiling ‘report card’ on 800 agencies’ service quality

THE Anti-Red Tape Authority (ARTA) said it has started compiling a survey that will result in a “report card” on the bureaucratic processes of 800 agencies, Director General Ernesto Perez said.

Mr. Perez said the 800 agencies represent a vastly expanded coverage from the first report, which surveyed 50 agencies.

Mr. Perez said in an interview with ANC that the pilot survey of 50 agencies turned up only a few were able to achieve with a “very satisfactory” rating of 90% to 94.9%.

Mr. Perez said that these agencies are the Government Service Insurance System, Department of Trade and Industry, Philippine Children’s Medical Center and the Department of Foreign Affairs.

Mr. Perez said that the coverage of the report card could be further extended to all government agencies with more support from Congress.

“By increasing our budget, we will be able to cover not only 800 agencies, but 10,000 government,” he said.

The Department of Budget and Management’s National Expenditure Program indicates that ARTA has been allocated P290.01 million in 2024, 13.7% lower than this year’s funding level.

“We asked for a 2024 budget of about P780 million, but what was granted to us was barely 35% of that,” said Mr. Perez.

He said that the report card represents a response to a Presidential directive to streamline bureaucratic processes.

“The agencies’ performance will be duly rated not only by the applicants or persons who have direct contacts with these agencies, but we have also hired third-party independent surveyors who are experts in their fields. So, the findings really will be backed up by evidence,” he said.

ARTA plans to launch an electronic complaint system as another check on government agencies’ service quality. The system had been the subject of delays flagged by the Commission on Audit.

“The electronic complaint system (was launched by) the previous admin of ARTA (which was not implemented because of budgetary constraints,” he said.

“But I am confident that with the operationalization of the electronic complaint system, we will develop with the budgetary support from the Congress, that issue will no longer be raised,” he added. — Justine Irish D. Tabile

PHL Aug. inflation seen rising but remaining below 5% 

PHILIPPINE STAR/MIGUEL DE GUZMAN

INFLATION will likely stop falling for the first time in six months in August, but will remain below 5%, regional economists said.

DBS Bank said in a note that it expects Philippine inflation to rise 4.9% year on year in August, up from the 4.7% reported in July.

“Concerns over a supply shortage and dependency on imports had driven rice (weighted at 9.6%) prices sharply higher in recent weeks, prompting the government to impose price ceilings starting Sept. 1,” the bank said.

President Ferdinand R. Marcos, Jr. on Friday issued an executive order which imposes a price ceiling of P41 per kilogram for regular-milled rice and P45 per kilogram for well-milled rice.

As of Aug. 31, the retail price of a kilogram of domestic well-milled rice was between P47 and P56, against P42 a year earlier, according to the Department of Agriculture.

Regular-milled rice prices rose to P42-P55 from P38 a year earlier.

“Concurrently, the economy is also dependent on imported energy, leaving domestic prices vulnerable to swings in international costs, apart from transport fares which had been partly responsible for the sharp rise last year,” DBS Bank added.

In August, oil firms raised pump prices by P5.90 per liter for gasoline, P9.90 per liter for diesel and P10 per liter for kerosene.

Separately, Nomura Global Markets Research said it expects inflation to reflect “a sequential pick-up to 0.5% (month on month) seasonally adjusted from 0.0%, reflecting the significant rise in rice prices and retail fuel prices, consistent with increasing international prices.”

August inflation likely settled at 4.9%, according to a BusinessWorld poll of 18 analysts last week.

If realized, this would be below the year-earlier level of 6.3%. It would also mark the 17th straight month of inflation breaching the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.

The BSP expects August inflation to settle between 4.8% and 5.6%.

Nomura Global also expects core inflation to further ease to 5.5% in August, in line with weakening economic activity.

Core inflation, which excludes volatile items like food and fuel prices, slowed to 6.7% in July from 7.4% in June. In the first half, core inflation averaged 7.6%.

“We expect the goods trade deficit to widen to $4.9 billion in July from $3.9 billion in June, as export growth turned negative again due to weak external demand from China, Korea, and Singapore. Import growth also contracted by less, driven in part by higher oil import costs,” Nomura added.

The trade deficit narrowed to $3.92 billion in June from a $4.45 billion May deficit and the year-earlier $5.88 billion deficit.

For 2023, DBS sees inflation at 5.4% before easing to 3.2% in 2024. Nomura Global expects inflation to average 5.3% this year and 3.1% next year.

Both full-year projections for 2023 are below the BSP’s 5.6% forecast for 2023. — Keisha B. Ta-asan

Agrarian debt condonation IRR due this week

THE Department of Agrarian Reform (DAR) said it expects to complete the implementing rules and regulations (IRR) for the New Agrarian Emancipation Act by Sept. 7.

In a statement, the DAR said that it has concluded consultations with agrarian reform beneficiaries (ARBs) and farmers’ groups in the process of putting together the IRR draft.

The IRR will address matters like the process of obtaining condonation and the compensation for landowners.

Republic Act No. 11953, signed in July, provides for the condonation of loans, interest, penalties, and surcharges incurred by ARBs.

The debt to be forgiven is projected at about P57.57 billion, covering 610,054 beneficiaries holding 1.17 million hectares.

The law also terminates payments to landlords who are part of a voluntary land transfer and direct payment scheme, benefiting 10,201 ARBs tilling 11,531.24 hectares.

“The summary of discussions (from the consultations) will be submitted to the IRR drafting committee for inclusion in the draft IRR which will be finalized during the full committee meeting on Sept. 7,” it said.

The DAR Technical Working Group’s deadline for submitting the draft to the Office of the President is Sept. 22. — Adrian H. Halili

Natural gas policy not expected to lower energy costs

The ISH floating storage unit berths at the AG&P’s Philippines LNG terminal in Batangas. — COMPANY HANDOUT

THE greater use of liquefied natural gas (LNG) will not help achieve the policy goal of lowering power prices, the Institute for Energy Economics and Financial Analysis (IEEFA) said on Monday.

“While some natural gas may be necessary to continue operating the country’s existing fleet of gas plants, a rapid expansion of LNG-to-power facilities is not aligned with energy security and affordability goals,” Sam Reynolds, an energy finance analyst with IEEFA, said in a statement.

“Promoting a wholesale expansion of LNG terminals and power plants sends the wrong signal to investors and risks binding the country to a costly, volatile energy future,” he added.

The Department of Energy (DoE) had issued a draft circular that will require distribution utilities (DUs) to procure a yet-to-be-determined percentage of their power from natural gas-fired power generators.

The DoE considers natural gas to be a “suitable transition fuel” that will keep the supply of power stable as the energy grid transitions to renewable energy.

“With the eventual reduction of capacity from coal-fired power plants, natural gas will be the immediate option for the DUs either for baseload, midrange, and peaking requirements because of its flexibility, and with much less harm to environment,” the DoE said.

The cost of the Philippines’ first LNG shipment from the United Arab Emirates (UAE) in April was $51.77 million, while the second delivery from Indonesia was valued at $35.87 million, the IEEFA said.

It added that the price the Philippines paid was equivalent of $15 per million British thermal unit (MMBtu) for the UAE shipment and $12 per MMBtu for the Indonesian shipment.

Mr. Reynolds said the Philippines could need 3.5 million tons of LNG to operate its five gas-fired power plants.

He said that this translates to an annual LNG bill of more than $2.5 billion, compared to the LNG cost incurred by Pakistan of about $5 billion and the cost paid by Thailand of about $9 billion.

“Importantly, LNG is significantly more expensive than other energy sources. Since January 2021, monthly coal prices have averaged $8.39/MMBtu — nearly three times lower than average JKM (Japan/Korea Marker) LNG price of $22.79/MMBtu,” Mr. Reynolds said.

“IEEFA estimates that LNG costs of $15/MMBtu will likely result in a final generation price of nearly P8 per kilowatt-hour (kWh). As LNG costs fluctuate wildly, so do the prices that Filipino end-users pay for electricity,” he added.

Mr. Reynolds said that domestic gas sources are not immune to global market volatility as Malampaya gas is tied to international fuel prices.

In 2021, gas prices from Malampaya averaged nearly $8 per MMBtu, up from $6.4 per MMBtu in 2016, he said. “Farther offshore, harder-to-extract domestic gas could increase prices further.”

The Malampaya gas field is the country’s only indigenous source of natural gas. It is expected to be commercially depleted by 2027, with supply expected to dwindle starting in 2024. — Sheldeen Joy Talavera

Poland poultry import ban lifted

PHILSTAR FILE PHOTO

THE Department of Agriculture (DA) said it has lifted a temporary ban on poultry products imported from Poland.

In a memorandum order signed by Undersecretary Domingo F. Panganiban, the DA will now allow imports of domestic and wild birds and their products from Poland, including poultry meat, day-old chicks, eggs and semen.

“This order is hereby issued to lift the temporary ban on the importation of domestic and wild birds and their products including poultry meat, day-old chicks, eggs and semen originating from Poland. All import transactions of the commodities shall be in accordance with existing rules and regulations of the (DA),” it said.

The DA had barred Polish poultry last year due to an outbreak of H5N1 Highly Pathogenic Avian Influenza.

“Based on the evaluation of the DA, the risk of contamination from importing poultry meat, day-old chicks, eggs and semen is negligible,” according to the memorandum, which cited a report from the World Organisation for Animal Health, which found that the outbreak had been “resolved.”

The Philippines imported 249.37 million kilograms of chicken, 197.76 million kilos of duck meat, and 114.42 million kilos of turkey in the seven months to July, according to the Bureau of Animal Industry. — Adrian H. Halili

Third-party information and the tax assessment process

The Bureau of Internal Revenue (BIR) is actively conducting taxpayer audits. Recently, we have been seeing astronomical deficiency tax assessments from the BIR. One finding that the taxpayers always have trouble understanding is the deficiency assessment coming from third-party information (TPI).

The BIR uses the Reconciliation of Listings for Enforcement (RELIEF) System for TPI audits.

The RELIEF System cross-references third-party information from the taxpayers’ Summary Lists of Sales and Purchases. The BIR also uses the Third-Party Matching-Bureau of Customs (TPM-BoC) Data Program to validate the volume of imports declared by the taxpayer.

Inconsistencies uncovered in the TPI matching are assumed by the BIR as an indication of under-declaration of revenue or over-declaration of cost and expenses, thus resulting in deficiency tax assessments for income tax, VAT and withholding taxes.

In this kind of assessment, we would assist the taxpayer in combing through voluminous records to reconcile the discrepancies. Armed with tax returns, accounting records and a Sworn Statement, we will inform the BIR that the third-party information is incorrect and that the amount declared by the taxpayer tallies with his books and other supporting documents. Unfortunately, this becomes a tax assessment version of “he said, she said” and thus, begins the arduous calvary of refuting the TPI findings.

In such situations, I cannot help but wonder why the BIR would often assume that the third-party information is correct while the taxpayer being audited is misdeclaring his income and expenses. Fortunately, jurisprudence is replete with cases explaining when assessments from TPI are not reliable and thus, void.

Revenue Memorandum Order (RMO) No. 46-2004 requires that in the event that the taxpayer protests the accuracy of the data provided by third-party sources, the BIR shall require the TPI provider to execute a Sworn Statement attesting to the correctness of the data provided. RMO 13-2012, states that if no response from the TPI source is received after the lapse of five days from service or ten days from mailing of the Confirmation Request, the revenue officer may consider the data to be true and correct.

In a CTA case, the BIR disclosed that it was not able to secure the confirmation from the TPI source. Instead, it relied on the portion of the BIR letter addressed to the third party stating that “(I)f this office does not receive any response from you within five days from receipt of this letter, we will consider the above purchase/amounts to be true and correct.”

The CTA cancelled the assessment and ruled in favor of the taxpayer. In failing to fully validate the TPI, the assessment was not based on facts but merely on presumption. In another case, the CTA cancelled an assessment over the failure of the BIR to offer in evidence the confirmation request letters and registry return receipts from the TPI sources.

In one case of alleged undeclared imports arising from matching with BoC data, the BIR used the Cost Ratio Method and grossed up value of the undeclared imports. This resulted in a corresponding undeclared sale which was subjected to 12% output VAT, thus resulting in a deficiency VAT assessment.

The CTA cancelled the assessment and emphasized that for VAT to be imposed, there must be an actual or deemed sale of goods or services. Hence, no imposition or assessment of output VAT can arise from an alleged undeclared sales arising from under-declaration of imports.

In the same manner, a mere discrepancy arising from BoC TPI cannot translate to the taxpayer’s undeclared gain and sales subject to income tax. The CTA emphasized that for income to be taxable, there must be a gain or income realized or received by the taxpayer. Without proof of receipt of taxable income, the obligation to pay taxes does not arise. The CTA further goes to explain that “in importation, money is disbursed, rather than received; and goods or properties are purchased, rather than sold by the taxpayer. These concepts are anathema to the nature of income tax as a tax imposed on income received by the taxpayer; and VAT, as a tax imposed on the sale of goods or property, among others.”

In various cases, the Supreme Court emphasized that tax assessments are presumed correct, made in good faith and based on sufficient evidence. However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is without foundation, meaning it is arbitrary and capricious. Paramount is the rule that the presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption.

Admittedly, the RELIEF system is a valuable source of information that the BIR can use in identifying taxpayers that may be subject to audit. However, the courts have been consistent in ruling that the BIR must support its assessments with verified factual information.

While the courts offer relief in canceling assessments based on unverified TPI, this process is cumbersome and costly to taxpayers. Reconciliations and documentation submitted to the BIR should be thoroughly assessed by the BIR to ensure that the right of the taxpayers to due process is observed even at the administrative process level. Resort to the courts should be a last-ditch scenario in view of the cost and effort needed. Taxpayers and the BIR should work hand in hand to ensure that correct taxes are paid, no more, no less.

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

 

Eleanor Lucas Roque is a principal of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com