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Australia’s bank watchdog raps Macquarie, HSBC, Rabobank for liquidity report breach

SYDNEY — Australia’s banking regulator said on Wednesday it has ordered Macquarie Group Ltd. and the domestic units of Rabobank and HSBC to tighten their local funding arrangements, saying the banks had breached liquidity reporting requirements.

Following recent promises to take a tougher stance toward the banks it regulates, the Australian Prudential Regulation Authority (APRA) broke its tradition of not publicly naming entities, and said the three banks were “improperly reporting the stability of the funding they received from other entities within the group.”

The regulator said the banks had provisions in their funding agreements that would potentially allow the group funding to be withdrawn in a stress scenario, undermining the stability of the Australian units.

The “reporting of their intra-group funding as stable has been in breach” of regulatory standards, APRA said.

“APRA is requiring these banks to strengthen intra-group agreements to ensure term funding cannot be withdrawn in a financial stress scenario,” APRA said. The regulator was “considering a range of further options, including the imposition of higher funding and liquidity requirements.”

APRA gave no further details of the required strengthening, but did say it would require the lenders to re-state past funding and liquidity ratios.

Macquarie said intra-group loans to its banking unit represented up to 15% of its bank’s total funding, the repayment of which could be accelerated due to a “material adverse change” (MAC) clause that existed since 2007.

That clause had now been removed, and the bank would re-calculate its liquidity ratios back to 2017, to reflect the previous clauses, Macquarie said.

“It is likely that (Macquarie Bank’s) recalculated liquidity coverage ratios will show a historical non-compliance,” the firm said. It said if the unit had been “aware of APRA’s interpretation of the MAC clause, they would have removed the clause earlier”.

In a statement, HSBC said it maintained a strong liquidity and funding position, without elaborating on what led APRA to say the lender had improperly reported its liquidity ratios.

Rabobank said it was working with the regulator to address its concerns, and would amend its funding agreements with its parent.

APRA said there was no immediate threat to the stability of the three lenders.

Australia’s banks are facing tougher scrutiny in the wake of a sweeping public inquiry into the financial sector that revealed widespread wrongdoing and lax regulatory oversight.

The central bank in neighboring New Zealand, APRA’s regulatory counterpart in that country, has flagged lifting bank capital requirements and has also censured the largest lender in its market, Australia and New Zealand Banking Group Ltd., over risk-capital failures. — Reuters

How PSEi member stocks performed — July 24, 2019

Here’s a quick glance at how PSEi stocks fared on Wednesday, July 24, 2019.

 

How does the Philippines fare as a potential location for offshore services?

How does the Philippines fare as a potential location for offshore services?

NEDA says security of tenure bill requires more ‘balance’

THE National Economic and Development Authority (NEDA) said Senate Bill 1826, the proposed Security of Tenure (SoT) Act, needs to be “tweaked” to be more balanced and consider the possible impact on investment.

In a briefing Wednesday, NEDA Secretary Ernesto M. Pernia said, “Our view is that the legislation should do something that would benefit not only the employers but also the workers.”

He added, “I think the SoT is not perfect. Also from the employee side, they said it’s not adequate.”

The SoT Bill is awaiting the signature of President Rodrigo R. Duterte and is set to lapse into law by July 27. According to Labor Secretary Silvestre H. Bello III, Mr. Duterte is still studying the measure.

Mr. Pernia said that the SoT Bill should be balanced, considering the interests of workers as well as the potential impact on investment and jobs to be generated by businesses. “Essentially there is a need for tweaking to address some of the provisions. As I’ve said, you have to be sure that the law benefits not only workers but also investment… it has to be fair between workers and employers because if you want jobs to be available, you need investment.”

On July 17, foreign business chambers and employer groups called on the President not to sign the SoT Bill, warning that it will weaken investment if businesses are not given the option of engaging contract labor. The groups said that current laws already have provisions against labor-only contracting which are also reinforced through Department Order 178 series of 2017 issued by the Department of Labor and Employment (DoLE) and Executive Order 51 series of 2018 signed by the President.

The Trade Union Congress of the Philippines (TUCP) warned foreign chambers that they are committing a crime in calling on the President to veto the SoT Bill, because they are not registered lobbyists and cannot interfere in domestic matters.

In a statement Wednesday, TUCP President Raymond C. Mendoza said: “The Trade Union Congress of the Philippines warns foreign businessmen and their chambers that they are engaged in illegal lobby(ing) in calling for a Presidential veto of the Security of Tenure bill. They are engaged in an unwarranted interference in the purely domestic affairs of the Filipino people. They are also infringing into our sovereignty.”

He added that foreign organizations cannot lobby Congress, saying that the foreign chambers “are now skirting a thin line between legality and real crimes against the Filipino people.”

Mr. Mendoza said that the SoT Bill allows flexibility since some contracting activities such as seasonal and project-based contracting will still be legal. The bill will also ensure workers’ right to a pathway to permanent employment.

He added, “While the SoT bill does not totally end contractualization, it nonetheless provides for an easier way to… regularize workers. It also provides penalties and a fine of up to P5 million and sanctions which include closing down manpower agencies and contractors. We intend to further strengthen this through amendments in the 18th Congress by reiterating the lost provisions of the House version, which prohibits all fixed-term contracts.” — Gillian M. Cortez

Gov’t to proceed immediately with 5th round of SSL pay hikes

FINANCE Secretary Carlos G. Dominguez III said the government will proceed immediately with the fifth round of adjustments to public servants’ salaries under the Salary Standardization Law, adding that the Department of Finance (DoF) will file legislation soon instead of observing the usual interval between adjustments.

“Normally, we would have waited three or four years before moving up to SSL 5 (Salary Standardization Law round 5). However… President [Rodrigo R. Duterte] has decided (to) propose SSL 5 and that will be legislated,” Mr. Dominguez told reporters Tuesday at the DoF.

He said that the DoF and Officer-in-Charge Janet B. Abuel of the Department of Budget and Management (DBM) have come up with initial estimates and described the salary adjustments as “affordable.”

“We are down the very last numbers as will be proposed for the legislation and we can afford it. And that’s over three years… The initial estimates that we made together with Secretary Abuel were that well within our affordable range,” he said.

He did not provide an estimate for the expected cost of SSL 5.

Mr. Dominguez believes SSL 5 is best pursued via Congress rather than executive order. SSL 4 was authorized under Executive Order (EO) No. 201 issued by Former President Benigno .C. Aquino III in 2016.

“[When the bill is passed] depends on the legislation. It has been filed, I believe, [but] I’m not sure. But I heard it was going to be filed very quickly,” he added.

Earlier this year, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno announced that the latest tranche of the salary adjustments was scheduled for early this year but was delayed by the Budget impasse in Congress.

Despite the delay, President Duterte signed EO no. 76, amending EO no. 201, on March 15 for the last tranche of SSL 4. The issued EO no. 76 authorized funding for the fourth tranche of the salary hike for government workers to be funded by any available appropriations from the reenacted 2018 budget.

On the bills proposing the creation of dedicated departments for Overseas Filipino Workers (OFW), fisheries, and disaster response, Mr. Dominguez said that such moves will quire many existing agencies to be re-organized and integrated.

“You just re-organize (the agencies) and call (them) something else. But I have to wait for the legislation because they have to be the one (to decide) which will go together… but most likely they will just start with what’s already existing,” Mr. Dominguez said.

He also said that the main cost expected for the new departments will involve upgrading current offices, a cost which he described as not “very high.”

The President at his State of the Nation Address Monday called for the creation of the Department of Overseas Filipino Workers and Foreign Employment, the Department of Water Resources and the Department of Disaster Resilience. — Beatrice M. Laforga

Guidelines for ‘reasonable’ LGU fees due Aug.

GUIDELINES that will harmonize fees collected by local government units (LGUs) are expected to be completed by August, the Department of Finance (DoF) said.

A meeting is scheduled for Aug. 15 where the draft guidelines could be finalized, according to Jose Arnold M. Tan, acting deputy executive director of the Finance department’s Bureau of Local Government Finance (BLGF).

Mr. Tan said the draft “toolkit” will contain the “framework for computing fair and reasonable fees and charges” which LGUs can use to revise their schedule of fees.

In a joint memorandum circular (JMC) released in May, local governments were ordered to impose “just and reasonable” fees and charges for all services rendered to the public.

The circular was authorized by Republic Act 11032, or the Ease of Doing business and Efficient Government Service Delivery Act of 2018.

The JMC provides that fees and charges should be revised to allow for “the recovery of cost of services,” including components such as staff salaries; cost of supplies and materials, transport and travel expenses, and fixed costs such utilities and depreciation. — Beatrice M. Laforga with Reicelene Joy N. Ignacio

Angara commits to timely passage of 2020 Budget

SENATOR Juan Edgardo M. Angara, who chairs the chamber’s finance committee, said Wednesday he hopes to work closely with the executive branch to ensure the timely approval of the P4.1 trillion national budget for 2020.

“We owe it to the people to pass the budget on time. Any delay in the implementation of public programs and the delivery of services is a disservice to them,” Mr. Angara said in a statement Wednesday.

He said the Senate will help ensure the government’s priority programs and projects are funded.

Mr. Angara added the committee will continue its practice of designating its vice chairpersons to handle budget deliberations of various agencies to “expedite the hearings.”

The Senate was locked in a months-long impasse with the House of Representatives and the Department of Budget and Management, which ultimately delayed the passage of the 2019 General Appropriations Bill until April.

President Rodrigo R. Duterte signed the 2019 spending plan on April 15, vetoing some P95.3-billion worth of appropriations, reducing the GAB to a total of P3.662 trillion.

Mr. Angara said from his committee post, he hopes to ensure funding for education, health, infrastructure and rural development.

“We will go over the 2020 budget thoroughly and so that nothing goes to waste,” he added. — Charmain A. Tadalan

New coco levy bill to account for delays in P30-B worth of funding from asset sales

SENATOR Cynthia A. Villar, who chairs the Senate Agriculture committee, said the new Coconut Levy bill that will replace a measure vetoed in the last Congress will take into account a likely delay in P30-billion worth of funding, adding that she sees no problem with the delay since the government can tap other readily-available sources.

Ms. Villar said the new legislation will take into account the requirements of Executive Order No. 179, issued in 2015 by former President Benigno C. Aquino III. The EO authorized the sale of assets funded by the original coconut levy, potentially raising about P30 billion.

Ms. Villar told reporters in a chance interview that some of those assets are locked up in litigation, potentially delaying their disposal, but added that the trust fund for the coconut industry that will be set up under the bill will initially be funded for about P75 billion in cash currently held by the Treasury.

“Wala namang (There is no) problem doon sa (in the) P75 billion na cash na nasa (which is in the Bureau of) Treasury. The problem is the assets that will be sold to generate the additional P30 billion may problema pala yun (access to the funding will be problematic). May mga kaso (They are tied up in legal disputes).”

Ms. Villar, speaking on the sidelines of the Sustainable Agriculture Forum Wednesday, said the EO was recently upheld by the Supreme Court, paving the way for the assets’ ultimate disposal.

“We will be incorporating (funding from the asset sale)… we don’t need that money yet. There is P75 billion (in available funding); if you distribute it at the rate of P5 billion a year it will take 15 years,” she added.

EO N0. 179 was issued in March 2015 by former the President, setting the guidelines for the inventory and privatization of Coconut Levy assets.

The EO authorizes the Privatization and Management Office to undertake “the actual marketing/disposition program for the non-cash Coco Levy Assets, to execute and deliver, on behalf of the Government, the deeds of sale, contracts and other instruments as may be necessary or appropriate to convey title to such assets, to take possession of and conserve the non-cash Coco Levy Assets transferred to it, and to engage external expertise as may be necessary in the fulfillment of its tasks under this Order.”

The EO also directed that the proceeds go toward improving the coconut industry’s productivity, developing coconut-based enterprises, increasing the income of coconut farmers, strengthening farmers’ organizations, and achieving “balanced” and “equitable” growth for the industry.

The Coconut Levy was a Marcos-era imposition on coconut farmers collected on the pretext of improving the industry, though the ultimate disposition of the funds was disputed. The levy funds took decades to trace, until the previous Congress submitted legislation for a Coconut Industry Trust Fund, which President Rodrigo R. Duterte vetoed in February, citing the need for stronger safeguards in the fund’s disbursal.

“We are confident the President will sign (the new legislation),” Ms. Villar said during the forum.

The trust fund is expected to benefit 3.5 million coconut farmers.

At his State of the Nation Address Monday, Mr. Duterte said: “I also have not forgotten my commitment to uplift the lives of coconut farmers and further develop the coconut industry through the urgent utilization of the Coconut Levy Fund.” He also pushed lawmakers to pass “a more responsive version” of the bill. — Vincent Mariel P. Galang

Education could thrive if connectivity improves

By Vince Angelo C. Ferreras, Reporter

THE Fourth Industrial Revolution is expected to blur the line between the digital and the physical spheres as daily interactions with mobile or computer screens develop beyond their current static forms.

World Economic Forum chairperson Klaus Schwab believes this latest industrial revolution will be “fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human.”

Is the Philippines ready for e-classrooms and virtual interaction between students and teachers? Do the recent laws on universal access to quality education and open distance learning prepare students to become part of the modern work force?

Commission on Higher Education (CHEd) chairperson Prospero E. De Vera III believes that meeting the needs of the Fourth Industrial Revolution will be difficult if internet connectivity does not improve.

“Ang problema natin (Our problem with) the Fourth Industrial (Revolution) in the Philippines is the internet… So much fear, so much opportunity. But if our internet does not become faster, we cannot harness the opportunity of the Fourth Industrial Revolution,” Mr. De Vera said in an interview with BusinessWorld.

The latest Social Weather Stations survey conducted in March noted that internet use among university graduates was 79%, up from 77% three months earlier.

Despite the high percentage of internet usage among Filipinos, especially college students, Speedtest Global Index reported that the country’s fixed line internet average speed of 19.51 Mbps was much slower than the global average of 57.91 Mbps. This puts the Philippines at 101st among 179 countries.

“Ang solution diyan wala sa CHEd, ang solusyon diyan nasa telcos,” said Mr. De Vera.

Technology expert Art Samaniego, Jr. said that a 5G connection will go a long way to helping modernize classrooms during the Fourth Industrial Revolution.

“Kapag na-activate na ’yung 5G network natin, ang dali dali nang i-combine ang technology at, tulungan ’yung educational system. Hindi na kailangan ng estudyante pumunta sa eskwelahan,” (When 5G is activated, it will be easy to fold technology into the educational system. Students may not even need to go to school), Mr. Samaniego said in a chance interview.

The Department of Information and Communications Technology (DICT) said it awarded the Mislatel consortium its operating frequencies and permit to operate, with the incoming third player in the telecommunications industry expected to begin operations by 2020.

“Meron kaming vision na by the end of 2020, mararamdaman na ’yung fast internet natin. Nandiyan na ’yung third telco, at meron na kaming pinapairal na national-global plan,” said DICT Undersecretary Eliseo M. Rio, Jr. in a phone interview. (Our vision is that by the end of 2020, we will start experiencing fast internet connections. The third telco will be there and we are also implementing a national-global plan.)

Mr. Rio also noted that Republic Act No 10929 or the Free Internet Access Program will benefit state educational institutions.

“We have a law that will provide the necessary funds for this and this is the “Free Wifi Zone”. So gagawin naming access points lahat ng mga schools and ’yung mga state-owned universities and colleges (We will make the schools and state-owned universities and colleges access points),” said Mr. Rio.

Under the law, the government will invest P1.16 billion this year to put up close to 11,000 free Wi-Fi hotspots around the country.

OPEN DISTANCE LEARNING ACT
Former President Benigno S.C. Aquino III signed five years ago Republic Act 10650, the Open Distance Learning Act, which seeks to provide government support for distance learning programs and to democratize access to tertiary education.

Under the new law, the University of the Philippines Open University (UPOU) is required to provide expertise to CHEd in the development of open learning and distance education and in the proper use of information and communications technologies in support of quality higher education.

However, Mr. De Vera noted that even UPOU itself cannot fully meet its mandate to provide open distance learning programs at the undergraduate level as it only offers two undergraduate programs: BA in Multimedia Studies and Bachelor of Education Studies, as compared to the 16 master’s and doctorate programs.

“UP is supposed to be the apex university that is supposed to develop it by giving technical advice to CHEd….Ang nangyari (What happened is) they went to the graduate program, not the undergrad…. The most benefiting from it are OFWs (Overseas Filipino Workers), nakakakuha sila ng (they obtain diploma) for their masters and PhD, but they only have two undergraduate programs,” said Mr. De Vera.

The CHEd chairperson is calling on UPOU to be “aggressive” in pushing for open distance learning programs especially in the undergraduate program in the context of the Fourth Industrial Revolution.

“I’ve been telling UP Open U, you have to take a leadership role in creating an aggressive undergraduate programs using open distance learning, that is how we can harness the Fourth Industrial Revolution. Improve connectivity and use technology to do it. Maraming (There are many) universities ang may (that have) distance learning pero di mo alam ’yung quality kasi wala tayong (but you are not sure about the quality because we don’t have a) national framework,” he said.

HOW TO THRIVE IN THE FOURTH INDUSTRIAL REVOLUTION
With the latest industrial revolution, robotics, automation, artificial intelligence, and machines will dominate most of our everyday work functions. Some jobs might become obsolete or grow, or new kinds of jobs will emerge.

“Ang challenge kasi ng Fourth Industrial Revolution is very simple: people are afraid of the Fourth Industrial Revolution. Because it will disrupt existing manpower requirements, there will be jobs that will be redundant… the problem is that nobody can predict what new jobs will be created,” said Mr. De Vera.

He added, “The industry and the academe must work together because they must realize that their survival is dependent on how they can work together, to predict the new manpower demands, and draft the necessary curriculum to produce it. Kung ano man natututunan ng mga estudyante sa universities (Whatever the students learn in the universities), that will be redundant 10 years from now.”

Mr. De Vera said CHEd reguarly consults with the academe and industry to help keep graduates competitive.

“Ang kailangan ng (what is needed for the) Fourth Industrial Revolution is soft skills, which are essential skills, (like) problem solving, critical thinking, ayan ang kailangan ng tao (that’s what people need),” he said.

The World Economic Forum reported that the skills needed in the workplace in the future are complex problem solving, critical thinking, creativity, people management, emotional intelligence, coordinating with others, judgment and decision making, service orientation, negotiation, and cognitive flexibility.

CHEd believes that these skills can be learned in the general education courses.

“Unfortunately, those essential skills cannot be learned in your internship…ang kailangan mong palakasin ay ’yung (what you need to strengthen is the) general education program. There must be a shift to look again at general education to develop graduates who are holistic in orientation, who understand globalization,” said Mr. De Vera.

Mr. Samaniego believes that exposing students and teachers to modern technologies will be a big help for their future careers.

“We need to educate the educators,” he said. “Dapat open sila sa (They should be open to) new forms of technology like social media. Marami pa ring schools ang nagba-ban sa social media. (Social media is still banned at many schools) Dapat open ‘to, kasi ito ’yung magiging workflow ng mga bata in the future (This should be open to everyone, because this will be the workflow of the students in the future).”

He said that integrating ideas on technology in other subjects will also help students.

“Kailangan natin i-integrate ang technology sa lahat ng subjects kung saan pwede, kasi lahat sakop na ng technology (We need to integrate technology in as many subjects as possible, because technology covers everything now). For example, Home Economics, may mga technology ka nang ginagamit sa mga home na ngayon eh (you are now using technology at home). Lahat connected na (Everything is now connected). Lalo kapag dumating ang 5G, lahat ng gamit mo sa home, connected na sa internet (Especially if 5G comes, everything you use at home will be connected to the internet),” said Mr. Samaniego.

He added, “Ang una mong applicant na tatanggapin ay ’yung technology literate (The first to be hired are those who are technology-literate). So mas may chance makakuha ng trabaho kapag tech-literate ka (So there is a more chance to be hired if you are tech-literate) , kapag na-blur na ’yung (when the line is blurred) between digital and physical.”

DICT noted that interactive classrooms will be more convenient and help in decongesting roads in Metro Manila.

“By connectivity, this instructor can teach many classrooms. Kaya dapat may (There should be) interactive na system, teleconferencing. If we have that, the quality of instruction will be much better. The instruction can be based in Manila and students can ask questions in real time…this can solve congestion in Manila,” said Mr. Rio.

However, Mr. Samaniego pointed out that students should also be instructed on privacy and security issues.

“Kapag nilagay mo ’yung bata sa technology (If you expose a child in technology), delikado siya dahil maraming danger ang technology (he is vulnerable because there are lots of dangers) — hacking, identity fraud. More than 90% of identity crime ay dahil sa (is due to) oversharing on the internet and social media. Kaya dapat habang wala pa tayong internet penetration na buo, dapat i-educate na natin mga bata tungkol sa privacy and security (That’s why we need to educate students on privacy and security even before we have full internet penetration,” he said.

Pryce announces possible drilling of appraisal well in Palawan concession

PRYCE CORP. said its major subsidiary had decided to step up its exploration offshore Palawan with the possible drilling of an appraisal well, the property developer and gas trader told the stock exchange Wednesday.

It said Pryce Gases, Inc. (PGI), along with a consortium partner, plans to enter Sub-Phase 5 of Service Contract (SC) 55. The move will take effect on Aug. 26, with an option to begin the appraisal period before that date.

It said the appraisal well may involve the drilling of an ultra-deepwater well for at least $3 million.

PGI is principally engaged in the importation, distribution, and retail sale of liquefied petroleum gas or LPG.

Pryce said the consortium may also opt to enter an appraisal period that would require the implementation of an appraisal work program. The program requires the approval of the Department of Energy (DoE), and may involve the drilling of an appraisal well, it said.

SC 55 is a deep-water block in the southwest Palawan Basin that covers an area of 9,880 square kilometers.

“It is in the middle of a proven regional oil and gas fairway that extends from the productive Borneo offshore region in the southwest, to the offshore Philippine production assets northwest of Palawan,” Pryce said.

PGI acquired its interest in SC 55 in July 2015 through a farm-in agreement with Otto Energy Philippines, Inc., former operator and ex-consortium partner in the service contract. It has a 25% participating interest in SC 55.

Separately, Phinma Petroleum and Geothermal, Inc. (PPGI) told the stock exchange that its subsidiary Palawan55 Exploration & Production Corp. notified the DoE on Wednesday about entering the fifth sub-phase of SC 55.

Like Pryce, it said the move is without prejudice to the unit’s option to enter the appraisal period of SC 55 no later than the said date.

Palawan55 is the operator of SC 55 and owns a 37.5% participating interest. The sub-phase’s commitment to drill one ultra-deepwater well at a water depth beyond 1,500 meters could kick in by the second quarter of 2020.

PPGI said that in 2015, the SC 55 consortium drilled the Hawkeye-1 well in 1,700 meters of water at a cost of $23.5 million.

“The well discovered natural gas at the crest of the target structure but the estimated volume of the accumulation was deemed by the former Operator to be non-commercial on a stand-alone basis,” it said.

“Palawan55 is currently undertaking quantitative interpretation of over 1,000 sq. km. of recently reprocessed 3D seismic data over the greater Hawkeye area and a large carbonate reef prospect,” it added.

On Wednesday, shares in Pryce rose 5.51% to close at P5.36, while those of PPGI fell 12.66% to P6.00. — Victor V. Saulon

New laws improve chances of hitting SDGs, NEDA says

THE National Economic and Development Authority (NEDA) said the chances of achieving Sustainable Development Goals (SDGs) have improved because of the laws passed this year.

“I think we have a better chance this time because as you know we’ve had number of laws passed that are really going to respond to the challenges not only with the PDP (Philippine Development Plan) and the AmBisyon Natin (the long-term development plan running to 2040) but also the challenges of the SDG 2030,” Socioeconomic Planning Secretary Ernesto M. Pernia told reporters at a briefing in Ortigas district Wednesday.

Mr. Pernia noted the passage of laws on the National ID, Ease of Doing Business, and Universal Health Care provide the government with new “tools” to achieve the SDG.

“Many of the laws attempted decades back… are finally coming to operation now. So I think… we have better tools and avenues to do better vis-a-vis the SDGs,” he said.

“We will do a little better, I think we will improve… because of the PDP, AmBisyon Natin and the SDG,” he added.

He said that the integration of the SDGs with the Philippine Development Plan 2017-2022 and the AmBisyon Natin 2040 which was both crafted in 2016 will further improve the possibility of achieving the SDG and that “they also seem to fit together quite well.”

At the briefing, Mr. Pernia reiterated that he remains positive that the Philippines will achieve upper middle-income economy status this year or next year.

“It’s still possible that we can achieve the upper middle-income status this year but I think it’s going to be surer next year,” he said. — Beatrice M. Laforga

Protesting a business tax assessment

A few weeks ago, my friends and I had the chance to visit the fascinating beaches of Boracay after it underwent rehabilitation for six months. I can still remember the last time I was there about two decades ago, recapturing the same feeling of awe when I first set foot on its powdery white sand. It took a while for me to return after reading news articles of how exploitation and profiteering of various business establishments had debased the pristine beauty of this island gem.

Now that Boracay has repossessed its marvel, tourists can once again stroll freely and unobstructed along the shore to enjoy its clear azure water. I really have to commend both the national and local governments for their concerted efforts to restore the island to its former glory.

Speaking of government action, I also think that it is high time for local government units (LGUs) to revisit some of their local rules that contradict the Local Government Code (LGC). Take the case of a city ordinance regarding “payment under protest” for local business tax (LBT) assessments.

LBT is an annual tax paid by companies to secure their business permits in the locality where they are doing business. It is based on a certain percentage (3% maximum rate) of the taxpayer’s gross revenues or receipts for the prior year. For start-ups, LBT is based on the company’s initial capitalization. This tax is due to the local government within the first 20 days of January, or each subsequent quarter if paid on installment.

LGUs are allowed to conduct an audit of the taxpayer’s LBT payments for a period of five years from the date the tax becomes due. If deficient, the LGU will issue a notice of assessment to the taxpayer for the tax deficiency and will assess penalties. By way of recourse, taxpayers may file a protest within 60 days from the receipt of the assessment notice. Otherwise, the assessment becomes final and executory. If the protest is denied, the taxpayer’s remedy is to elevate the case to the appropriate courts.

Now here comes the tricky part. Under some city ordinances, a taxpayer is required to pay first the assessed local tax deficiency before the protest letter can be accepted by the LGU. Hence, taxpayers are barred from filing their protests without first paying the LBT assessment in the issued notice.

To prevent the LBT assessment from becoming final and to preserve their right to dispute the assessment, some taxpayers are forced to pay under protest. Aware that litigation is tedious and generally results in unbudgeted legal costs, taxpayers are constrained to pay the assessment in the hopes of resolving the issue at the LGU level without resorting to judicial remedies.

This requirement is unfair, especially if the assessed amount is exorbitant. I mean, what would prevent local tax examiners from coming up with tax findings that are arbitrary and capricious (sound familiar?), knowing that they can collect the assessment even under protest. The practice of “paying first before a protest can be entertained” is unreasonable, and worse, without any legal basis. Section 195 of the LGC, which provides the rules on protesting an LBT assessment, does not require prior payment of the assessment before a protest letter can be filed with the LGU.

Fortunately, the Supreme Court issued a decision (G.R. No. 196681 dated June 27, 2018) declaring that “payment under protest” is not a prerequisite before an LBT assessment can be contested. Hence, LGUs cannot enforce this condition though provided in their ordinances. The high court explained that for an ordinance to be valid, it must not contravene the Constitution or any statute, such as the LGC in this case.

Earlier, in August 2016, the Court of Tax Appeals (CTA) ruled that the city government cannot enjoy the presumption of validity when its policy deviates from the LGC. Thus, the onerous requirement of paying under protest is a void and ultra vires act contrary to the mandate of the LGC. By way of exception, payment under protest applies in real property tax assessments.

However, despite the Supreme Court’s decision, some LGUs continue to impose their policy with threats of not renewing the taxpayer’s business permit due to an unsettled assessment. This practice adds unwarranted pressure on the taxpayer to pay the tax assessment for fear of disrupting its business operations due to the absence of a valid permit.

While I can relate to the LGU’s zeal of finding efficient ways to achieve their collection targets and to run after tax evaders who shortchange the government, these initiatives should not be pursued at the expense of compliant taxpayers. Collection measures should maintain a healthy balance between the ends they seek to achieve and the means to realize those ends.

If left unchanged, unfair tax practices will turn away potential investors, persuade existing companies to relocate or cause business operations to slow down. Fewer business activities mean fewer tax collections to fund local projects and less employment opportunities in the locality.

I believe that LGUs can come up with better tax collection measures that are effective, fair, and most importantly, consistent with our tax laws. For now, compliance with the Supreme Court decision is one of the initiatives that LGUs can prioritize and focus on if they want to transform their current system.

Transformation involves a process of dramatic change, and its success is never achieved using temporary or band-aid approaches. Applying this to Boracay’s transformation, the LGU of Aklan likewise faced the challenge of closing the top tourist destination at the expense of losing an estimated $1.06 billion in tourist receipts. Despite the hard pinch on its revenue and livelihood, the province rallied to do what was right against all the odds. What first started as a vision has become a reality. The Boracay experience should inspire all LGU leaders that anything can be achieved, whatever the cost, through sheer political will.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

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

+63 (2) 845-2728

joel.roy.navarro@pwc.com

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