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Pag-IBIG Fund in the time of COVID-19 (A Q&A with Pag-IBIG Fund)

Pag-IBIG Fund Chief Executive Officer Acmad Rizaldy P. Moti

By Lourdes O. Pilar, Researcher

THE NEED for a national savings program and affordable home financing for working class Filipinos led to the creation of the Home Development Mutual Fund, or more known as the Pag-IBIG (Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno) Fund on June 11, 1978.

More than 40 years later, Pag-IBIG Fund members can tap various loan products aside from housing loan packages. There is the multi-purpose loan, which active members can use to fund various needs, such as minor home improvement, tuition expenses, health and wellness, and small business capital, among others. Meanwhile, there is also the calamity loan, which Fund members in calamity-stricken areas can avail of for immediate financial aid with below-market interest rates.

With the uncertainties brought by the coronavirus disease 2019 (COVID-19) pandemic, Pag-IBIG Fund has offered two other programs for relief on loans: the mandatory grace period of 30 days on loan payments brought about by the Bayanihan Law and the three-month moratorium on all loans, which the agency initiated during the enhanced community quarantine (ECQ). It also expanded its home construction fund to P10 billion from P2 billion to support the country’s housing market and help revive the economy.

With these in mind, BusinessWorld interviewed Pag-IBIG Fund Chief Executive Officer Acmad Rizaldy P. Moti for his thoughts on the future of the institution and how the agency balances sustainability and profitability amid the “new normal” brought by the ongoing pandemic.

Below are excerpts of the interview.

Would you say that Pag-IBIG was prepared for the COVID-19 pandemic? How was this different from other exogenous shocks that led to an increase in demand for loans (or deferred loans)?

I don’t think there is any single corporation, may it be private or government-owned, that is fully prepared for the effects of this pandemic. But for Pag-IBIG Fund, we have been updating our stress-testing… We had our strategic planning last February and based on our assumptions, Pag-IBIG would still be okay should there be a black swan event.

We were lucky to have run our stress-test a few weeks before the declaration of the ECQ. We made certain assumptions on loans and if there is a huge drop in its availment. For example in Metro Manila, we lost two and a half months that we will not recover so we are now looking at around a 20% reduction in our expected business for the year. We are expecting for a decline in our home lending or housing availment.

The silver lining though is that, usually, when there are natural or man-made calamities (this time, a pandemic), there is a huge availment on calamity loans. We expect a large demand for calamity loans and multi-purpose loans, but as far as housing mortgages are concerned, we are looking at 15-20% drop.

We have done our environmental scanning recently and a many of our partner developers are saying the same thing— that it will take them a long time before they can restart and resume full operations. For the first two months of the year, we were on track to hit our numbers. We were supposed to finance a P100 billion worth of mortgages, but now we are only looking at P75-P80 billion until the end of the year. This is at par with our home loan releases in 2018, which was one of our record-breaking years.

You provided two programs (three-month Moratorium and 30-day Grace Period) to defer loan payments of members to assist them during the pandemic. How did these come about?

Immediately after the declaration of ECQ, the Pag-IBIG Fund Board decided to offer a three-month moratorium program for all our loan borrowers— both for housing loan borrowers or short-term loan (STL) borrowers. This program is optional and will run until June 15. Members only need to go to the website of Pag-IBIG and key-in their housing loan account number or membership identification number. There is around 80% of applications received that we expect to be approved immediately.

Knowing the deep impact on the members’ finances caused by the pandemic, moratorium applications for example of our minimum-wage borrowers and low-wage earners are immediately approved — regardless of the loan status, even if the account is undergoing foreclosure. We relaxed our loan programs during this pandemic, as we know that our members would badly need the help of Pag-IBIG.

The beauty in this moratorium… is that the next payment, for say a member with updated payments who availed of the moratorium, would be after June 15. The three months are deferred and even the loan term would be extended by three months, without interest. That is our three-month moratorium.

And when Republic Act (RA) No. 11469, otherwise known as Bayanihan to Heal as One Act, came into law, it implemented a 30-day grace period for all loans due within the ECQ period. In our case, all of our members are covered. What we at Pag-IBIG did is, we made the assumption that all borrowers would avail of staggered payments (on accrued interest on loan payments during the ECQ), such being to their best interest, and thus will not be included in the amount due on their next due date. For example, most of our almost four million STL borrowers would have a due date of June 15. The said interest portion will be set up as accounts receivable but will not be interest-bearing. We will not oblige our members to pay this portion of their loan, but members who want to pay can still do. We will still accept it and post it accordingly.

Both programs are available to our members. After the grace period, members can still avail of the three-month moratorium.

What is not known in the industry is that our penalty policy, comparing it with the penalty policies of various banks, is more member-borrower friendly. (In banks), when you have a loan, say P1 million, and your account defaults or you miss more than 3 months of your payment, the whole loan becomes due and demandable. Then you will get charged a penalty of about 18% of the whole loan amount. In Pag-IBIG Fund, our penalty policy charges 18% only on the missed payments.

While other universal banks have a rather punitive policy, in Pag-IBIG Fund’s case, it is not, because the Fund is owned by the members. There is a penalty, but it’s not 18% of the total outstanding balance, but 18% of missed payments so it is easy to recover for members who borrowed from Pag-IBIG Fund. This penalty policy was not highlighted thoroughly, but I am hoping that the lenders, especially the banks, would extend all the help they can extend to their borrowers, to avoid the number of foreclosures.

Could you describe the traction for the Calamity Loan and the Multi-Purpose Loan programs in terms of applications in the weeks during the ECQ ? How many have so far applied for these loans? How much of these loans were approved as of the latest data available?

When Metro Manila was placed under lockdown, we allowed our members to file calamity loan and multi-purpose loan applications via email. So far, the total number that has been released during the ECQ period reached almost P2 billion and helped almost 130,000 members. While Pag-IBIG Fund has extended a lot of help the past months, we still expect a huge increase in our calamity and multi-purpose loan applications after the lifting of the ECQ.

How quick are the loan applications being processed (average waiting time from application of loan)? Given the anticipated increase of email applications due to the pandemic, how does Pag-IBIG ensure that backlogs are at least minimized?

We have been seeking the understanding of our members during the ECQ and MECQ (modified ECQ) period because we were not allowed to send many of our employees to our offices. Now that the country has been placed under a more relaxed lockdown, the processing time for loan applications will slowly return to normal. We used to process loans in less than two days. When you file an application and if everything is in order, it will only take two days or less for you to receive your loan.

Our Online STL filing is only available for members with valid cash cards used by Pag-IBIG Fund. If a member has any of those cash cards, they can go online instead of going to our branches. Just take a picture of the application form (front and back), a picture of one valid ID and take a photo of yourself or a selfie, in other words. The application then goes straight to our database. When the processors open the system, applications will be seen immediately. This is certainly better and safer, than queuing in line in Pag-IBIG branches to file an application. With our online application, the loan is in fact pre-processed as it goes straight to our database and hence, the processing time is faster.

Housing is one of your agency’s mandates. How were you able perform this despite the times? Just recently, Pag-IBIG Fund released P10 billion for its House Construction Financing Line (HCFL). Why was this done and what are your expectations with this move?

In Pag-IBIG, we have twin mandates: one is to encourage members to save, and second to deploy up to 70% of our funds for home financing. Under our housing loan program, we processed P12 billion in the first two months of the year.

Unfortunately, during the month of April, we only processed P880 million because of the lockdown. From the average of P6 billion in the first two months, it went down to P3.8 billion in March, and then to P882 million in April.

So why did we announce the increase in our developmental loan from P2 billion to P10 billion? That was to send a strong signal to the housing industry, especially to the socialized and low cost housing industry where most of our accredited developers are in, for them to start building socialized and low-cost housing units which would also send a signal to other developers that they have to start to operate again. The P10-billion construction funding acts as a bridge financing facility for them through our HCFL.

HCFL is one of our loan products available to accredited developers with good standing in the Fund. Its main objective is to provide a financial source for our developers that will encourage them to construct units in their developed lot so that there is ready inventory of affordable housing units for our members. These developers can borrow a loan up to 70% of the collateral value.

The P10 billion we have set aside for this is Pag-IBIG Fund’s contribution to stimulate the economy. It is also a means for socialized and low-cost housing developers to restart business even if there is fear in the market. We know that there is a 6.5-million housing demand. If we don’t support the developers, the housing business will collapse, especially those small- and medium-sized developers with P15-million to P100-million-a-year businesses. So at least there is that pump-priming of the socialized and low-cost housing industry courtesy of Pag-IBIG Fund.

How will the COVID-19 pandemic affect Pag-IBIG Fund’s bottom line this year?

There is going to be a huge impact. At the very least, since we lost 2.5 months, if we divide it by 12 months, there would be a 20% reduction. Based on the three scenarios when we did the stress test, for all scenarios, we at the Pag-IBIG Fund will still record tens of billions of pesos of net income, but it will not be a P30-billion income for the year 2020.

If last year we reported a P34-billion net income, this year it would probably be nearing P20 billion — still sizeable but is a 30-40% drop. Pag-IBIG Fund will still record decent net income by end of the year, but it will not be as good as the previous years, but otherwise we are still good. We have been doing a lot of interventions to help our members especially those who have been religiously paying their loans and only now started to miss their payments— and we know those members, so we will take care of all of them.

In the post-COVID-19 environment, would some features of these programs be retained in your other programs? If so, what would they likely be?

We got a glimpse of the new normal during the lockdown. Last December, we launched our Virtual Pag-IBIG. Of course, we did not know that there was going to be a pandemic coming this March. Regardless, Pag-IBIG Fund believes that our members will shift towards the digital platform.

Virtual Pag-IBIG is a virtual branch for every member’s disposal. Before, if you want to know the status of your loan or contributions, you have to go to the branch or you have to call. Now, if you have created a Virtual Pag-IBIG account, you can easily monitor the transactions you have done such as your payments, your savings, loan application status, the dividends you have earned, etc. That is how visible the Virtual Pag-IBIG is. It also has a chat service operating 24/7 for our members, especially our Overseas Filipino Workers (OFWs), with queries with a service agent from the Philippines ready to give an answer.

Pag-IBIG Fund has done a number of digitization and automation that are now proving to be very wise investments. As far as we are concerned, we are ready, the things that we have worked on over the years have paid dividends even more so now that we are in the new normal.

What were the lessons that Pag-IBIG can draw from this experience? What developments can we expect in terms of improvements or new offerings?

It validates our multi-year projects when we were envisioning how the members in the future would transact with us. Before, we were so focused on serving the millennials—a workforce with high technology culture who may not be too excited to wait a long time just to avail of our services. That was the challenge— how to properly serve that sector that forced us to invest digitization and automation projects.

Pag-IBIG Fund will soon push through with our two remaining phases of the Virtual Pag-IBIG. When we launched the Virtual Pag-IBIG last December, we have been working on three versions:

The first is the Virtual Pag-IBIG for Members, which covers all transactions that a member would do in a physical branch.

The second is the Virtual Pag-IBIG for Employers, with transactions in this phase to include remittances of employers, certification for employees availing of loans and Pag-IBIG Fund billing statements.

The third one is the Virtual Pag-IBIG for Developers wherein our partner developers can verify if a member is eligible for a home loan, and will then send via short message service to confirm if that member is interested to buy or reserve a certain unit. If that member says yes, it cuts the process drastically because there is less need for documentation.

One realization is that, we have to work hard to make sure that we get to deploy these phases at the soonest possible time. That is one of the silver linings of the pandemic, we were forced to think of alternative ways with much higher capacity for the whole industry in the long run.

We would also like to encourage borrowers who are capable of paying their loan obligations with the Pag-IBIG Fund to pay, because the interest-rate pricing of Pag-IBIG Fund is mainly driven by the efficiency of the collection. Since the time I was made the head of home lending operations in 2012, our interest rates have always gone down; from 11.5% it lowered to 8%, now it’s down to as low as 5.375% and was never re-priced upward.

So if borrowers could help Pag-IBIG Fund, if they want to help us retain the rates, please continue to pay their loan obligations so we can also re-lend the money that we will be collecting.

We are all about sustainability more than profitability. It was a balancing act between keeping the rates low while being able to give our members, especially the savers and the pure savers, a decent return of their savings in the form of dividends.

Fewer Filipinos die of COVID-19 as local infections near 26,000

PHILSTAR/MIGUEL ANTONIO DE GUZMAN

FEWER FILIPINOS infected with the novel coronavirus are dying compared with the rest of the world, an academic health expert said on Sunday.

The Philippines has a fatality rate of about 4% compared with the global average of 5.6%, John Wong, a professor at the Ateneo de Manila University’s School of Medicine and Public Health said at an online news briefing.

“Over time, our case fatality rate has continued to go down,” he said. Back in May, the death rate was 5.5%.

Still, the country’s fatality rate is higher than its Southeast Asian neighbors excluding Indonesia.

In contrast the United States reached a milestone after its COVID-19 death rate passed 340 per million residents, more than 100 times the rate in China (3.32 per million), according to Time Magazine.

The US has the most coronavirus cases and the most deaths of any country in the world. The two hardest hit states have been New York, which had almost three in 10 US deaths, and New Jersey with one in 10 deaths.

The Philippine Department of Health (DoH) reported 538 new coronavirus infections yesterday, bringing the total to 25,930.

The death toll rose to 1,088 after 14 more patients died, while 248 more patients have gotten well, bringing the total recoveries to 5,954, it said in a bulletin.

Of the new cases, 366 results were reported in the past three days, while 173 were reported late, DoH said.

There were 18,612 active coronavirus cases in the country — 349 did not show any symptoms, 18,138 were mild cases, 63 were severe and 17 were critical cases.

A team of researchers from the University of the Philippines Diliman earlier said infections could reach 40,000 by the end of June.

President Rodrigo R. Duterte is expected to announce on Monday his decision on whether to further ease the lockdown in Manila, the capital and nearby cities.

DoH has been reporting fewer deaths of late.

Health Undersecretary Maria Rosario S. Vergeire told the same briefing that of the reported deaths this month, most were from the previous months because of late validation.

Mr. Wong said death reporting has improved to a seven-day delay from 22 days.

Ms. Vergeire said the public must remain vigilant and continue observing physical distancing, wear masks and wash their hands frequently.

Health Undersecretary Maria Rosario S. Vergeire on June 11 said Health Undersecretary Francisco T. Duque III had approved the guidelines for expanded targeted testing.

The expanded testing will now cover frontliners in quarantine facilities, village health emergency response teams, prison and jail employees and social workers.

Pregnant women, people who undergo high-risk operations, detainees, institutionalized people, those undergoing dialysis, chemotherapy and radiotherapy and those with immuno-compromised conditions like people with HIV will also be prioritized.

Other frontliners would only be tested if they had close contact with probable and confirmed patients, while those who are at risk of getting the virus would be tested only upon doctors’ recommendations, Ms. Vergeire said.

She also said the test need not be repeated before a patient can be sent home.

The coronavirus has sickened 7.9 million and killed more than 432,000 people worldwide, according to the Worldometers website, citing various sources including data from the World Health Organization.

About four million people have recovered from the disease, it said. — Vann Marlo M. Villegas

Senators buck plan to tax online sellers

SENATORS are unlikely to support a plan to tax online sellers while the country is in the middle of a novel coronavirus pandemic, according to a senator.

“The plan to tax online micro and small businesses is not only insensitive but totally unnecessary,” Senator Juan Miguel F. Zubiri said in a mobile phone message on Sunday.

The local tax bureau has issued a circular asking online businesses to register by July 31 as it tries to plug tax leakages.

“Those with devious minds planning these tax schemes will have little or no support at the Senate,” the senator said.

Senators Risa N. Hontiveros-Baraquel, Emmanuel Joel J. Villanueva, Juan Edgardo M. Angara and Sherwin T. Gatchalian have opposed the plan of the Bureau of Internal Revenue, which they said should go after big companies instead.

Mr. Zubiri joined the call of other senators to instead tax the offshore gaming operators in the country, mostly Chinese companies that hire their own nationals. The industry owes the government about P50 billion in taxes, he said.

“Lets slap a heavy excise or franchise tax on top of the income tax charged to them,” he said. “Why make our small enterprising and entrepreneurial Pinoys suffer from the threat of taxation and allow foreign Philippine Offshore Gaming Operators to operate while evading or underpaying their taxes?”

These companies are subject to a 5% franchise tax, collected in lieu of all kinds of taxes such as income and value-added tax, as well as fees on service income from nongaming operations.

Albay Rep. Jose Maria Clemente S. Salceda has said the ways and means committee that he heads was inclined to tax digital transactions of big companies instead of small entrepreneurs. He committed to raise the issue when the panel hears the bill.

Finance Secretary Carlos G. Dominguez III earlier said only individuals earning more than P250,000 yearly will be taxed. Sellers with gross receipts not exceeding P3 million will be exempted from value-added tax, he said. — Charmaine A. Tadalan

3,000 more returning workers from abroad negative for COVID-19

ALMOST 3,000 more returning Filipinos from overseas have tested negative for the coronavirus, according to the Philippine Coast Guard.

In a statement, the Coast Guard said 2,974 overseas Filipino workers (OFW) tested negative for COVID-19 on June 13, bringing the total of negative test results to 62,099.

Returning workers on the list should coordinate with the Coast Guard or the Overseas Workers Welfare Administration at quarantine facilities so they can go home to their hometowns.

“Quarantine clearances shall be issued to returning overseas Filipinos at the Parañaque Integrated Terminal Exchange or at the Ninoy Aquino International Airport Terminal 2,” according to the statement .

Workers from Luzon will be brought to the Parañaque terminal, while those bound for the Visayas and Mindanao regions will be brought to the Manila airport’s Terminal 2, the agency said.

Defense Secretary Delfin N. Lorenzana this month said the government would limit the arrival of Filipino workers from abroad to 1,200 daily after reports of congestion at facilities in Metro Manila.

This will be increased to 1,500 to 2,000 once capacities are increased, he said.

Mr. Lorenzana also said returning Filipinos will only have to stay in the capital region for five days before they can go home. — Vann Marlo M. Villegas

#COVID-19 Regional Updates (06/14/20)

Davao Oriental reopens tourism industry; Davao del Sur prepares for Mt. Apo treks

SOME 300 tourism establishments in Davao Oriental — restaurants, beach resorts and hotels — reopened last Friday as the province treads carefully towards reviving one of its important livelihood sources. Provincial Tourism Officer Mr. Miguel V. Trocio, in a statement, said the lockdown since mid-March “has taken a heavy toll on the tourism sector,” citing arrivals dropping to 80,098 in the first quarter this year from 234,702 in the same period 2019. There have been no operations in April and May. “Tourism, as one of the province’s major economic drivers and a huge job generator, is a vital sector that the province simply cannot live without. The province is highly dependent on tourism as many locals, whether directly or indirectly, thrive on it for their livelihood,” he said. Mr. Trocio said the local task force on COVID-19 has been closely coordinating with operators to ensure that national guidelines on health safety standards are implemented. “But more than anything else, the tourism establishments have the crucial responsibility to police themselves to ensure that these protocols are being followed,” said Davao Oriental Provincial Hospital Dr. Reden V. Bersaldo, also the lead officer of the task force. Apart from the national rules, Mr. Bersaldo said they have also asked accommodation facilities to designate an isolation space in case a guest develops symptoms of the disease. “It will serve as a containment area while the authorities are being coordinated for appropriate action,” he said, noting that the province has so far managed to prevent COVID-19 local transmission. Gabby Sibala, a resort owner and president of the Tourism Operators in Mati City, welcomed the resumption of tourism activities saying they are optimistic that people would slowly regain confidence in going to the beach and visiting sites. “We will start slow but responsibly and carefully,” he said.

MT. APO
In Sta. Cruz, Davao del Sur, Senior Municipal tourism Officer Julius R. Paner said they already have “a new normal action plan” and are just waiting for the greenlight to reopen establishments as well as treks to Mt. Apo. “Local tourism will be the key word. A slow start maybe but at least a sure step to pick up where we left off,” he said. Apart from the scheduled hikes to the country’s highest peak, the town also lost income opportunity from two major events held every April, the Mt. Apo Boulder Face Challenge and the Mt. Apo Sky and Vertical Race. Department of Tourism Davao Regional Director Tanya Rabat-Tan said among the action plans for the recovery program is promoting travel within the region as a start, and providing training for digital marketing such as recorded and live-stream virtual tours. — Maya M. Padillo

Nationwide round-up

Labor groups ready to assist in OFWs repatriation

THE GOVERNMENT may tap labor groups to augment its manpower for assisting returning overseas Filipino workers (OFWs), the Associated Labor Union-Trade Union Congress of the Philippines said on Sunday. “This cannot be done by the government alone. In fact, the POEA (Philippine Overseas Employment Administration) and OWWA (Overseas Workers Welfare Administration) are overwhelmed,” Spokesperson Alan A. Tanjusay said via telephone. “They have to ask help and support… to supplement sa capacity and logistics ng gobyerno (of the government).” He also recommended that the government consult the concerned sector to improve the system in place. For one, he cited, it is still unclear whether the flight and accommodation expense will be shouldered by the manning agency or the government. Meanwhile, the Department of Labor and Employment (DoLE) said they are preparing to submit the data collected from its recently launched OFW tracker system to the government’s task force on coronavirus disease 2019 (COVID-19) to improve the repatriation system. “Knowing the airlines the OFWs used, their health condition, local addresses and other relevant data in the tracker will help government dispense assistance they need,” DoLE said. Information from the tracker, called OFW Assistance Information System (OASIS), will also be used for organizing swab testing for COVID-19 and arrange transport and accommodation services. More than 41,000 displaced OFWs, both land-based workers and seafarers, have returned since February. DoLE said over 300,000 OFWs have lost their jobs due to the economic impact of the COVID-19 pandemic. — Charmaine A. Tadalan and Gillian M. Cortez

Senator calls for worker reskilling, upskilling

WITH AT least 7.25 million Filipinos reported to have lost their jobs in April due to the economic downturn caused by the coronavirus crisis, a senator has called for the reskilling and upskilling of workers to help them adapt to the “new normal.” Senator Juan Edgardo M. Angara, who chairs the finance committee, said the government must help capacitate the labor force for the growing shift to digital platforms. “During this pandemic, many businesses have to cut costs or start exploring new ways of making money. We cannot operate on a business as usual basis anymore,” he said in a statement Sunday. Under Senate Bill No. 1470, or the National Digital Transformation Act, the senator proposed to establish and institutionalize a national strategy that will integrate digital technology into government policies. The strategy will outline skills development, infrastructure projects, and research and innovation plans. It also proposes the inclusion of information and communications technology in the school curriculum and training programs. — Charmaine A. Tadalan

Job opportunities open in BPO ‘resurgence’

MORE JOB opportunities are opening in the business process outsourcing (BPO) sector, according to the Labor department. “We received information that some big companies have already given notice for their requirements, one of which needing at least 4,000 seats to be filled up before September,” Secretary Silvestre H. Bello III said on Sunday. Mr. Bello said they recently met with the IT Business Process Association of the Philippines, which gave assurance that the sector will see a ‘resurgence’ and that hiring will continue. The meeting was prompted by a survey conducted by the BPO Industry Employees Network indicating that four out of 10 workers were placed on floating or ‘no-work-no-pay’ status during the strict lockdown period. BPOs were among the first industries allowed to resume operations, but on a limited capacity to observe health safety protocols. — Gillian M. Cortez

Bills filed for bike-to-work incentives, road congestion tax for motorists

A LAWMAKER has called for the inclusion of tax breaks and other incentives for people who will cycle to work in the proposed Bicycle Law. “Providing incentives for people who bike-to-work is a small price to pay for its immeasurable benefits. This would translate to billions of economic opportunities and billions of savings on capital expenditures,” Ang Probinsyano Party-List Rep. Ronnie L. Ong said in a statement on Sunday. Apart from setting up bicycles lanes, he said creating a cycling culture can provide a long-term solution to the traffic gridlock in Metro Manila and other highly urbanized areas, which costs an estimated P3.5 billion in economic losses per day.

CONGESTION TAX
Meanwhile, another bill seeking to impose a P500 tax on all vehicles passing through congested roads in the capital on weekdays was filed at the House of Representatives. “There shall be levied, collected, and paid a congestion tax on the heavy-traffic roads identified by the Metro Manila Development Authority (MMDA) from 7 o’clock in the morning to 6 o’clock in the evening from Monday to Friday of the week the amount of five hundred (P500.00) daily to be paid by every vehicle passing through the congested roads on top of the fees that may be imposed by the local government unit,” states House Bill 6945. The author of the bill, AAMBIS-OWA Party-List Rep. Sharon A. Garin, said they will still study whether the tax will cover both private and public vehicles. “Well, the objective is more on private vehicles. But further assessment will be made once the bill is tackled by the committee,” she told BusinessWorld via Viber message on Sunday. Aside from congestion tax, the bill also seeks to impose additional taxes on newly-acquired vehicles, with rates ranging from P3,000 to P1.1 million, depending on the level of carbon dioxide emission. The measure also taxes second-hand vehicles based on engine power with rates ranging from P5,000 to P50,000. Taxes are also proposed for airline passengers, water extraction, wastewater, tourism sites, incineration operations, and fishing operations, among others. — Genshen L. Espedido

Lacson says communist members laying down arms ahead of anti-terror law signing

panfilo-lacson-SENATE-PRIB
Senator Panfilo “Ping” Lacson — Cesar Tomambo/SENATE PRIB

SENATOR PANFILO M. Lacson on Sunday said some members of the New People’s Army (NPA), the armed wing of the Communist Party of the Philippines, have surrendered ahead of the signing of the anti-terrorism bill. He cited that 27 NPAs from Quezon, Laguna and Mindoro were reported to have laid down their arms, which Mr. Lacson said intensified the disinformation campaign against the measure. “An Army commander reported that in anticipation of the passage of the Anti-Terrorism Bill, the NPAs have started surrendering. 27 in just 2 days in Quezon, Laguna and Mindoro alone,” he said in a social media post. “That is why, he said, their fronts have become busier with their disinformation campaign.” Mr. Lacson cited that the CPP-NPA has been designated as a Foreign Terrorist Organization by the United States Secretary of State as early as August 2002. In December 2017, President Rodrigo R. Duterte signed a proclamation identifying the CPP-NPA as a terrorist organization. The anti-terrorism bill was transmitted to the Office of the President on June 9, which starts the 30-day period wherein Mr. Duterte can sign or veto the measure. It will lapse into law if he fails to act within the period. — Charmaine A. Tadalan

Cash support to GOCCs surges in April on wage subsidy program

SUBSIDIES to state-owned firms surged 573% year on year in April after the Social Security System (SSS) received the funding for the small business wage subsidy program, the Bureau of the Treasury (BTr) said.

The national government extended subsidies to government-owned and -controlled corporations (GOCCs) worth P34.416 billion in April, up from P25.667 billion recorded in March and P5.115 billion in April 2019.

The SSS received 74% of the total, with subsidies of P25.5 billion in April. In the previous three months it received no budgetary support from the government.

The SSS is the main implementing agency of the government’s wage subsidy program for employees of small businesses.

As of Friday, the program has released P44 billion to fund two tranches of cash aid to 97% of qualified beneficiaries while the remaining recipients are still fulfilling some of their requirements before they can claim the financial assistance, according to the Finance department.

Meanwhile, the National Irrigation Administration received P4.74 billion worth of subsidies in April, up from P3.797 billion a year earlier and also higher than the nearly P3 billion it received in March.

The National Food Authority (NFA) received P2.82 billion while P555 million went to the Light Rail Transit Administration, against P5 million a year earlier. The NFA did not receive subsidies in April 2019.

In the four months to April, the national government released a total of P70.57 billion worth of subsidies.

In a viber message to reporters Saturday, Rosalia V. de Leon said the BTr released around P27 billion in early-June.

The budget allotted for subsidies to GOCCs this year was reduced by P5.1 billion to P191 billion as of May, from the initial P196 billion programmed as the government realigned the budget to fund its rising pandemic expenses.

The government subsidizes GOCCs to cover operational expenses not supported by their revenue. — Beatrice M. Laforga

Hotel restaurants to be cleared for partial dine-in operations

THE Tourism department will permit partial dine-in operations at hotel restaurants in areas under general community quarantine starting June 15.

The Inter-Agency Task Force on Emerging Infectious Diseases approved dine-in restaurant operations up to 30% capacity, requiring establishments to follow government health safety protocols.

Tourism establishments may start to operate if they have a certification from the tourism department. Hotel operations allowed by the government had been limited to accommodations, while restaurants, gyms, and spas in the hotel buildings were not allowed to operate.

Tourism Secretary Bernadette Romulo-Puyat in a statement Sunday said the department is working with the Trade and Labor departments to conduct inspections to monitor compliance with the protocols.

The Department of Trade and Industry has released guidelines on ensuring health safety for dine-in operations, including banning buffets and self-service stations, and prescribing sanitation and contactless transaction measures.

Separately, McDonald’s Philippines in a statement said it has adopted new health safety guidelines for dine-in, assigning safety managers to each of their stores. The manager or other crew will offer sanitizers to customers in-store every 30 minutes.

The crew will serve food at the customers’ tables, and the stores will have floor markers for physical distancing.

Several of its guidelines conform to protocols released by the DTI, including the availability of cashless transactions and trays for cash payments. — Jenina P. Ibañez

DPWH seeks quick deal for NLEx extension to Anda Circle

THE Department of Public Works and Highways (DPWH) is hoping to reach an agreement soon with the Metro Pacific Group to extend the North Luzon Expressway (NLEx) to Anda Circle in Manila’s Port Area, after the completion of the 2.6-kilometer NLEx Harbor Link Segment 10 C3-R10 Section.

“That’s something that we are looking at right now. Since we have already finished this extension to R10, logically there is an opportunity to extend it further up to the area in the Anda Circle, so that from Roxas Boulevard, halos diretso na, makaka akyat na sila (It will be nearly a straight run and users will be able to enter the expressway). That’s something that we are working on with the Metro Pacific Group,” Public Works Secretary Mark A. Villar told reporters via Zoom Saturday.

The NLEx Harbor Link Segment 10 C3-R10 Section, which will be opened to the public today, Monday, is an elevated expressway from Caloocan Interchange, C3 Road, Caloocan City to Radial Road 10, Navotas City.

NLEX Corp. submitted to the DPWH in December its proposal to extend the NLEx Harbor Link Segment 10 from Navotas City to Anda Circle.

The estimated cost of the proposed 5.1-kilometer expressway extension project, which will be officially called the Harbor Link Port Access Mobility Facility, is P15 to P16 billion, according to Romulo S. Quimbo, Jr., NLEX Corp. senior vice-president for communication.

An Anda Circle toll road would effectively capture northbound cargo vehicles emerging from the port and eliminate the need for such vehicles to use the regular road network.

The NLEx Harbor Link Segment 10, which officially opened in March 2019, is a P15.55-billion project with private concessionaire NLEX Corp.

NLEX Corp. is controlled by Metro Pacific Tollways Corp., the tollways unit of Metro Pacific Investments Corp., one of three key Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and PLDT, Inc.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Arjay L. Balinbin

Insurance regulator urges industry to expand use of digital payments

THE Insurance Commission (IC) has encouraged insurers, pre-need companies and health maintenance organizations to use digital payments as part of a broader set of ground rules for electronic transactions.

Insurance Commissioner Dennis B. Funa issued Circular Letter No. 2020-70 dated June 11 on the use of digital payments by the industry to “balance and protect the interests” of both the companies and clients.

“The Insurance Commission recognizes digital payments, including further innovations and variations, as an integral part of insurance technology (Insurtech) and innovation, and encourages its adoption in all aspects of insurance transactions,” the circular read.

The IC drew the line at “virtual/crypto currencies as defined by regulations issued by the BSP (Bangko Sentral ng Pilipinas).”

It said digital payments can be done through cards linked electronically to the cardholder’s account such as credit or debit cards, charge cards, and prepaid, stored-value cards.

The IC also allows payments via digital wallets, unstructured supplementary service data, point of sale machines, mobile banking, internet banking and electronic gifts.

It said customers can pay digitally to the company through a digital payment service provider while the company must issue “immediately” proof that it received the payment.

However, the IC said the digital platform should provide an option for the customer to cancel within 24 hours a completed payment if the payment was made by accident or if the client unintentionally paid for the wrong product or service.

If a customer has made an error in payment, it said the exact amount should be reverted to his account without penalty or interest.

“All errors within the application or the transfer of information in digital payments on the part of the addressee/intermediary shall not prejudice the originator in any manner,” the IC said.

The regulator prohibits the service provider or the company from “modifying or altering” the content of the electronic document submitted by the client, and bars them from requiring users to agree to waivers that facilitate resort to prohibited procedures.

It also requires the digital platform service provider to secure the data and money they store and process.

“The digital platform partner of the company must comply with the know-your-customer requirements under Republic Act No. 9160 or the “Anti-Money Laundering Act” and other pertinent AMLA requirements issued by the BSP, and as may be applicable,” it said. — Beatrice M. Laforga

Agencies to adopt e-signatures, accept more online payments

GOVERNMENT agencies will soon be required to use electronic signatures and allow online payments for port fees and customs duties as more relaxed lockdown measures are adopted.

The Anti-Red Tape Authority (ARTA) said in a statement Saturday that the council on ease of doing business will soon release guidelines on how permits and licenses will be issued as more business activities resume, as well as rules on mandatory online payments and processes.

The guidelines will cover the mandatory online filing, processing and payment of port fees and customs taxes. The use of electronic signatures and online payment platforms will also be mandatory for government agencies.

ARTA has been working with the Department of Information and Communications Technology to create digital signatures for key staff.

The Ease of Doing Business council is chaired by Trade Secretary Ramon M. Lopez and vice-chairperson ARTA Director-General Jeremiah B. Belgica.

The council said all its members will issue a joint memorandum endorsing the use of digital signatures in all government offices.

ARTA said that it has also submitted Philippine reforms for the World Bank’s 2021 Doing Business Survey, including 68 reforms and 13 data corrections on last year’s report. It projects that the country will move up nine places to 86th place from 95th, without accounting for the performance of other countries.

The Philippines in the World Bank’s Doing Business 2020 report released in October 2019 rose to 95th place from 124th the previous year.

The requirement for three, seven, and 20 working days processing times for government agencies to deliver services will continue to be suspended during the lockdown. — Jenina P. Ibañez

Consensus in lease concessions due to COVID-19

(Second of two parts)

In the first part of this two-part series, we discussed how to assess whether changes in lease contracts are lease modifications, and covered lease concessions that are treated as variable rent, lease modifications, and accounted for as government grants.

We continue our discussion by reassessing lease terms, including the exercise of purchase, renewal or termination options, as well as the impairment of lease-related assets and a recent amendment issued on May 28 to IFRS 16 on pandemic-related rent concessions.

REASSESSMENT OF LEASE TERM INCLUDING THE EXERCISE OF PURCHASE, RENEWAL OR TERMINATION OPTIONS
In view of the adverse effects brought about by the COVID-19 outbreak, lessees and lessors should revisit the lease terms of their existing contracts. In particular, they must revisit whether or not the lessees are reasonably certain to exercise their options to extend or terminate the leases, and even their rights to purchase the leased assets at the end of the lease term. PFRS 16 requires that lease terms should be reassessed upon the occurrence of either a significant event or a change in circumstances that will affect the lessee’s assessment as to whether or not it is reasonably certain to exercise those options.

A change in the lease term brought about by a reassessment — as to whether or not a lessee is reasonably certain to exercise a renewal or purchase option, or not to exercise an option to terminate the lease — constitutes a lease modification. This will trigger lease modification accounting as discussed in the preceding part of this article.

IMPAIRMENT OF LEASE-RELATED ASSETS
The pandemic also has a possible effect on the impairment of the lessee’s right-of-use (ROU) asset and the lessor’s leased asset or lease receivable. PAS 36, Impairment of Assets, requires that both the lessee and lessor should assess if there are indicators that their respective lease-related assets may be impaired, and could therefore trigger an impairment test in accordance with PAS 36. In the case of a lessee, the adverse effect of the pandemic on their business might make it difficult to recover the value of their ROU asset, particularly if they are not able to negotiate for a lease concession from the lessor.

In the case of a lessor in an operating lease, the lessor might have to deal with the same impairment issue as they might encounter difficulties in recovering the value of their leased asset. Similarly, in the case of a lessor in a finance lease, the lessor should factor the impact of the outbreak on the collectability of their lease receivable in estimating credit losses in accordance with PFRS 9. Lease renegotiations are thus expected to result in balancing the interests of both parties to ensure the least amount of impairment if it cannot be avoided.

AMENDMENT TO IFRS 16 ON PANDEMIC-RELATED RENT CONCESSIONS
As discussed previously, the guidance under PFRS 16 in accounting for pandemic-related lease concessions can be difficult, especially if there are many contracts to deal with and the rent concessions qualify as lease modifications. In order to help ease the accounting burden, the International Accounting Standards Board issued on May 28 an amendment to IFRS 16 that provides an option to lessees not to account for qualified pandemic-related lease concessions as lease modifications. A lessee shall apply the amendment for annual reporting periods beginning on or after June 1. Earlier application is permitted, including financial statements not authorized for issue by 28 May 2020.

In order to apply this option, the following criteria must be satisfied:

1. The concession must be a direct consequence of the pandemic;

2. The concession results in a revised consideration that is substantially the same or lower than that immediately preceding the grant of the concession;

3. The reduction in lease payments affects only payments originally due on or before 30 June 2021; and

4. There is no substantive change in other terms and conditions of the lease.

While the amendment aims to provide relief, it also poses some challenges even to lessees. First, the amendment does not prescribe an accounting treatment for lease concessions if the expedient is invoked. However, the basis for conclusion to the amendment provides that if a qualified lease concession is not accounted for as a lease modification, then a lessee will generally account for it as a variable lease payment with a charge to profit and loss for the period. Absent one accounting treatment for the same type of concession, it can result in diversity in practice among lessees.

It is also noteworthy that while lessees that elect to apply the expedient do not need to assess whether a concession constitutes a modification, lessees still need to evaluate the appropriate accounting for each concession as the terms of the concession granted may vary.

Second, since the amendment provides an option, a lessee that avails of it may produce financial results that may be incomparable to those produced by one that does not. Treating lease concessions as variable lease payments, for example, will likely result in a higher net income for a period; however, this will also result in an unadjusted or higher ROU asset which can trigger impairment concerns.

Third, in order to qualify for the expedient, the concession should only affect lease payments originally due on or before June 30. While there are currently only a few lease concessions in the Philippines that extend beyond this date, the uncertainties surrounding the pandemic pose possible issues in respect of future concessions that may not qualify for the expedient.

Finally, while the amendment provides relief to lessees, lessors do not enjoy the same. They may therefore need to account for lease concessions in accordance with PFRS 16 as discussed above.

CONSENSUS IN CONCESSIONS
The pandemic significantly impacted our economy, with many businesses left with no choice but to rationalize operations for fear of not being able to pay their rents on time. For both lessors and lessees, there is the question of the continuing impact on their existing lease agreements if the pandemic continues.

Perhaps the best and most sustainable approach is for both parties to develop a joint strategy to compensate any rental loss suffered during the outbreak. Parties can seek help from their legal counsels to better understand their contracts in the hope that both will be able to arrive at a mutually beneficial solution. In most cases, agreements based on mutual trust and consent produce the best economic results, especially during these challenging times. After all, consensus is the foundation of contracts and the economic successes of both lessor and lessee are not separate but rather shared.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Jerome B. Ching is a Senior Manager from the Assurance Service Line of SGV & Co.

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