How PSEi member stocks performed — March 9, 2020
Here’s a quick glance at how PSEi stocks fared on Monday, March 9, 2020.
Deferred airport fees ordered for airline coronavirus relief
AIR TRAVEL regulators said they will defer collection of take-off, landing and parking fees from Philippine carriers as a form of relief from the coronavirus outbreak.
The Civil Aviation Authority of the Philippines (CAAP) and Manila International Airport Authority (MIAA) said the action was taken on the order of Transportation Secretary Arthur P. Tugade, adding that collections could be deferred for “over a year.”
“Tinitingnan natin kung paano sila makaka-recover (We have been studying how airlines can recover), and that’s why we’re talking about over a year of deferment and over a year of payment,” CAAP Director General Jim C. Sydiongco said at a briefing in Pasay City.
MIAA General Manager Ed V. Monreal said: “We’re seeing about P58 million a month in terms of expenses that will cover take-off, landing, parking at NAIA (Ninoy Aquino International Airport). Deferred payment lang po muna ang ie-extend natin (We will offer them deferred payment)” while the outbreak of coronavirus (Covid-19) is affecting their operations.
Mr. Monreal added: “Mayroon kaming scheme na ipapatupad. Magkakaroon kami ng time to revisit and evaluate on how we can recover (We are studying what scheme to implement. We will have time to review how we can recover).”
Philippine carriers have suspended flights to China, Hong Kong, Macau, and parts of South Korea due to the coronavirus outbreak.
Mr. Monreal said the impact on passenger volumes in February was “bumaba po tayo ng almost 476 thousand passengers sa ating paliparan, that consist of arrival and departure, domestic and iternational. Mas marami ang international drop ng mga pasahero (We recorded a decline of about 476,000 passengers using the airport, both arrivals and departures, with the drop more pronounced in international traffic).”
Last month, the Air Carriers Association of the Philippines, Inc. said it was expecting to issue about P3 billion worth of ticket refunds in the next two months after the Philippine travel ban on China, Hong Kong, Macau and Taiwan.
The Philippines itself has had six COVID-19 infections, half of which were confirmed last week. Before that, it had not reported any new cases for weeks.
Earlier, three Chinese visitors were infected with the virus — one of whom died. The other two have since recovered and left the country.
The Department of Health on Saturday raised the country’s alert level to Code Red sublevel 1, as health authorities “prepare for a possible increase in suspected and confirmed cases,” according to Health Secretary Francisco T. Duque III. — Arjay L. Balinbin
Palace certifies CITIRA as urgent
THE measure lowering the corporate income tax (CIT) and streamlining fiscal incentives was certified as urgent Monday by President Rodrigo R. Duterte.
In a letter to Senate President Vicente C. Sotto III dated March 9, Mr. Duterte informed the chamber that Senate Bill No. 1357, or the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA) is deemed an urgent measure.
The tax bill is intended to “promote foreign direct investment inflows and the expansion of business ventures conducive to economic growth and job generation,” the President said in the letter.
The certification allows the Senate to approve a measure on second- and third reading on the same day, doing away with the required three-day interval.
CITIRA is currently being considered by the Senate in plenary session, with two session days remaining before Congress goes on a seven-week break between March 13 and May 3.
The bill will gradually reduce the CIT to 20% by 2029 from the current 30% and grant an income tax holiday of two to four years. After the tax holiday, qualified companies will have to pay a special corporate income tax of 8% this year; 9% in 2021; and 10% in 2022 based on gross income earned (GIE), in lieu of all national and local taxes.
Senate President Vicente C. Sotto III has said the measure may be set aside in favor of measures to deal with the coronavirus outbreak.
The Philippine Economic Zone Authority (PEZA) has also asked the chamber to delay the passage of the CITIRA as exporters are affected by the outbreak.
“Ang aming pakiusap sa Senado wag po natin i-railroad ang CITIRA (Many have called on the Senate not to railroad CITIRA) but to carefully study it because our export industries, clients of PEZA, are the most affected,” Director General Charito B. Plaza said during a Senate Economic Affairs Committee hearing Monday.
The Action for Economic Reform (AER) called PEZA’s position as a “most reckless, most irresponsible act.”
“The main reason behind the lacklustre investment performance last year was the investor uncertainty created by the needless delay in the deliberations on CITIRA. Investors just want to know what the final rules are, and they will immediately make investment decisions,” AER coordinator Filomeno Sta. Ana III said in a statement Monday.
The measure forms part of the administration’s comprehensive tax reform program, alongside the proposals to simplify the tax structure for financial instruments, provide a uniform framework for real property valuation and assessment and increase the government share from the mining revenues.
The government has so far enacted a tax measure that slashed personal income tax rates and increased or added levies on several goods and services — the main component of the tax reform package — and another one that grants estate tax amnesty and amnesty on delinquent accounts left unpaid after final assessment. It has also moved to increase excise taxes on alcohol products and conventional and electronic cigarettes. — Charmaine A. Tadalan
SEIPI bats for perpetual 7% GIE tax rate
THE electronics industry said it is lobbying for lower tax rates on gross income earned (GIE) as well as perpetual entitlement to this incentive for exporters, both of which would represent a more generous tax treatment than the GIE incentives proposed in a pending tax reform bill.
In a revised position paper sent to reporters Monday, the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) said that it supports the Senate version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) with its preferred GIE terms.
CITIRA legislation proposes to gradually lower corporate tax rates while rationalizing incentives. The Senate version of the bill is pending, after the House passed its measure last year.
“We are still concerned that moving forward with this version will have detrimental effects on our electronics industry, investments and employment, as a result,” SEIPI said in the statement.
SEIPI said it is seeking a perpetual tax of 7% on GIE in lieu of all taxes for export enterprises instead of the time-bound concessional tax rates in the Senate bill.
SEIPI had been asking for an extended transition period of 7-10 years for holders of current incentives, after a four-year income tax holiday, for a total of up to 14 years.
Senate Bill No. 1357 sponsored by Senator Pilar Juliana S. Cayetano grants an income tax holiday of two to four years. After this, companies pay a special corporate income tax of 8% this year, 9% in 2021, and 10% in 2022 based on GIE, in lieu of national and local taxes.
Companies currently enjoy a four to-six year income tax holiday, after which they pay 5% GIE.
The bill proposes a two to seven-year transition period for companies that already avail of the 5% GIE.
Ten business groups and professional organizations, including the Management Association of the Philippines and the Makati Business Club, last week expressed their support for the current version of the bill.
Marie Genevieve L. Bautista, SEIPI Industry Analyst, said in a phone interview that a longer transition period would soften the blow for SEIPI companies because of the increased tax rate.
She said Vietnam offers a 16-year period for investors to enjoy incentives.
“Our companies are efficiency seekers so it’s actually quite easy for them to transfer to Vietnam if they choose to.”
She said the perpetual tax of 7% on GIE follows the lead of proposals made by Senator Ralph G. Recto last week.
Ms. Bautista added that SEIPI plans to submit its revised position paper to the Senate this week.
SEIPI also asked to change the terms of eligibility for a seven-year transition period, lowering the export threshold norm to 90% from 100%.
“Not all of our companies are at 100% export sales. Some are at 93%-95%. Although we understand that this provision is to encourage exports, these companies who service the domestic market pay regular Corporate Income Tax (CIT) on their domestic activities,” Ms. Bautista said. — Jenina P. Ibañez
PECO seeks ERC to reconsider revocation of authority to operate
By Victor V. Saulon
Sub-Editor
PANAY Electric Co., Inc. (PECO) has asked the Energy Regulatory Commission (ERC) to permit the distribution utility’s continued operation in Iloilo City while the area transitions to a new franchise holder, after the regulator revoked PECO’s authority to do so.
“This morning we filed with the ERC an urgent motion for reconsideration” relating to the revocation, PECO legal counsel Estrella C. Elamparo said in a briefing Monday in Manila.
She said the ERC had been misled into the impression that MORE Electric and Power Corp. now has control over the operations of the city’s power distribution.
The ERC filing is the latest development in the dispute between PECO, Iloilo City’s power distributor since 1923, and the new franchise holder of that service, businessman Enrique K. Razon, Jr.’s MORE.
In its motion, PECO said it was “unofficially” shown by MORE on March 6 the ERC resolution revoking its certificate of public convenience and necessity (CPCN). The resolution was issued on March 5 by ERC Chairperson and Chief Executive Officer Agnes VST Devanadera.
The ERC said it had revoked the CPCN after determining that MORE had established or acquired its own distribution system, and after verifying that Mr. Razon’s company has transitioned to full operations.
In its resolution, the ERC also issued a provisional authority to MORE to operate the city’s distribution network and to implement the last approved distribution charges of PECO.
However, PECO’s legal counsel said the ERC had relied on the supposed issuance of a writ of possession in favor of MORE and its “purported findings.” It said the evidence relied upon by the commission is “based on shameless misrepresentations” by MORE.
“If not reversed, the Resolution would cause serious confusion among the consumers of Iloilo and trigger violations of contractual obligations, not to mention eventual disruption of electricity in Iloilo,” PECO said.
Ms. Elamparo said she remains hopeful that the ERC would reverse its order and reinstate PECO’s provisional CPCN and revoke the provisional authority issued “by mistake” to MORE.
Aside from the filing with the ERC, she said PECO had filed an urgent motion before the Court of Appeals (CA) for a temporary restraining order (TRO) and put on hold the writ of possession issued by a regional trial court in Iloilo that prompted MORE to start taking over the power distribution assets.
“Although it’s just a temporary restraining order that restrains the doing of future acts, there is a principle called status quo ante, meaning a TRO can restore the parties to the status prior to the controversy, especially if the acts were performed after an application for TRO was already made,” Ms. Elamparo told reporters after the briefing.
She also said PECO has a pending application, filed earlier this year, for franchise renewal. She said the application “could still move.”
“We’re hopeful it will move,” she said.
Marcelo U. Cacho, PECO head of public engagement and government affairs, said the company has two years after the issuance of the CPCN in May 2019 to operate as Iloilo’s distribution utility.
“So that means up to May of 2021, so that’s a lot of time, that’s still over a year,” he said.
Ms. Elamparo said MORE has two years after the grant of its franchise on Feb. 14, 2019 to “legally and completely” take over or build up its own facilities, otherwise its franchise will be automatically revoked.
Asked whether PECO is willing to settle, Mr. Cacho said, “I think the best settling for them is, they build their own facilities and we can compete,” he said.
He said the last appraisal made by PECO on the value of its power distribution assets was made in 2018, although the company has since invested in more equipment, including enhancements in its substations.
“The valuation we got was P4 billion,” he said about the appraisal done about two years ago.
Ms. Elamparo said the deposit made by MORE for the distribution assets was “grossly insufficient” at just a little over P500 million.
She said a case remains pending at the Supreme Court after MORE questioned a judgment issued by a Mandaluyong regional trial court that declared the expropriation of PECO’s power assets as unconstitutional and illegal.
She said MORE should have waited first for the high court’s decision instead of asking the Iloilo court to issue the writ of possession.
Moody’s retains PHL growth view at 6.1% after downgrades elsewhere
MOODY’S Investors Service said it maintained its growth outlook for the Philippines after trimming its forecasts for other economies to factor in the impact of the coronavirus (Covid-19) outbreak.
In its Global Macro Outlook March 2020 Update report, Moody’s said that global consumer and business activity could be dampened due to contagion fears.
“The longer it takes for households and businesses to resume normal activity, the greater the economic impact,” Moody’s said in its report on Monday.
Moody’s has reduced its Gross Domestic Product (GDP) growth forecast for China to 4.8% from the previous estimate of 5.2%.
It also reduced forecasts for Japan and South Korea to 0 and 1.4% from previous estimates of 0.3% and 1.9% issued in February.
Asked whether it has updated its forecast for the Philippines, Moody’s maintained its February estimate, in which it had downgraded the GDP growth forecast to 6.1% from the 6.2% estimate last year.
Moody’s projects 6.4% growth in 2021.
Both 2020 and 2021 forecasts are better than the 5.9% rise seen in 2019 but still below the 6.5% to 7.5% official target range for both years.
On Monday, National Economic and Development Authority (NEDA) Undersecretary Rosemarie G. Edillon said in a Senate hearing that NEDA’s estimate points to an economic growth range target of 5.5% to 6.5% under a prolonged-outbreak scenario.
Socioeconomic Planning Secretary Ernesto M. Pernia said that last week that the outbreak could dent GDP growth by up to one percentage point if it persists until year’s end. This incorporates a scenario where Chinese tourist arrivals fall to zero and other foreign arrivals decline by 10%.
In its report, Moody’s said that global recession risks have risen with its baseline forecasts considering scenarios assuming disruption in the first half of 2020 followed by some recovery in global factory production and consumer demand in the second half; and warmer weather in the Northern Hemisphere that could minimize the spread of the virus.
It also said that fiscal and monetary policy measures could be of help to curtail possible damage to economies.
“Policy announcements from fiscal authorities, central banks and
international organizations so far suggest that policy response is likely to be strong in affected countries,” Moody’s said.
“The Federal Reserve’s decision to cut the Federal funds rate by 50 basis points (bps) and the announcements from the European Central Bank and the Bank of Japan assuring policy support will limit global financial market volatility and partly counter the tightening of financial conditions,” it added.
The Bangko Sentral ng Pilipinas cut rates by 25 bps on Feb. 6 as a preemptive measure against an economic slowdown that could be triggered by the virus.
Overnight deposit, overnight reverse repurchase, and overnight lending facilities have been reduced to 3.25%, 3.75% and 4.25%, respectively.
The Monetary Board will have another policy-setting meeting on March 19.
Governor Benjamin E. Diokno has said that Covid-19, the surprise cut by the Fed, as well as lower-than-expected 2.6% February inflation will be considered in the next monetary policy decision.
In a separate note, ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said that the tourism industry may have to bear the brunt of the virus more than other sectors.
“One area that will likely be affected would be the job security of Filipinos in the tourism sector with the government readying measures to support the industry,” Mr. Mapa said, noting that the Department of Tourism is looking to tap domestic tourism to take up the slack in foreign arrivals.
The Asian Development Bank has said that the Philippine may lose up to $2.25 billion or 0.68% of GDP in tourism revenues.
In February, NEDA released an estimate of potential losses of about P22.7 billion per month in tourism revenues. Meanwhile, the Department of Tourism’s estimates are at P42.9 billion worth of lost business from February to April from flight cancellations and event postponements.
Mr. Mapa also noted how the peso continued to be resilient despite the projected losses in foreign currency inflows and based on assessments that the country has relatively lower exposure to China, the ground zero for the virus, in terms of tourism and trade.
“The peso continues to outperform regional peers given analysts’ expectation that the Philippines will be the least impacted by Covid-19 given its relatively lower exposure to China in terms of tourism and trade,” Mr. Mapa said.
“The answer could be that the projected loss of tourist receipts will be offset by the expected foreign exchange outflows from Filipino jetsetters,” he added.
The peso closed at P50.58 to the dollar on Monday, against a P50.64 trading close Friday, according to the Bankers’ Association of the Philippines. Analysts said the peso’s strength is fueled by the dramatic drop in oil prices due to declining demand arising from the outbreak. — Luz Wendy T. Noble
LGUs need to take the lead on ASF, DA says
LOCAL Government Units (LGUs) need to take the lead as “first responders” in containing African Swine Fever (ASF) after the spread of the disease nationwide, Agriculture Secretary William D. Dar said.
In testimony before the House, Mr. Dar said the Department of Agriculture’s (DA) mandate requires it to regulate imports and monitor ports of entry, but LGUs need to be prepared for local outbreaks in the various provinces and towns.
“(The DA is) only first responder in international ports, seaports and airports. However, if it occurs in their respective provinces, the local government units should be the first responders,” Mr. Dar told a House joint hearing of the Agriculture and Food and Local Government committees.
At the hearing, Mr. Dar said as of March 2, ASF has been detected in 625 barangays across eight regions, with 237,406 animals culled as a preventive measure against the outbreak.
Mr. Dar said some hog traders have been persistent in selling infected animals, complicating containment efforts.
“Madali sana patayin ang virus sa isang area. Pero kung tinitinda mo pa rin sa isang lugar ang baboy (It should have been easy to contain the virus in one area. However, if hog traders still sell these infected hogs, how can we stop that)?” Mr. Dar said.
Mr. Dar added that some measures to address the ASF outbreak have failed. He added that some agencies have underperformed.
Undersecretary Ariel T. Cayanan added that the more serious concerns that need to be addressed relate to the trading and movement of pigs.
Meanwhile, the committees were told that ASF was not included in the routine conditions tested for by the Food and Drug Administration (FDA).
Director Pilar Marilyn P. Pagayunan of the Center for Food Regulation and Research of the FDA, confirmed that ASF food inspections are deputized to the National Meat Inspection Service (NMIS) and the Bureau of Animal Industry (BAI).
The committees were also told that the FDA is only responsible for checking processed pork products while NMIS only inspects raw pork material.
AGAP Party-list representative Rico B. Geron called for stronger action from the national inter-agency task force dealing with the ASF outbreak. — Revin Mikhael D. Ochave
Agricultural trade falls in fourth quarter on import decline; exports rise
INTERNATIONAL trade in agricultural goods fell 4.8% year-on-year to $5.06 billion in the fourth quarter of 2019, with exports growing and imports declining, the Philippine Statistics Authority said (PSA) said Monday.
Exports rose 6.6% year-on-year to $1.63 billion while imports fell 9.4% year-on-year to $3.43 billion.
In the fourth quarter, the top three agricultural exports were edible fruits and nuts and peel of citrus fruits or melons, which accounted for 39.4% of total agricultural exports or $643.85 million. These were followed by animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes at 13.5% of the total or $220.23 million; and preparations of vegetables, fruits, nuts or other plants at 9.9% of the total or $162.17 million.
The top three agricultural imports were cereals at 15.5% of the total or $531.91 million; miscellaneous edible preparations at 11.9% or $407.39 million; and prepared animal fodder at 11.8% of the total or $404.30 million.
In a text message, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the increase in agricultural exports was due to improved diplomatic and business links with foreign markets.
“Agricultural exports in 4Q 2020 grew by 6.6% (on) improved diplomatic/business relations with major… export markets such as Japan, China, South Korea, and other Asian countries that are the biggest buyers of the country’s agricultural exports in recent years, as well as the further diversification of the country’s export markets to more countries around the world,” Mr. Ricafort said.
However, Mr. Ricafort said the decline in agricultural imports was due to the adverse effects of the global economic and trade slowdown caused by the lingering effects of the US-China trade war, which reduced demand and prices of oil and other major global commodities being imported by the Philippines.
“These events caused the year-on-year decline in the dollar value of agricultural imports,” Mr. Ricafort added.
In an e-mail interview, UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion expects the decline in agricultural trade to continue due to, among others, the coronavirus outbreak (Covid-19).
“It is expected to be further challenged as 2020 started with various potential shocks such as the impact of Covid-19 on the demand for Philippine agriculture exports and local demand for imports moving forward,” Mr. Asuncion said.
Mr. Ricafort added that the global coronavirus outbreak will hit agricultural trade and dampen overall economic growth.
“Potential headwinds for Philippine agricultural exports and imports, especially the expected economic slowdown in China, which is the world’s second-biggest economy and among the biggest export markets for the Philippine agricultural exports such as tropical fruits (like) bananas and pineapples and other agricultural products,” Mr. Ricafort said. — Revin Mikhael D. Ochave
Fitch sees telco capex needs delaying deleveraging
FITCH RATINGS said the increased capital expenditure (capex) by PLDT, Inc. and Globe Telecom, Inc. in 2020 will delay their deleveraging despite higher revenue from data and the more stable competition observed in the last quarter of 2019.
In a statement e-mailed to reporters Monday, Fitch Ratings said that it has a negative outlook on the Philippines’ telecommunications sector for this year, reflecting its expectations “that average FFO (funds from operations) adjusted net leverage will rise towards 3.0x in 2020.”
Fitch noted that the capex push by both Globe and PLDT “will delay” their deleveraging despite their strong performance in the last quarter of 2019, driven by “accelerating data monetization and more stable competition.”
It said it expects the Philippine telco firms to “grow by the mid-to-high single digits” this year.
Globe is keeping its capital spending target at P63 billion this year, which includes spillover of commitments from 2019. The amount is 23.5% higher than its spending last year, as it continues to expand and enhance its network.
PLDT, for its part, is allocating P83 billion, up 36.1% from a year earlier. The company aims to serve better the “fast-growing” data usage of its customers.
“The resultant increase will take telecoms capex to above 40% of total revenue, amongst the highest within Fitch’s Asia-Pacific telecoms portfolio. Both PLDT and Globe had revised their debt/EBITDA (earnings before interest, taxes, depreciation and amortization) covenant ratio in their bond trust indentures over the past 12 months, increasing their financial flexibility to raise more debt to fund future capex,” Fitch noted.
It added: “Fitch believes deleveraging would depend on the flexibility to manage their balance-sheet strength. PLDT and Globe had previously cut dividends to payout policies of respective 60% and 60%-75% of the previous year’s core income.”
Fitch said in November that telcos were expected to spend more than they can generate internally over the next 18 months as they turn more to debt to fund capex.
It said it expects “intensified” competition with the entry of China-backed DITO Telecommunity Corp., which hopes to capture nearly a third of the market in two to three years.
“However, the newcomer’s pledge to provide coverage for 37% of the population by July 2020 (with 27Mbps minimum broadband speed) and up to 84% by 2024, suggests limited coverage in the short-term,” it noted. — Arjay L. Balinbin
House bill filed penalizing bulk cash smuggling
A MEASURE penalizing bulk cash smuggling and adding to the Anti-Money Laundering Council’s (AMLC) powers against money-laundering was filed in the House of Representatives Monday.
House Bill 6516, which if passed will become the Anti-Bulk Cash Smuggling Act, was filed by Albay Representative Jose Maria Clemente S. Salceda, Nueva Ecija Rep. Estrellita B. Suansing, AAMBIS-OWA Partylist Rep. Sharon S. Garin, Sultan Kudarat Rep. Horacio P. Suansing, Muntinlupa Rep. Rozzano Rufino B. Biazon and Marikina Rep. Stella Luz A. Quimbo.
The bill seeks to expand the coverage of the Anti Money Laundering Act (AMLA) to include one-time cash transport of more than P500,000 or its equivalent in foreign currency at any one time.
To ensure that the evasion of a paper trail for cash transfers “is not tolerated under the law”, the bill seeks to criminalize bulk cash smuggling.
The bill also appoints the National Treasurer to the AMLC to facilitate inter-agency cooperation.
Escorting cash smugglers will also be deemed conspirators in the crime of smuggling cash.
The measure also expands the AMLC’s powers of surveillance over airports and ports and permits civil forfeiture in favor of the Philippines of assets seized in cases of cash smuggling.
Quirino Rep. Junie E. Cua, who chairs the House committee on banks and financial intermediaries, said that the foreign currency declaration form does not ensure that the “one carrying the money is really the owner of the money.”
“It looks like this form… just triggers further investigation. It does not in any way compel a process of verification whether the declarations, as to source, as to purpose are truthful or not. There is no such mechanism at the moment that is put in place so that government will be able to find out where these money is really coming from,” he said in a House hearing Monday.
One of the provisions of the bill is to make declarations of cash transports “under oath”, which “effectively making misdeclarations perjurious.” — Genshen L. Espedido
Empowering taxpayers during tax assessments
March is International Women’s Month; we are celebrating the contributions of women to society, upholding women’s rights, and advocating women empowerment.
Speaking of empowerment, the Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) No. 15-2020, directing all revenue officials and employees to provide a printed copy of the procedures in a tax assessment. RMC No. 15-2020 intends to inform taxpayers on the proper procedures in responding to a deficiency tax assessment arising from the conduct of an audit or investigation. Printed guidelines detailing the procedures shall be furnished to the taxpayer; and the revenue officer is required to fully explain the contents to the taxpayer. The RMC was issued in line with a BIR campaign to empower taxpayers with a clear understanding of their rights to due process on administrative protests at the beginning of the audit or assessment.
The BIR’s efforts in highlighting taxpayers’ rights to due process were lauded when the Bureau issued Revenue Regulations (RR) No. 7-2018, restoring the provision on Notice of Informal Conference (NIC). The provision was restored to give the taxpayer an opportunity to present his or her side of the case. The NIC stage provided in RR No. 12-99 was previously revoked by RR No. 18-2013.
During the effectivity of RR No. 18-2013, no other discussion could take place after the Letter of Authority (LoA) is served to the taxpayer and the documents are provided to the BIR. After the documents are evaluated and the BIR determines that there is sufficient basis to assess the taxpayer for deficiency tax, a Preliminary Assessment Notice (PAN) is issued. The taxpayer was given only 15 days to respond, after which a Final Assessment Notice (FAN) was promptly issued and the taxpayers would either need to pay the assessment or file an administrative protest. After five years of effectivity, the BIR recognized that RR No. 18-2013 was demanding and that doing away with the NIC stage made the assessment process more challenging instead of more efficient.
As a tax practitioner handling mostly assessment cases, I have come to appreciate the restoration of the NIC in RR No. 7-2018. Discussing the itemized audit finding in an assessment is not easy with the constant, back-and-forth discussions with the BIR on the factual and legal basis of the taxpayer’s contentions. The issuance of RMC No. 15-2020 bolstered the purpose of RR No. 7-2018: to give the taxpayer the opportunity to present their case and exercise their right to due process. RMC 15-2020 prescribes how taxpayers are to be informed of the procedures in responding to the issuance of deficiency tax assessments arising from the conduct of an audit or investigation. Printed guidelines, as provided in Annex A of the RMC, must be furnished to the taxpayer during the Discussion of Discrepancy stage of the assessment. More importantly, Annex A also clearly identifies the type of assessment documents that must be issued by the BIR and the proper BIR official who must issue such assessment document.
Any findings of discrepancies or disallowances that may lead to deficiency assessments that were discovered during the audit or investigation by the BIR are to be sent in a “Notice of Discrepancy.” The contents of the Notice must be explained by the BIR to the taxpayers or their authorized representative during the Discussion of Discrepancy. If the taxpayer agrees with the audit findings as presented and explained, the taxpayer may sign the “Agreement Form” and pay the deficiency taxes, including penalties and interest.
Currently, the BIR issues the NIC and, if the taxpayer does not contest the findings, the amount contained in the NIC will be settled by the taxpayer. I have encountered several cases wherein the Notice of Informal Conference was sent accompanied by some sort of agreement form, where options were presented to the taxpayer: if the taxpayer fully subscribes to the findings, if the taxpayer does not subscribe, or if the taxpayer wants to avail of other administrative and legal remedies.
Aside from the NIC, discussions between the taxpayer and the BIR are encouraged in order to duly inform the taxpayer of their assessment. Based on my experience, there are many issues that can be resolved at this stage, considering the BIR and the taxpayer can freely discuss issues that can be easily resolved. In cases where an Improperly Accumulated Earning Tax (IAET) is being assessed, for example, the taxpayer can present proof that its ultimate parent is a publicly held company or that a loan agreement exists, which restricts the company from declaring dividends unless the loan is paid. There are also other items in the assessment that can be easily cancelled if the proper explanation and evidence is presented, such as professional expenses that were not subject to withholding tax, because they were paid to General Professional Partnerships or certain compensation expenses that were not subject to withholding tax on compensation, because they were paid to minimum wage earners.
If these issues are properly explained and resolved during the discussion stage, there is no need to include these items in the deficiency assessment. The BIR and the taxpayer can concentrate on the more contentious items. More often than not, the taxpayer gets intimidated by the size of the deficiency assessment presented in the BIR’s initial findings; thus, making the task seem insurmountable and hopeless.
The new circular (RMC 15-2020) will be appreciated if the contents of Annex A are fully discussed with the taxpayer and both parties can properly follow the procedures. It is when the BIR deviates from the established procedures that the taxpayer gets lost and is unable to decide on a course of action. One can hope that the RMC will achieve its true purpose of reinforcing the right to due process of taxpayers. Sometimes, the taxpayer is powerless to contend with the discretionary powers of the BIR during the assessment and is left with no recourse in the event such discretion is exercised. To be empowered with the information given and explained during the initial stage is indeed a welcome step forward. I hope that with the issuance of the RMC the procedures outlined are followed, giving both parties clarity and guidance on the entire assessment process.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Gemmalu O. Molleno-Placido is a senior associate of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.