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Senate about to finish budget hearings for Dec. approval

THE SENATE is likely to pass next year’s P4.5-trillion budget on time, after a leadership squabble at the House of Representatives nearly derailed debates on the spending plan aimed at helping the economy recover from a coronavirus pandemic, according to the head of the finance committee.

About 90% of government agencies’ proposed budgets have been tackled, Senator Juan Edgardo M. Angara, committee chairman, told DZRH radio on Sunday.

The committee has yet to look at the budgets of the Environment, Tourism and Human Settlements departments and Commission on Elections, he added.

Congress went on a break last week, but senators continue to hold budget hearings to fast-track the legislative process. It targets to approve the bill by the first week of December so President Rodrigo R. Duterte could sign it into law by year-end, according to Senate Majority Leader Juan Miguel F. Zubiri.

Congressmen approved the appropriations bill on third and final reading in a special session on Friday after days of squabbling over the speakership.

The lawmakers passed the measure on the last day of the four-day special session called by President Rodrigo R. Duterte, who earlier asked House leaders to prioritize the measure amid a coronavirus pandemic.

The President had certified the bill as urgent to allow congressmen to fast-track the legislative process. Lawmakers approved the bill on third and final reading moments after passing it on second reading.

The measure allotted P1.1 trillion —  about a quarter of the country’s spending plan — to infrastructure projects to fuel economic recovery amid a coronavirus pandemic.

The Philippine economy shrank by a record 16.5% in the second quarter and is expected to slump by 4.5% to 6.6% this year.

Mr. Angara said Party-list Rep. Eric G. Yap, who heads the House appropriations committee, had committed to send a copy of the bill by Oct. 28.

The house nearly missed its October target to pass the bill after sessions were suspended amid a leadership squabble between Speaker Lord Allan Jay Q. Velasco and his predecessor, Taguig Rep. Alan Peter S. Cayetano.

Mr. Velasco had planned to submit the budget bill on Nov. 5, but moved it earlier after consulting with Senate leaders.

The House is on a month-long session break until Nov. 16, while the Senate will resume on Nov. 9 to have more time for plenary budget debates.

“Many people need the government’s help during this COVID-19 pandemic,” Mr. Angara said in Filipino. “The economy runs erratically and people expect the government to spend for them.” 

A budget delay is expected to further hurt the economy, which has been struggling to recover from the global health crisis.

Senators earlier said the Philippine government would probably operate under a re-enacted budget again next year amid the House leadership squabble.

Failure to pass the budget bill on time means the government must use the same amount of funds provided under the P4.1-trillion appropriations for this year during the first quarter of next year.

It also means new government projects will be delayed and some key services will be affected until the new budget measure is signed.

The House had approved the budget bill on second reading after ousted Speaker Alan Peter S. Cayetano, who had rejected a term-sharing deal he agreed to last year, moved to terminate debates and sessions until Nov. 16.

He created a small committee that would consolidate proposed changes during the break. Congress was supposed to suspend sessions on Oct. 17 and resume on Nov. 16 under its legislative calendar.

The suspension did not prevent supporters of Marinduque Rep. Lord Allan Q. Velasco from electing him as Speaker in a rogue session outside the House building last week. — Charmaine A. Tadalan

COVID-19 infections nearing 360,000 as death tally hits 6,652

THE DEPARTMENT of Health (DoH) reported 2,379 coronavirus infections on Sunday, bringing the total to 356,618.

The death toll rose by 50 to 6,652, while recoveries increased by 14,941 to 310,158, it said in a bulletin.

There were 39,808 active cases, 82.8% of which were mild, 11.5% did not show symptoms, 1.9% were severe and 3.7% were critical.

Quezon City reported the highest number of new cases with 172, followed by Rizal province with 147, Bulacan with 136, Caloocan City with 117 and Cavite with 101.

Metro Manila had the highest number of new deaths with 31, followed by Central Luzon with seven and Calabarzon with five.

Western Visayas and Mimaropa reported two deaths each, while the Ilocos region, Davao and Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) reported one each.

More than 4.1 million people have been tested for the disease, the agency said.

Meanwhile, a lawmaker said the proposed budget for coronavirus vaccines is not enough to cover about 20 million Filipinos.

“It is only enough to cover 3.9 million Filipinos at a unit price of P641 each,” Marikina Rep. Stella Luz A. Quimbo said in a Viber message at the weekend. “This is clearly insufficient to protect us from COVID.”

The Philippines has funds to buy coronavirus vaccines but it needs more so the entire population of more than 100 million could be inoculated, President Rodrigo R. Duterte said last week.

He said he would look for more funds so all Filipinos could be vaccinated. The President said he was okay with vaccines developed either by Russia or China.

Ms. Quimbo noted that vaccinating 20 million Filipinos would cost P12.8 billion. Health authorities during House plenary debates on next year’s P4.5-trillion national budget sought P10.4 billion more to cover the cost of coronavirus vaccines.

Some lawmakers earlier said that intelligence funds of the Executive branch should be channelled to the health sector.

“This is something the small committee can work on as we tackle amendments to the General Appropriations bill,” Ms. Quimbo said. The Health department will get a P204-billion budget next year. — Vann Marlo M. Villegas and Kyle Aristophere T. Atienza

VP renews call for quick rehabilitation of ravaged Marawi

VICE-President Maria Leonor G. Robredo on Sunday renewed calls to fast-track the rebuilding of Marawi City three years after it was liberated from homegrown terrorists linked to the Islamic State (IS).

“Today, we remember the Marawi we lost, even as we renew the call for a more urgent approach to the rehabilitation process, and recommit to the rebuilding of a more peaceful and prosperous city,” she said in a statement.

In 2018, local and national officials held a groundbreaking ceremony in the ravaged city to mark the start of the government’s rehabilitation efforts.

But three years after the so-called liberation of Marawi City, thousands of its residents remained displaced and its buildings remained in ruins, Ms. Robredo said.

“The city has yet to reclaim any semblance of normalcy, much less its former glory as a cultural and economic hub,” she added.

She noted that while the siege might have been lifted, Marawi reminds us that “violent extremism remains among the biggest threats to society.”

“And to truly address it, frustrations must be met with compassion. Empowerment must become the foremost imperative. Equitable and inclusive progress must be achieved for the people of Marawi.” — Kyle Aristophere T. Atienza

Regional Updates (10/18/20)

Baguio opens to tourists from Luzon on Oct. 22

RESIDENTS from anywhere in Luzon can visit Baguio again starting October 22, the city government announced Sunday. The city tourism office, in a post on its Facebook page, listed the guidelines for visitors, which will be limited to 200 per day. Among the continued prohibitions are day trips and staying with relatives or friends at a private house. Visitors must book at a facility accredited by the Department of Tourism as listed on the city’s digital tourism registration site. Testing for the coronavirus is also still required, “either prior to travel (done within 3 days prior to travel) or upon arrival for a fee.” Baguio first reopened to tourists on Oct. 1, but limited to those from provinces in its neighboring Region 1.

SM gets original proponent status for Baguio public market development

SM PRIME Holdings, Inc. has bagged the original proponent status for the redevelopment of the Baguio public market, the city government announced Friday. “This office finds the unsolicited proposal of SM Prime Holdings more complete and therefore, more beneficial to the city. Let a certificate of non-acceptance be issued to Robinsons and certificate of acceptance to SM Prime holdings for its conformity,” Mayor Benjamin B. Magalong said in a memo to the local public-private partnership screening committee dated Oct. 14. The committee recommended Robinsons Land Corp.’s proposal, but the mayor overturned this, citing lack of substance in the company’s documents showing better benefits to the community and revenues for the local government. With SM Prime’s original proponent status, the Sy-owned company will be able to match challenger bids. Existing operators at the public market also joined the start of the solicitation process, but failed to submit all the required documents. The project involves the redevelopment of the 39,000-square meter public market into a modern commercial facility under a 50-year lease agreement.

Gold-rich Davao de Oro eyes processing, jewelry production investors

DAVAO DE Oro, a gold-rich province in the country’s south, is ramping up its marketing program to attract investors for processing facilities. “We are promoting our province to investors who are willing to invest, especially in processing gold such as jewelry or other items,” said Governor Jayvee Tyron L. Uy in a virtual briefing last week. Mr. Uy also said small-scale miners are gaining from the uptrend in global prices as gold fetches higher demand as an investment amid the coronavirus crisis. “The gold trading price has now reached from P2,900 to P3,000 per gram compared to P2,200 pre-COVID-19,” he said. Davao de Oro, formerly named Compostela Valley, has gold deposits of about 36,328,699 metric tons based on a 1998 report by the Mines and Geosciences Bureau. Ten of its 11 municipalities host mining sites, both large- and small-scale with areas officially declared as Minahang Bayan (national mining sites) under Republic Act No. 7076. The Philippine Veterans Investment Development Corp. (PHIVIDEC), a government-owned and controlled corporation that manages the 3,000-hectare industrial estate in Misamis Oriental, said last year that Davao de Oro is one of the top ideal locations for an economic zone given its mineral resources. PHIVIDEC Administrator Franklin M. Quijano said setting up an ecozone would significantly increase the value and contribution of the raw minerals to the economy.

FESTIVAL
The province is celebrating its annual Bulawan Festival on October 19 to 21, a commemoration of its founding anniversary and natural resources. “Here we are in the middle of pandemic so we will do the festival online… We are in the period of resilience and recovery so we opted to do it online, no face-to-face but at the same time still still promoting what we usually celebrate every year at the same time honor those people who have great contributions, especially the frontliners,” Mr. Uy said. One of the main events of this year’s festival is the Biz iCon, an online business and investment conference that will include matching activities between large corporations and local micro, small, and medium enterprises (MSMEs). — Maya M. Padillo

First Gen donates P33M for Nueva Ecija town’s water infrastructure

LOPEZ-LED First Gen Corp. is donating P33 million for the completion of the water supply and distribution system of Pantabangan town, where the company operates a 132-megawatt hydropower plant. The Pantabangan municipal government and First Gen Hydro Power Corp. signed a memorandum of agreement on October 8, formalizing the latter’s commitment to the town’s water service project. The power firm, in a statement over the weekend, said the fund will be used for well drilling and construction of water sources, renovation of the municipality’s pump station control house, and the expansion of the Pantabangan Municipal Water System’s distribution lines. In July, the company said the preliminary assessment and feasibility study for the project was already completed. It is now securing permits to proceed with the construction work. Apart from the donation, First Gen has remitted around P70 million to the Pantabangan government under the Department of Energy’s Regulation 1-94, which mandates power generation firms to set aside a centavo per kilowatt-hour of electricity they generate for their host communities. The local government said it has so far used the fund for the town’s electric system. — Adam J. Ang

Poverty eradication SDG seen out of reach due to pandemic

THE GOAL of eradicating extreme poverty by 2030, a key Sustainable Development Goal (SDG), may no longer be possible as the coronavirus pandemic wipes out a decade’s worth of gains on this front in the worst-case scenario, the United Nations (UN) said.

In an Oct. 15 policy brief, the UN Department of Economic and Social Affairs (DESA) estimated that 3.5% of Asia’s population would remain poor by 2030 under the base-case scenario, while the worldwide share of extreme poor is estimated at 7.6%.

Even in the most optimistic scenario, where gross domestic product per capita growth averages 6.9-9.9% and income inequality falls 25-50%, 1.4-1.9% of the population in the region and 2.7-4.2% globally will stay poor.

“Indeed, even the optimistic and utopian scenarios still have hundreds of millions of people living in extreme poverty. This would represent a significant improvement over the 2020 starting point of nearly 700 million people in extreme poverty, but it would be nowhere near complete eradication,” it said.

More people will be pushed back into poverty under the pessimistic scenario of per-capita growth averaging 1.9% and inequality rising 25%, leaving 7.7% of Asia and 12.9% of the world in a state of poverty by the end of the decade.

“This would wipe out all the gains of the past decade, causing unimaginable hardship along the way,” UN DESA said.

It said even “unprecedented” economic growth and efforts to reduce inequality will not be enough to completely eradicate poverty by the end of the decade.

In the Philippines, 4.5 million more Filipinos could slide back to poverty if 75% of the economy goes into a strict form of lockdown once more, according to the National Economics and Development Authority in a Palace briefing Thursday.

“Policies to reduce inequality and promote a country’s social and macroeconomic resilience, such as the strengthening of labor standards, and the expansion of the social protection systems and universal health coverage, are needed now more than ever,” DESA said.

It also warned that the window to minimize possible long-term consequences of the pandemic on poverty “is closing rapidly.”

“The effects of the crippling debt overhang of developing countries could have additional negative consequences, as political unrest spills across borders and global financial stability suffers, further undermining global economic growth,” it added.

Nearly 200 countries committed to eliminate poverty by 2030 as part of the 17 SDGs. — Beatrice M. Laforga

Philippines may tap support from ADB, World Bank to finance free vaccine program for 20M people

THE GOVERNMENT may enlist the support of the Asian Development Bank (ADB) and the World Bank to finance a free coronavirus vaccination program next year.

“We are considering tapping facilities launched by the ADB and the World Bank for vaccine access,” Finance Undersecretary Mark Dennis Y.C. Joven said via text message Sunday.

Mr. Joven said the Department of Finance is studying the new loan facilities launched recently as it raises more funds.

Budget Secretary Wendel E. Avisado said the government may allot up to P40 billion for the program intended to provide free vaccines to 20 million people.

Initially, the government estimated at least P20 billion will be needed, which Finance Secretary Carlos G. Dominguez III has said can be funded with the help of government banks.

While the total amount has yet to be determined, Mr. Joven said raising up to P40 billion via multilateral development banks is “doable.”

The World Bank approved last week a new loan facility worth $12 billion to help developing countries buy and distribute COVID-19 vaccines.

In next year’s P4.5-trillion budget, P2.5 billion is allotted to the Health department for the procurement of vaccines.

Budget Undersecretary Laura B. Pascua said another P10 billion is lodged under unprogrammed appropriations for the vaccines.

Aside from financial assistance, Mr. Joven said the facilities of the ADB and the World Bank also include support in sourcing and distributing vaccines once these are available. — Beatrice M. Laforga

IMF warns government support may fuel asset bubbles

THE International Monetary Fund (IMF) warned against “elevated” asset values which may have been propped up by investor expectations of government support as economies rebound from the pandemic, saying that a prolonged recovery could result in the erosion of such support and a “sharp adjustment” in markets.

“As long as investors believe that markets will continue to benefit from policy support, asset valuations may stay elevated for some time,” it said in a blog post.

“Nonetheless, and especially if the economic recovery is delayed, there is a risk of a sharp adjustment in asset prices or periodic bouts of volatility,” it added.

The Bangko Sentral ng Pilipinas (BSP) has said that systemic risk may emerge due to the global recession and has promised to ensure financial stability.

“Unlike in previous crises, emerging markets this time were also able to respond by cutting policy rates, injecting liquidity and, for the first time, employing asset purchase programs,” the BSP said.

In the case of the Philippines, the stock market is “still considered healthy” so far, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The Philippine Stock Exchange Index (PSEi) on Friday dropped 39.86 points or 0.67% to 5,898.47 while the broader all-shares index slipped 3.71 points or 0.1% to 3,581.91.

The PSEi plunged by as much as 10.33% or 616.99 points to 5,736.27 — its biggest single-day decline since the global financial crisis — on March 12, following the World Health Organization’s declaration of the coronavirus disease 2019 (COVID-19) as a pandemic.

The BSP has slashed interest rates by 175 basis points so far this year and its policy measures have resulted in the injection of P1.9 trillion in liquidity support into the financial system.

“If sell-offs are large due to external risk factors/shocks, there were monetary policy interventions to help cushion the adverse impact on the local financial markets,” Mr. Ricafort said in a text message.

BSP Governor Benjamin E. Diokno has said monetary authorities have yet to see any indications that the financial markets have been impaired as a result of the pandemic.

According to the IMF, the banking sector entered the COVID-19 crisis much stronger in terms of capital and liquidity buffers compared to its condition at the onset of the global financial crisis.

“The success of reforms undertaken over the past decade has allowed them to be part of the solution rather than part of the problem so far, as banks continued providing credit to businesses and households during the pandemic,” the IMF said.

However, it said that some banking systems could be hit by “significant capital shortfalls” in a scenario where a large number of firms and households default on their loans. — Luz Wendy T. Noble

Health industry cited for data privacy lapses

THE National Privacy Commission (NPC) flagged “dismal” privacy standards in the health sector, particularly its management of contact-tracing information during the pandemic.

The commission in a statement Saturday said that the sector’s poor compliance with data privacy standards is the primary cause of data breaches this year.

A July to September analysis of privacy issues found that no company monitored in the health sector fulfilled the minimum requirement of registering with the commission.

In the 10 months to October, 64% of breaches in the industry were caused by human error.

NPC said that in contrast, human error accounted for 39% of breaches among all sectors monitored, making it the second highest source of data breaches after malicious attacks, with 48%.

Privacy Commissioner Raymund E. Liboro described the findings as “worrisome” as health institutions help manage the country’s contact-tracing efforts during the pandemic.

He said that the public refuses to disclose personal information because they fear that their data will be misused.

“We must then intensify work in improving our processes to build trust,” he said.

The commission is investigating several businesses, including supermarkets and drugstore chains, for allegedly mishandling contact tracing forms, after reports of contact tracing forms left visible to others and of data has been used for purposes outside of contact tracing.

The NPC has also warned organizations against collecting unnecessary information like signatures in contact tracing forms.

Business groups last month asked the government to suspend the Data Privacy Act, which protects patient confidentiality. The groups encouraged COVID-19 patients to voluntarily disclose information.

Mr. Liboro had said that there is no scientific basis backing the naming of infected individuals as an effective public health response, calling the request “anti-poor.”

The NPC held a capacity-building webinar for data protection officers in the health sector on Oct. 15. — Jenina P. Ibañez

Tax appeals court upholds cancellation of P160-M tax assessment against FPIC

THE Court of Tax Appeals (CTA) has affirmed the cancellation of more than P160 million worth of tax assessments against First Philippine Industrial Corp. (FPIC).

In a nine-page resolution dated Oct. 9, the court’s second division denied for lack of merit the motion for reconsideration of the Bureau of Internal Revenue (BIR).

“At the onset, the arguments in the instant Motion (are) a mere rehash of the same facts and issues which have already been passed upon extensively in the Decision it assails,” according to the ruling.

The court in February cancelled the deficiency tax assessment against FPIC for being issued beyond the prescriptive period by law and for not indicating a definite amount of tax liability.

The bureau claimed that the court mistakenly granted relief not sought by the petitioner, after it found that prescription had set in due to invalid waivers for the extension of the assessment period.

It also claimed that the court mistakenly ruled that the formal letter of demand (FLD) and final assessment notice (FAN) were void because they did not indicate demand for payment within a specific period.

The court found that the demand and the notice state that the interest will have to be adjusted if paid beyond the date specified.

It noted a Supreme Court decision which ruled that a final assessment notice was not a valid assessment as it lacks a definite amount of tax liability because it said that the interest and total amount due have to be adjusted if paid beyond the stated date.

“Moreover, the subject FLD-FAN also failed to clearly indicate a specific date or prescribed period within which to pay the tax liabilities. Hence, the absence of the specific period in the FLO-FAN negates respondent’s demand for payment and renders the assessment void,” it said.

“Verily, an invalid assessment bears no valid fruit,” it added.

The court also said it found no merit in the bureau’s claim that its constitutional right to due process was violated as the validity of the demand letter was not raised by the company.

The tax appellate court is not prevented from examining defects in assessment notices even if they are not raised, it said, citing an SC decision.

The CTA also rejected the bureau’s claim that the court relied on Revenue Memorandum Order (RMO) No. 20-90, the rules on execution of waiver, as the rules are for the internal use of the BIR, saying the court “adheres to the principle that administrative issuances, such as the subject RMO, have the force and effect of law.”

The company claimed that the court has jurisdiction to rule on the validity of waivers on tax assessments and that the waivers are invalid for not containing the nature and amount due as required under the RMO. — Vann Marlo M. Villegas

Digital transactions on the rise: Are they taxable?

(First of two parts)

For many of us, digital transactions have become well-integrated into our daily lives — from online banking, shopping, ordering food to booking flights. This has been especially true during the pandemic, where the convenience of access to basic services and even complex ones like telemedicine within the confines of one’s home, has pretty much become the norm.

With the increase in revenue generated through digital services comes the need to plug in and capture tax leakages arising from these transactions to promote equity and fairness. For instance, the purchase of goods and services, regardless of whether these are from a physical store or online, should be subjected to VAT. However, since there are no existing mechanisms which allow the tax authorities to monitor them nor are there tax rules that detail how online transactions (coursed through various web/mobile-based applications) are subject to VAT, most, if not all, of these digital transactions escape taxation. This gives undue advantage to online sellers and platforms even when the products sold are basically the same.

DIGITAL TRANSACTIONS
With the increasing usage of digital transactions in the past decade, the Bureau of Internal Revenue (BIR) tried to keep pace by issuing Revenue Memorandum Circular (RMC) No. 55-2013. The RMC emphasizes that taxpayers engaged in online business transactions (e.g., online selling/retail, intermediary service, advertisement/classified ads, auctions) should be treated akin to traditional or physical business establishments. It reiterated that existing tax laws and regulations on the tax treatment of sales/purchases of goods/services are to be applied equally without distinction on whether the marketing channel is online or through traditional physical locations.

Additionally, with the subsequent increase of on-demand ride-hailing and sharing apps, the BIR then issued RMC No. 70-2015 to reiterate the tax treatment of persons engaged in the business of land transportation, particularly Transport Network Companies (TNC) and their partners and suppliers. The RMC states that if the TNC is a holder of a valid and current Certificate of Public Convenience, it will be treated as a common carrier and subject to 3% Common Carrier’s Tax. Otherwise, it will be classified as a land transportation service contractor and subject to 12% VAT.

The current global pandemic has further spurred the growth of online sellers. In response, the BIR issued RMC No. 60-2020 to remind persons doing business and engaging in digital transactions to ensure the registration of their businesses and pay their correct taxes. This Circular not only covers sellers but also payment gateways, delivery channels, internet service providers, and other facilitators.

HOUSE BILL NO. 7425 — AN ACT IMPOSING VALUE-ADDED TAX ON DIGITAL TRANSACTIONS
With the country’s struggle to continuously finance its efforts to combat COVID-19, the government sought to increase its revenue collection and at the same time, set a statutory clarification on the “VATability” of services rendered electronically.

House Bill No. 7425 was filed on Aug. 18 as a substitute bill for House Bills No. 4531, 6765, 6944, and House Resolution No. 685.

This bill also seeks to clarify the imposition of 12% VAT on the supply by a resident or non-resident seller of electronic devices, the online sale of services that includes online advertisement services and provision for digital advertising space, digital services in exchange for a regular subscription fee, and the supply of other electronic and online services that can be delivered through the internet. The substitute bill aims to level the playing field between traditional and digital businesses by clarifying the imposition of VAT on digital service providers.

NON-RESIDENT DIGITAL SERVICE PROVIDERS (DSPS)
The bill proposes to add another section in the Tax Code which requires non-resident Digital Service Providers (DSPs) to collect and remit the VAT in transactions that go through its platform. However, these non-resident DSPs are precluded from claiming any creditable input tax.

The new section defines a DSP as a provider of a digital service (defined as any service that is delivered or subscribed over the internet or other electronic network, which cannot be obtained without the use of information technology and where the delivery of the service may be automated) or goods to a buyer through operating an online platform for the purpose of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.

DSPs may include a third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission; a platform provider for the promotion that uses the internet to deliver marketing messages to attract buyers; a host of online auctions conducted through the internet, where the seller sells the product or service to the person who bids the highest price; a supplier of digital services to a buyer in exchange for a regular subscription fee; and a supplier of electronic and online services that can be delivered through the internet.

It also requires non-resident DSPs that engage in the sale or exchange of digital services to register for VAT if the gross sales/receipts for the past year exceeded P3 million or if there are grounds to believe that the gross sales/receipts for the next year will exceed P3 million.

In the second part of this article, we will discuss the following topics: how a VAT-registered non-resident DSP may issue an electronic invoice or receipt to substantiate transactions; the proposed amended VAT exemption on the sale, importation, printing or publication of books, and the state of our digital tax laws compared with neighboring ASEAN countries.

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.

 

Jan Kriezl M. Catipay is a Tax Senior Director from the Global Compliance Reporting Service Line of SGV & Co.

Lovely Cayetano

The lovely Cayetano is Pia, not Alan Peter.

Senator Pia Cayetano deserves praise for her consistency in fighting for the toughest social and economic reforms.

She is the tireless champion of health. Among the landmark laws identified with her are the following: the Responsible Parenthood and Reproductive Health Act (2012), the sin tax laws (2012 and 2019), the national health insurance law (2013), and the Universal Health Care Act (2019). It goes without saying that doctors and health professionals, women, people with disabilities, the elderly, the tobacco-control activists, and many others love Senator Pia for her health advocacy.

But we should not confine Senator Pia’s capacities and accomplishments to public health alone.  As current Chair of the Senate Ways and Means Committee, she is principally responsible for legislating tax reforms. This certainly is no easy task, and quite a few Senators shy away from tackling the current tax reform agenda to avoid an entanglement with powerful interests or with populist sentiments. But Senator Pia is different; she is tackling the bull by the horns.

What makes Senator Pia endearing is her quality of being determined and courageous to confront the most difficult, most controversial issues.

In 2012, Senator Pia was a decisive factor in the back-to-back passage of the bills on sin taxes and reproductive health. These were tough victories in the face of powerful lobbies — the tobacco industry’s resistance to higher taxes and the Catholic Church’s opposition to reproductive health. For example, the Senate ratified the 2012 sin tax bill by a hairline, a margin of one vote.

Recently, Senator Pia took up the cudgels for the beleaguered Philippine Health Insurance Corp. (PhilHealth). She introduced an adequate budget for its health technology assessment (HTA). The public has condemned Philhealth for chronic corruption, but the way to address systemic corruption is to enable PhilHealth, not weaken it. The appropriate strategy is to apply the rules found in the new law on universal health care, including the adoption of new technology and the institutionalization of HTA. Senator Pia fully understands this.

The HTA makes transparent recommendations based on scientific evidence and cost-effectiveness as to which drugs and vaccines, procedures and services, equipment, and other technologies that the Department of Health and Philhealth will finance and adopt. In this manner, the use of health technology is insulated from political and commercial interests.

Rougher terrain that Senator Pia has to navigate is the area of taxation and fiscal incentives.

Of late, too, the House of Representatives and the Senate quickly passed a bill granting an airport franchise to San Miguel Aerocity. The controversial part of the bill is its granting of all kinds of tax incentives to San Miguel Aerocity. Concerned parties, including Action for Economic Reforms, do not object to, and in fact welcome, the construction of a new commercial airport. But providing fiscal incentives is unjustified. There is no market failure regarding the availability and capacity of airports in mega Manila. The enhancement and expansion of existing airports will adequately supply the present and future demand of air passengers and air traffic. The San Miguel airport is thus a private good that competes with existing airports.   

Despite this economic argument and the lack of debate, no one in the Senate, except Senator Pia, stood up to question the hastily passed bill.

To quote Senator Pia, “I just like to put on record… that I really have not had enough time to study this. And the only reason I would like to contribute is because I’d like to avoid questions on its constitutionality, inconsistencies with different provisions, or confusions.” This is Senator Pia, defying the whole Senate and the overwhelming San Miguel lobby.

Indeed, the danger of having the San Miguel Aerocity fiscal incentives passed is that it runs counter to an essential objective of CREATE (Corporate Recovery and Tax Incentives for Enterprises), a bill that includes rationalizing  fiscal incentives.

CREATE, which Senator Pia is sponsoring, is encountering rough sailing in the Senate. Some Senators are introducing amendments that will weaken the bill.

Senators Frank Drilon, Imee Marcos, Richard Gordon, and Grace Poe, for example, want to have two separate bills — one for the fiscal incentives and another for the reduction of corporate income tax. The reason given by Senator Drilon is a lame one — that fiscal incentive rationalization is not a revenue measure! He and the few Senators fear the use of the line-item veto if rationalization of fiscal incentives is treated as a revenue measure. (A line-item veto applies to a revenue or appropriations bill.) One can surmise that some Senators want to include questionable provisions in the bill, which should indeed be subject to veto.

One egregious example of a proposed amendment from Senator Ralph Recto is the grandfathering of the fiscal incentives. This is to say that existing corporations will be exempted from the new rules and will thus continue enjoying the incentives in perpetuity. Another proposal, also from Senator Recto, is to have multi-tiered rates for corporate income taxation. This is most inefficient and is prone to tax evasion practices, like transfer pricing.

Senator Pia has expressed vigorously her objections to such proposed amendments. The Senate has voted against the amendment of Drilon et al to have a separate bill for the regime on fiscal incentives. And we do hope that the Senate will follow Senator Pia’s leadership in rejecting the other flagrant amendments.

We thus root for Senator Pia, the lovely Cayetano, and her allies in the Senate.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

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Agora: The shrinking public square

The 2009 film Agora depicts the tragic fate of Hypatia, the female philosopher and mathematician (portrayed beautifully, if historically inaccurately, by Rachel Weisz) who lived in Alexandria in the 4-5th century CE. Even under a Christian Roman emperor, Hypatia’s Alexandria was still the pluralistic, bustling, cosmopolitan Greco-Roman city it had always been, where various pagans (including Neo-Platonists like Hypatia herself) coexisted and transacted with Christians of varying stripes, Jews, and people of other religions. Hypatia’s school itself, although a pagan establishment where she taught philosophy, mathematics, and astronomy, catered to both Christian and non-Christian students. The agora, the traditional Greek public square and market-place, was a metaphor for this pluralism of ideas and beliefs.

The tide turned against Hypatia because she had become a close adviser of Orestes, the Roman (but likewise Christian) governor of Alexandria, who came into conflict with Cyril, its new bishop. Cyril’s less tolerant and more militant brand of Christianity had caused civil disorder and did not shy from weaponizing mobs of fanatic Christian monks to shut down opposition to orthodoxy. These Christian mobs — much like the Taliban — publicly harassed and suppressed Christian “heretics,” drove the Jews out of the city, and closed down synagogues, and at some point even assaulted Orestes himself. They ultimately set their sights on the pagan Hypatia, who though pagan, enjoyed a high social reputation.

Rumors were spread that her advice and influence over the governor were turning him away from Christianity and that she was to blame for the discord between governor and bishop. She was even alleged to have engaged in witchcraft and satanic practices. In the midst of such calumnies, which she largely ignored, she was ambushed in 415 CE by a mob of fanatic Christian clerics. The details of her murder are horrible: dragged out of her carriage, stripped naked, stoned, eyeballs cut out, body torn apart, pieces dragged through town, then set on fire outside the city limits. Thus ended the life of the editor of Ptolemy’s Almagest and the great commentator of Diophantus’ Arithmetika.

Through the ages, Hypatia’s fate has served as a cautionary tale of how easily reason and science can be snuffed out by a wave of lies and false rumors, fed by a rich subsoil of intolerance and superstition, leading to tragic extremist violence.

One-thousand six-hundred years later, we must wonder whether a similar phenomenon is not upon us.

Various trends — both political and technological, and not only in this country — have shrunk the public sphere of tolerance and reasoned discussion.

The political scientist Shawn Rosenberg [2020] recently attracted attention for his pessimistic prognosis of the survival of democracy in the present era. His pessimism is grounded in the difficulties involved in fulfilling even the minimal requirements for liberal democratic governance, which demands a lot from a society’s institutions, culture, and citizens. One such requirement is the peculiar way citizens in a liberal democracy ought to engage with each other in the public sphere.

What Rosenberg terms “communicative engagement” aims at arriving at “a shared understanding of issues and circumstances so that the individuals involved can come to agreement on the actions they should collectively take” (my emphasis). While citizens may differ in their personal frames of reference, they are still required to understand the bases for others’ positions (that moral sentiment Adam Smith called “sympathy”) and indeed remain open to the possibility of incorporating some elements of the others’ viewpoint in one’s own understanding. Hence, for example, Delawans should ideally not simply deny but seek to understand the Dutertard concern for the local peace and order and the drug problem. Conversely, the latter should appreciate the former’s concern that an indiscriminate drug war would violate human life and dignity, particularly among the poor and marginalized. In the ideal outcome, collective action could have resulted in addressing the drug addiction problem in a manner that respects human rights. Whatever shape of policy is finally adopted, however, what one seeks to avoid is a gravitation to extremes, encouraging instead a willingness to learn from errors and adjust future actions.

This is a far cry from today’s political discourse, much of which consists of brickbats lobbed from a distance (e.g., through social media) by hostile camps that question each other’s sincerity, mental competence, and fundamental honesty. To begin with, a “shared understanding of issues and circumstances” is hardly even possible when information is fragmented, manipulated, or even suppressed. The reasons are partly political, and partly technological.

Until some decades ago, the clear venue for “shared understanding” — the modern equivalent of an agora — was the mainstream media, curated and arbitrated by elites consisting of career journalists, political pundits, academics and other experts, governed by their respective Weberian professional ethics. Verified facts, structured political discourse, and informed commentary were commonly experienced by the public at large through “newspapers of record” (e.g., the New York Times, Le Figaro, or the Times of India) and major networks of television and radio (e.g., NBC or CBS in the US, ZDF in Germany, or ABS-CBN and GMA here at home).

A common trend in most countries that have drifted towards authoritarianism, however, has been the delegitimization and vilification of mainstream media. Trump in the US rails incessantly against the “lamestream media” for being systematically biased against him. Brazil’s Bolsonaro and Hungary’s Orban sing the same tune, accusing their countries’ independent press of spreading “fake news.” Here at home the continuing campaign of Duterte and his supporters against the “yellow press” needs no long discussion. The greatest success of this campaign was reached with the shutdown of the country’s largest radio-TV network with the widest nationwide reach, thus depriving millions of their source of news and thus the opportunity for “shared understanding.” (Especially deprived has been Mindanao, since TV coverage was limited to begin with: while 85% of adults in Metro Manila obtain their news from TV, it is only 69% for those in rural Mindanao.)

Even without its active suppression and denial, however, the influence of mainstream media (e.g. print, broadcast) was already being vitiated by the rise of social media platforms such as Facebook, Twitter, Instagram, etc. This has coincided with the almost universal diffusion of smartphone technology and broadband access. Pew Research reports that some 62% of Americans already get their news primarily from social media. The corresponding figure for the Philippines is far less (8% nationally but 15% in NCR; for that blame the slow and expensive broadband access), although it is significant and growing among the youth, the college-educated, and the more affluent — in short, the socially influential.

Offhand, one would have expected the availability of multiple sources of information and the ability to interact directly with one’s fellow citizens (i.e., in contrast to the one-way experience of a TV or radio broadcast) to widen the chances for “communicative engagement” and to raise the quality of discourse. In practice, however, the commercial model underlying much of social media has proved an obstacle to the demands of liberal democratic governance.

The value-proposition of such platforms is to heighten the engagement of the individual consumer by indulging and amplifying her biases and preferences — which can be achieved only by gathering ever more information about the person. Amazon’s “recommends” and “also-bought” strips are an innocent enough application (although Netflix’s Social Dilemma has a more sinister take). Such a granular model of the customer is obviously more potent than advertising through mainstream broadcast, which at best addresses itself to the modal person or some broad demographic and is therefore diluted by diversity. Facebook’s news feed feature, for instance, uses an algorithm that puts a premium on sites that you — or your FB friends similar to you — have “liked” or commented on in the past. This is quite unlike the plain old newspaper delivered to your door, or the linear evening newscast you must sit through that is curated and pitched to EveryPerson and contains both stories you may like or dislike. The big difference is that while the latter provides heterogeneous news and opinion (or at least tries to), the former cuts out diversity via algorithm. Thus, while sensible — if addictive — from a marketing perspective, granular marketing applied to politics runs counter to the cause of democratic engagement, whose purpose is not to reinforce biases and preconceptions but to see through and overcome them.

The marketing literature also recognizes a reinforcement of engagement from the creation of “brand communities.” Community members built around certain brands or products derive benefits such as hedonic enjoyment, getting information, connection (to something bigger than themselves), self-expression, and getting validation, and others [Baldus et al. 2015]. It becomes obvious then that engagement — and therefore potential ad revenue — increases when like is combined with like (not a pun). A similar principle is involved in Kremer’s [1993] “O-ring” theory of production, where assortative matching of workers with the same skill levels produce more output than when mixed. This insight is harmless enough when implemented to stoke, say, a virtual community of Dyson hair-care device enthusiasts or of Montblanc pen owners.

Applied to political discourse and communication, however, the same algorithms for engagement encourage the formation of sectarian and highly opinionated groups that reinforce each other’s biases and prejudices. As shown by recent experience (Facebook’s removal of fake accounts associated with government and the military) it then becomes that much easier for political operatives and malicious state actors to “seed” the formation of such groups through fake accounts and troll farms that manufacture lies and propaganda. But as the adherents to the infamous QAnon conspiracy theories in the US show, the tendency is organic to social media and to human psychology and can thrive even without purposive encouragement by political operators. The net effect is the same however: the drawing of sharp battle lines between groups and the stoking of mutual animosity — which after all is clickbait nonetheless.

Here at home, Dutertards and Delawans on social media may “engage” each other by constructing the wittiest insults, jokes, memes, rumors, and fake news that provoke the opposite side and earn applause, likes, and retweets in their respective digital bubbles. (Earning clicks both ways.) But, for all the noise, and much like two mobs shouting at each from opposite sides of the street, these do little to serve democratic governance, much less “communicative engagement.” Heckling is not persuasion; quarrels are not debates.

The public sphere is being narrowed by direct suppression of its traditional venues — made even worse by the physical isolation imposed by the pandemic — and their superficial replacement by algorithmic engagement in social media. The net result is to foster social division and, worse, to make the majority of citizens lose interest in and turn away from substantive political issues altogether. This can only serve those whose agenda is to deprive ordinary citizens of initiative — and to maintain the monopoly of information and power for themselves.

Reference:

Baldus, B., C. Vorhees, and R. Calantone [2015] “Online brand community engagement: scale development and validation,” Journal of Business Research 68(5): 978-985.

Kremer, M. [1993] “The O-ring theory of economic development,” Quarterly Journal of Economics 108: 551-575.

Rosenberg, S. [2020] “Democracy devouring itself: the rise of the incompetent citizen and appeal of right-wing populism” in: D. Hur and J.M. Sabucedo (eds.) Psychology of political and everyday extremisms. Brazil: Editora Vozes.

 

Emmanuel S. De Dios is professor emeritus at the University of the Philippines School of Economics. Like Marx who wrote about capital but possessed none of it, he observes but does not do social media.

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