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PHL financial sector sees rise in digital fraud attempts

THE FINANCIAL SECTOR saw the largest increase in suspected digital fraud attempts among major industries in the early part of the year amid a continued rise in online transactions, a study by a global remittance firm found.

Suspected digital fraud that targeted financial services firms grew by 50.39% from January to May 1 versus the last four months of 2020, based on a TransUnion research. This was the highest increase seen among the industries that were part of the study. Attempted fraud in the financial sector also rose by 19% in the same period.

“The rate of fraud attempts was up globally and especially in the financial services industry because fraudsters understand this is where the most high-value transactions are taking place,” TransUnion Philippines President and Chief Executive Officer Pia Arellano was quoted as saying in a statement on Wednesday.

“While this industry is traditionally known for in-person transactions, fraudsters have recognized its rapid digital acceleration and are trying to capitalize,” Ms. Arellano added.

Globally, fraud attempts in digital financial services surged by 149% from January to May 1, the study found. Identity theft was the most prominent attack type logged.

After financial services, the local travel and leisure sector saw the second-highest growth in suspected fraud at 31.5%, with credit card fraud the most prevalent. Transactions in online communities, which include online dating and forums, came in third where suspected fraud, mostly related to profile misrepresentation, rose by 10.16%.

On the other hand, the study found fewer fraud attempts in other local industries such as logistics (-60.5%), telecommunications (-28.6%), and retail (-27.42%).

“The key takeaway for businesses is that fraudsters do not treat every industry equally. They often pick and choose an industry to focus on based on the time of year or what businesses are seeing more transactional activity,” Ms. Arellano said.

Last year, the Bangko Sentral ng Pilipinas (BSP) received some 20,000 complaints from consumers. Around 13% of these complaints were related to fraudulent and unauthorized transactions, BSP Governor Benjamin E. Diokno said. — LWTN

Philippine trade year-on-year performance (Apr. 2021)

PHILIPPINE international trade value doubled in April as both exports and imports of merchandise goods posted record growth, the Philippine Statistics Authority (PSA) reported on Wednesday. Read the full story.

Philippine trade year-on-year performance (Apr. 2021)

How PSEi member stocks performed — June 9, 2021

Here’s a quick glance at how PSEi stocks fared on Wednesday, June 9, 2021.


BSP’s Diokno backs legislated path to economic liberalization

Benjamin E. Diokno, Bangko Sentral ng Pilipinas Governor — BLOOMBERG

THE opening of the economy to foreign investment will be more easily accomplished via legislation rather than the government’s preferred method of constitutional change, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“The first best option is for Congress to relax the restrictive provisions in the 1987 Constitution, given the political economy. I’m thinking of opening up the economy — education, media, ownership restrictions, etc. This does not appear to be feasible less than a year before the next election,” Mr. Diokno said in a Viber message.

“(I) think what is feasible are some bills pending in Congress — public service act, foreign investments act, retail trade reform act,” he added.

In the House, the resolution to revise the economic provisions of the constitution passed on final reading earlier this month.

Senators have said they are unlikely to prioritize the approval of a resolution to ease foreign ownership limits in the 1987 Constitution.

Congress is adjourned until the State of the Nation Address on July 26. It will be the last to be delivered by President Rodrigo R. Duterte in his six-year term.

Mr. Diokno said pushing to relax the “restrictive provisions” in the Constitution is “absolutely” to be relegated for “after the presidential election next year.”

ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa said measures to spur the economy in the near and medium term should be priorities to effect an economic recovery.

“A two-pronged approach of pushing for both short-term stimulus to jump-start economic activity while also pursuing important structural reforms that will enhance economic growth once the Philippines is back on its feet would be an optimal strategy,” Mr. Mapa said in an e-mail.

The proposed P401-billion Bayanihan III stimulus package was approved on third reading by the House. The measure, which if passed will be the largest stimulus package so far, remains pending at the committee level in the Senate.

Mr. Mapa noted that the Corporate Recovery and Tax Incentives for Enterprises Law which reduces corporate income tax immediately to 25% from 30% is a welcome development that will improve the country’s competitiveness over the medium term.

“However, such reforms tend to take time before the benefits manifest and tend to take hold during times of economic expansion. They can be viewed as enhancers to medium-term growth prospects but do considerably less in terms of resuscitating an economy in recession,” he said. — Luz Wendy T. Noble  

Philippines rounding up funding to support sustainable energy shift

THE Department of Finance (DoF) said it is currently in talks with various development partners such as the Asian Development Bank (ADB), the UK government and the World Bank to support the Philippine energy industry’s pivot to renewables.

Paola Sherina A. Alvarez, assistant secretary and DoF spokesperson, said the department is currently working with the ADB for pilot implementation of the Coal Replacement Fund. She gave no details.

Finance Secretary Carlos G. Dominguez III said in April that the government may have to set up a fund to acquire all power plants in Mindanao and eventually shut them down while the generation capacity of the Agus-Pulangi hydropower plant increases.

Ms. Alvarez said the ADB will provide technical assistance to support a feasibility study, evaluate how the plants will be repurposed, and how to ensure energy security during the transition phase.

“We will initiate our transition by exploring how sustainable finance can be utilized to improve the generating capacity of the Agus-Pulangi hydropower plant in Mindanao while at the same time, we will acquire all coal-fired power plants in the region to repurpose them as we increase the capacity of renewable energy,” Ms. Alvarez said in a roundtable discussion Wednesday.

“This proposal aims to shift most of Mindanao’s energy requirements to hydropower, which will eventually spur more investment from companies seeking to expand their operations in areas powered by clean energy,” she added.

She said the government is also working on developing a carbon pricing mechanism with the World Bank.

“Right now, you have to understand that it’s not easy. We really need to transition… because even if we talk about new coal-fired power plants, there are still negotiable instruments related to these contracts. Under the law, you cannot just cancel these contracts without repercussions,” Ms. Alvarez said.

The Philippines is planning to cut 75% of its greenhouse gas emissions by 2030 under its first Nationally Determined Contribution, its commitment to the Paris Agreement on climate change.

The government is also hoping to increase the share of renewable energy in the power mix to 55.8% by 2040.

“What we understand from the Department of Energy (DoE) is the Philippines needs to balance its economic stability in terms of energy security, while at the same time (effecting a) transition towards low-carbon energy development,” she said.

The DoF said the Philippines will have to invest more than $4.12 billion in 2015-2030 to mitigate climate change risk to energy, forests, industry and transport.

“Climate change adaptation and disaster risk reduction will become an even bigger challenge for the country if natural hazards are less predictable in the future,” Ms. Alvarez said.

She said the government is also teaming up with the UK to help with the energy transition.

“We’ve been working with the UK, the EU (European Union), and now we are also in talks with the US on how we can move investments towards these cleaner sources of energy,” she added.

Coal accounted for 44.5% of the power generation mix according to 2015 estimates by the DoE, while natural gas made up 22.9%. Renewables had a combined share of 25.4%, with solar at 0.2% and wind at 0.9%. — Beatrice M. Laforga

Small exporters left behind due to ‘digital divide’

PHILIPPINE STAR/EDD GUMBAN

LIMITED ACCESS to digital resources disadvantaged smaller exporters despite government policies that allowed the sector to continue operating throughout the pandemic, a Philexport official said.

Smaller businesses accounting for the bulk of the industry have fewer resources to help on-site employees, Philexport Executive Vice-President and Chief Operating Officer Senen M. Perlada said at the BusinessWorld Insights virtual event Wednesday.

Exporters were allowed to run some on-site operations even during the strictest phase of the lockdown last year.

“Exporters were lucky in the sense that the sector was considered essential, but there is a digital divide and there is a big gap because the major, big exporters in the export processing zones — they have resources to help on-site employees so they can really continue to operate,” Mr. Perlada said.

This was not possible for smaller exporters, he added. Micro-, small-, and medium-sized enterprises (MSMEs) represent 95% of Philexport membership.

“So even if… I’d call it now maybe even lip service that exporters are there and they’re able to operate, that is not actually the reality on the ground.”

Exporters are now facing logistics delays. Vessel space and container shortages and an ensuing surge in freight rates are causing shipment delays and losses for companies, Philexport said in May. Shipment waiting times continue to be long even as market demand recovers.

Small businesses were also hit hard by the lack of financing and a demand slump while most of the population is not yet vaccinated, Philippine Disaster Resilience Foundation President Rene S. Meily said at the same event.

“MSMEs are not that familiar with the digital world that we’re seeing taking place all around us. COVID accelerated the digital shift by at least 10 years, and we’ve all had to catch up.”

Diana Crizel Montes, Eastern Communications Strategic Segment marketing manager, added that MSMEs face connectivity limitations and remote employee management issues.

“The bricks-and-mortar business set up has been a reliable model for most MSMEs ever since, but I think they can break from these limitations by exploring readily-available social media platforms to reach their audience,” she said.

To help small businesses recover, Mr. Meily said that the companies must prepare emergency cash reserves, business continuity plans, and digital strategies. — Jenina P. Ibañez

NGCP power reserve compliance inadequate, key legislator claims

SENATOR Sherwin T. Gatchalian, who heads his chamber’s energy committee, said Wednesday that regulators must strictly enforce the ancillary services (AS) requirements, a scheme for ensuring adequate reserve power, to improve supply on the grid.

He said that the Department of Energy (DoE) ordered the National Grid Corp. of the Philippines (NGCP) two years ago to enter into AS contracts to prevent rotating power outages, known in the industry as “brownouts.”

“The NGCP (is) not contracting the right amount of reserves. Clearly, they are violating that policy… (The) ERC (Energy Regulatory Commission) should now implement the policy. The foundation has been laid down by the Supreme Court that DoE produces the policy and ERC enforces the policy. In this case, since NGCP is not contracting, ERC should punish them,” he said during a virtual news forum Wednesday.

According to the DoE, the grid operator contracted regulating, contingency, and dispatchable reserves of 237 megawatts (MW), 180 MW, and 145 MW, respectively, for the Luzon grid as of the fourth quarter.

The Luzon grid’s required minimums for regulating, contingency and dispatchable reserves are 491 MW, 647 MW, and 647 MW. These reserves are also known as AS.

Aside from the lack of compliance on reserves, the Philippines has yet to address the “big problem” of red tape, according to Mr. Gatchalian.

“Red tape is a barrier to entry for new power plants… It takes two years to get the permits of these power plants approved. Imagine two years with your permit, another four years to build the plant, that’s six years from start to end to get new power,” he said.

Mr. Gatchalian said the reserve shortfall and bureaucratic paperwork are just two of the issues which the country needs to solve to improve its power supply.

The NGCP placed the Luzon grid under red alert for three consecutive days last week following forced plant outages and higher temperatures.

On Thursday, the Senate Committee on Energy is set to hold a hearing to discuss long-term solutions to the power shortage during the dry months, and ensuring the quality and reliability of electric supply.

Asked to comment, NGCP Spokesperson Cynthia P. Alabanza said the NGCP’s AS requirement was contracted “for the most part.”

“The ancillary services are there, but they’re being dispatched by the IEMOP (Independent Electricity Market Operator of the Philippines) as supply, because in times of deficiency like now, supply for consumption should be prioritized over reserve,” Ms. Alabanza told BusinessWorld.

At the end of 2020, the NGCP had a deficit of 72 MW in its contingency reserve or about 11% of the requirement for the Luzon grid.

“But the others (are) over contracted,” she said, referring to regulating and dispatchable reserves from firm and non-firm contracts. — Angelica Y. Yang

BIR preparing charges against tax stamp counterfeiters in P544-million case

BW FILE PHOTO

THE Bureau of Internal Revenue (BIR) said it will file criminal charges against tax stamp counterfeiters and review the deficiencies in tax payments by those using them in a Bacolod City case involving fakes claiming the payment P544 million worth of tax on cigarettes.

The BIR seized 15 million tax stamps on May 4 after raiding a warehouse and searching three trucks in Barangay Tangub, Bacolod City. The authorities also seized packaging materials used in cigarette production.

“The BIR (regional) office will file… the necessary criminal cases and the assessment of deficiency taxes on this,” BIR Deputy Commissioner Arnel SD. Guballa said in a statement.

Internal revenue stamps are affixed to cigarette packs at the place of manufacture to indicate that the correct excise taxes were paid. Counterfeit, recycled or altered stamps mean lost revenue for the government.

The National Internal Revenue Code prohibits the unauthorized production, import, sale and use of tax stamps, reusing previously affixed stamps and producing fake or altered stamps.

The penalties for such violations include a fine of between P10 million and P500 million and imprisonment of 5-8 years.

Fake tax stamps with a value exceeding P50 million render the violator liable to a fine of P500 million and 10-15 years’ imprisonment. — Beatrice M. Laforga

Soil health program allocated budget of P523 million 

@OFFICIALBSWM

THE GOVERNMENT will set aside P523.57 million to support a national soil health program that will enable sustainable crop production.

Agriculture Secretary William D. Dar said President Rodrigo R. Duterte recently approved the program, to be implemented by the Department of Agriculture (DA) via the Bureau of Soils and Water Management (BSWM) between 2021 and 2023.

“Soil is the foundation of agriculture; we must protect, preserve, and nurture it to sustainably produce adequate, affordable, and nutritious food… Aside from water, healthy soil is the other key ingredient,” Mr. Dar said in a statement Wednesday.

He described the program as “a science-based framework to rejuvenate our sick soils that will lead to increased crop harvests and farmers› incomes,” he added.

According to the DA, the program creates a national soil database and monitoring system to revive degraded soils.

The program will also upgrade the equipment at national and regional soil laboratories and expand the hiring of technical staff.

The program will also procure mobile soil laboratories which will tend to remote farms with no access to BSWM provincial and regional laboratories, and train local government extension workers and other stakeholders on soil science.

“With these modern soil laboratories, farmers would have their soil samples analyzed in a matter of minutes, with the corresponding specific site and crop nutrient recommendations,” Mr. Dar said.

The program hopes to improve partnerships between the BSWM and other organizations on food security and provide soil test kits to local government units for distribution to their farmer-constituents.

The DA said the national soil health program was modelled after the soil rejuvenation program implemented by the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in Karnataka, India between 2009 and 2012.

Mr. Dar served as ICRISAT’s Director-General between 2000 and 2014.

The DA said the Indian program covered 3.3 million hectares and resulted in an increase in crop yields ranging from 23% to 66%, with the use of quality seed and soil-test based nutrient management recommendations.  — Revin Mikhael D. Ochave

Finally clarified: PEZA deductible expenses

The CREATE Act continues to live up to the hype, as taxpayers anxiously await the release of its implementing guidelines. The law is intended to attract foreign investment and boost employment through the introduction of a harmonized set of tax incentives that are available from various Investment Promotion Agencies (IPAs) such as the Philippine Economic Zone Authority (PEZA), Board of Investments, Subic Bay Metropolitan Authority, Clark Development Corp., etc. While the law has drawn flak from export-oriented enterprises due to the sunset provision on existing tax perks, it was still able to address the inconsistent tax benefits from the IPAs.

Aside from the alignment of the tax incentives, the law still allows qualified enterprises to avail of the Income Tax Holiday (ITH) and a Special Corporate Income Tax (SCIT) rate of 5% after the ITH period. The SCIT is similar to the 5% gross income tax (GIT) under the previous incentive regime, which is computed based on the registered enterprise’s gross income.  Perhaps what could be relevant to the export enterprises is how the tax regulators will treat the deductible expenses in computing the 5% SCIT under the implementing guidelines.

There has been an ongoing debate as to which expenses can be deducted under the 5% GIT regime. In the case of PEZA-registered entities, the Bureau of Internal Revenue (BIR) issued two Revenue Regulations in 2005 (RR Nos. 2-05 and 11-05).  RR No. 2-05 provided an exclusive list of deductible expenses, which can be treated as “direct costs.” However, the BIR subsequently issued RR No. 11-05, which removed the exclusivity of the expense list. Instead, the BIR stated that the enumeration provided is merely a set of examples; hence, other types of direct expenses can still be claimed as deductions under the 5% GIT regime.

Despite the update on the regulations, during tax audits, BIR examiners still disallow certain direct expenses that are not included in the enumerated list, following the exclusivity position of RR No. 2-05. The good thing is that in November 2020, the Supreme Court (SC) finally put an end to the issue when it held that the deductible costs and expenses in RR No. 11-05 are non-exclusive (G.R. No. 225266).  As such, other direct expenses not on the list can also be deducted. According to the high court, the BIR would not have changed the original regulation if the intention was to keep the list exclusive. In addition, the position of having the list of expenses as non-exclusive is consistent with the PEZA Law, which states that costs and expenses directly related to the registered activity and are not administrative, marketing, selling, and/or operating expenses or incidental losses shall be allowed as deductions.

Following the SC decision, for as long as the taxpayer can prove that the expense is a direct cost of its registered production/service activity, then it can be classified as an allowable deduction under the 5% GIT regime. In this respect, the accounting rules that provide the proper classification of the cost of goods sold/service would help in determining the “deductible” direct costs.

Further, taxpayers who took the more conservative position of claiming deductions based on the enumeration can amend their previously filed income tax returns to deduct the “other” direct costs. Such an option is available for as long as the taxpayer has not received a letter of authority from the BIR to conduct a tax audit of the tax return that will be amended. Of course, the amendment would also extend the statute of limitations for the BIR to audit the return, so this must also be considered against the potential tax savings. 

While the SC decision is an obvious victory for PEZA-registered companies, there is still a question on whether this position can also be applied to the export-oriented entities operating in other ecozones such as the Subic Freeport Zone (SFZ) and Clark Freeport Zone (CFZ).

Before I answer this question, let me briefly explain that SFZ and CFZ are governed by R.A. 7227 as amended by R.A. 9400, while PEZA is under R.A. 7916. Under the implementing rules of R.A. 9400, which were issued by the Department of Finance (DoF) in February 2008, enterprises registered with SFZ and CFZ can only claim those expenses that are enumerated in the list as deductions in computing the 5% GIT incentive. It takes the same position as BIR RR 2-05. Unfortunately, while the BIR has updated its rule on the non-exclusivity of deductible expenses for PEZA, the DoF has not changed its position for SFZ and CFZ enterprises.

Therefore, unless the DoF relaxes the rules on the allowable deductions to be non-exclusive like PEZA, I believe that the SC ruling does not hold in the case of SFZ and CFZ registered entities.

Considering that the tax regulators are still in the process of drafting the implementing guidelines of the new tax incentives law, I believe that this is the perfect time to revisit the deduction rules for the other ecozone locators and align them with the PEZA rules. Any changes can be easily incorporated since it will only require an amendment of the DoF rules at the administrative level and not the legislative law itself.

Indeed, there is reason to harmonize the rules in favor of the ecozone entities. Not only will it buttress government efforts to attract foreign investment, especially during a period of economic uncertainty, but also eliminate any double standard in our tax system, thereby realizing the purpose for which the CREATE Act was formulated in the first place.

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.

 

Joel Roy C. Navarro is a director at the Tax Services Department of Isla Lipana & Co., a Philippine member firm of the PwC network.

+63 (2) 845-2728

joel.roy.navarro@pwc.com

Peso inches down versus dollar as oil prices climb further

BW FILE PHOTO

THE PESO inched down versus the dollar on Wednesday as global oil prices continued to pick up.

The local unit ended trading at P47.731 per dollar, slipping by 1.1 centavos from its P47.72 close on Tuesday, data from the Bankers Association of the Philippines showed.

The peso opened Wednesday’s session at P47.735 versus the dollar. It moved within a narrow range as its weakest showing was at P47.77, while its intraday best was at P47.71 against the greenback.

Dollars exchanged went up to $675 million from $650.7 million on Tuesday.

The peso retreated due to risk-off sentiment because of higher oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Reuters reported that oil marked a second straight session of uptick on Wednesday backed by signs of upbeat fuel demand in Western economies.

Brent crude futures increased 32 cents or 0.4% to $72.54 per barrel by 0640 GMT. Meanwhile, the US West Texas Intermediate crude futures rose by 31 cents or 0.4% to $70.36 a barrel.

The US Energy Information Administration on Tuesday upgraded its US fuel consumption growth forecast for this year to 1.49 million barrels per day (bpd) from 1.39 million bpd previously.

The peso dropped as the market was waiting for the release of latest US inflation data, a trader said in an e-mail.

The US Labor department will report the May consumer price index data this Thursday. In April, US inflation stood at 0.8%, which was its quickest pace since June 2009.

For Thursday, Mr. Ricafort gave a forecast range of P47.68 to P47.78 per dollar, while the trader expects the local unit to move within P47.65 to P47.85. — LWTN with Reuters

Stocks climb on vaccine rollout, decline in cases

PHILIPPINE shares closed higher on Wednesday as investors were optimistic about the country’s improving coronavirus disease 2019 (COVID-19) situation.

The Philippine Stock Exchange index (PSEi) climbed 92.82 points or 1.36% to end at 6,902.54 on Wednesday, while the broader all shares index gained 43.08 points or 1.04% to 4,160.21.

“The market ended higher [on Wednesday]… as participants feel optimistic over the COVID-19 situation in the country, and as foreigners continue to be net buyers in the local bourse,” Timson Securities, Inc. Trader Darren Blaine T. Pangan said in a Viber message.

“We think investors, at this point, continue to keep focus on improving prospects for the months ahead given the continuing pickup in vaccinations, and further relaxation of business and mobility restrictions,” China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said in an e-mail.

“Foreign funds over the past several days are also buoying bullish prospects for the index as they were net buyers for eight out of the past nine trading days,” Mr. Mercado added.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a separate Viber message that investors returned to the Philippines, “while remaining on a wait-and-see mode ahead of the release of the US inflation data.”

Net foreign buying soared to P1.09 billion on Wednesday from the P29.01 million seen on Tuesday.

The government reported that the Philippines has already administered 6,096,208 COVID-19 vaccine doses so far. Some 4,491,948 Filipinos have received their first vaccine dose, while 1,604,260 have gotten their second.

The Philippines is also expecting to receive 11 million more doses of COVID-19 vaccines this month, which include Pfizer, Sputnik V, and Sinovac.

All sectoral indices closed in the green on Wednesday. Property improved by 86.49 points or 2.57% to end at 3,448.10; industrials went up by 122.99 points or 1.34% to 9,241.28; financials gained 19.42 points or 1.34% to 1,465.99; holding firms increased by 63.37 points or 0.92% to finish at 6,944.91; mining and oil rose by 65.28 points or 0.68% to close at 9,553.96; and services inched up by 3.74 points or 0.24% to 1,533.63.

Value turnover rose to P7.58 billion with 2.02 billion shares switching hands on Wednesday, from the P5.29 billion with 2.37 billion issues traded on Tuesday.

Advancers outperformed decliners, 138 against 61, while 52 names closed unchanged.

“We expect the market to head higher tomorrow following today’s surge,” China Bank Securities’ Mr. Mercado said. “However, we expect stronger selling pressure and volatility to emerge near the 7,000-7,100 resistance as some investors may look to take profit more aggressively.”

Meanwhile, Timson Securities’ Mr. Pangan wants to see if the 6,900 level of the index will hold in the last two trading days of the week. He placed the PSEi’s resistance at 7,080. — Keren Concepcion G. Valmonte