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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.

pagrantthornton@ph.gt.com

Dignity of labor versus the capitalist ethos: equality or hierarchy?

In recent weeks, the internet has been bursting with viral stories on disgruntled labor: a Virra Mall security guard taking hostages and demanding that “his voice be heard,” a young girl enslaved as a POGO worker, Honda workers demanding a “dignified ending” and fair severance pay, and, workers of ABS-CBN protesting the non-renewal of the TV network’s franchise. In this piece, I argue that these recent events reveal that there is a clear conflict between the value for equality (i.e which informs the belief that there is dignity in labor) and hierarchy (or management prerogative as the foundation of the capitalist ethos).

THEORY OF ALIENATION
If Karl Marx were alive today, he would have described these recent displays of worker protest as indicative of “estranged labor.” In his theory of the alienation of labor, Marx claims that in capitalism, the laborer is “alienated” from the products that he or she produces, from his or her labor activity, from his or her essence as a human being, and, from other human beings. In other words, labor is objectified and the laborer is compelled to separate their labor from their “person.”

To quote Marx (1884): “It is true that labor produces for the rich wonderful things — but for the worker it produces privation. It produces palaces — but for the worker, hovels. It produces beauty — but for the worker, deformity. It replaces labor by machines, but it throws one section of the workers back into barbarous types of labor and it turns the other section into a machine. It produces intelligence — but for the worker, stupidity, cretinism.”

This kind of framing can help us understand how a security guard, sworn “to protect” by virtue of his job, ended up being “destructive.” Or, at the very least, it should lead us to ask: Why do workers have to go through such (violent) lengths just to validate one’s self and insist on one’s dignity as a worker?

HIERARCHY OF OCCUPATIONS
Ano’ng trabaho mo? Security guard lang. Kasambahay lang. Construction worker lang. Waiter lang. Titser lang. (What is your job? Just a secutiry guard. Just a house helper. Just a construction worker. Just a waiter. Just a teacher.) These declarations are commonplace and they all signify that some types of work — and thereby, some types of workers — are more important than others.

Even government data is heirarchical. In the latest (2012) Philippine standard occupational classification (PSOC) of the Philippine Statistics Authority, occupations are listed and ranked as follows: 1.) managers, 2.) professionals, 3.) technicians and associate professionals, 4.) clerical support workers, 5.) service and sales workers 6.) skilled agricultural, forestry and fishery workers, 7.) craft and related trades workers, 8.) plant and machine operators and assemblers, 9.) elementary occupations, and 10.) armed forces occupations, nongainful activities and special occupations.

Employment in the country is highest in “elementary occupations” (around 26% of all workers) and “service and sales workers” (around 15%). Elementary occupations are at the bottom of the classification list because they “involve the performance of simple and routine task which may require the use of hand-held tools and considerable physical effort.”

Service and sale workers are deemed higher in the classification as they “provide personal and protective services related to travel, housekeeping, catering, personal care…” but in terms of societal status, they are perceived to be of low status equal to those in elementary occupations (e.g. that security guard in Virra Mall).

Needless to say, those on top of the classification list receive higher wages than those at the bottom of the list. According to the Occupational Wages Survey of 2016, the top 10 highly paid occupations are: 1.) aircraft pilots, navigators and flight engineers, 2.) securities and finance dealers and brokers, 3.) civil engineers, 4.) actuaries, 5.) computer programmers 6.) system analysts and designers, 7.) computer engineers, 8.) accountants and auditors, 9.) production supervisors and general foremen, and, 10.) statisticians. The average monthly wage rate of the top occupation (pilots) is P116,714 while the rate of the top 10th (statisticians) is P41,480.

Those in elementary occupations receive a lot less. As of 2016, the average monthly wage rate of “unskilled workers” is P10,162.

Even the deployment of Filipino workers abroad is classified based on occupational groups. The trend is the same. As of 2018, of the 2,299,000 OFWs deployed, 37.1% were deployed to elementary occupations while 18% were deployed to service and sales.

GENDERED HIERARCHY OF OCCUPATIONS
The abovementioned classification of workers by occupational groups is based on international standards, specifically the United Nations’ international standard classification of occupations (ISOC). These standards are based on an assessment of the following: nature of work performed, formal and informal education and training requirements. In a nut shell, these standards are based on the level and extent of human capital development needed for particular economic activities.

In the global labor market, it is not only human capital that matters, but also gender. In the “race to the bottom,” human capital is not even the determinant anymore, rather, the worker must be low-skill and low-education (thus, often originating from developing countries), of a particular race (e.g Asian/Filipino), and of a particular gender (female). It is therefore not surprising that of the 1,284,000 Filipino women deployed overseas in 2018, 58.7% were in elementary occupations and 18.6% were service and sale workers. The men, meanwhile, were mostly plant and machine operators and assemblers (27.8% of 1,016,000 men deployed overseas).

Here at home, labor force participation is roughly 50% for women and 77% for men (2015 figures). Working women are found mostly in the services sector (71%).

Less than 40% of women in the labor force are said to be in paid employment while the rest are in unpaid jobs. As for the gender wage gap, there are studies that show that Filipino male workers earn, on average, P5,000 more than Filipino female workers.

Inequality in workplaces, thus, is not only based on class but also on gender.

OPTIONS FOR LABOR: EXIT VERSUS VOICE
A worker who is dissatisfied with his or her job has two options: exit or voice. The worker can opt to leave his/her job or raise their voice and demand for better working conditions. This option is said to be similar to eating in a restaurant: a dissatisfied customer can leave and eat in another restaurant or he or she could stay and negotiate with the chef so that the meal is adjusted to meet his/her satisfaction.

In the 1980s, American economists Richard Freeman and James Medoff theorized about the “two faces of unionism” (monopoly face and voice face) based on the exit versus voice choices of workers. According to these economists, the first choice was the “classic market mechanism of exit and entry, individual mobility” while the second choice was the more “political mechanism” as it entailed raising “voice” (i.e political participation and bargaining). The latter mechanism suggests that unionism is important for workers to negotiate with their employers either to determine wages (monopoly face or economic unionism) or to negotiate for the well-being of workers (voice face or political unionism). In both types of unionism, collective action, rather than individual action, is necessary. Recent episodes such as the hostage taking in Virra Mall should remind us that “voice” can come in many forms and that raising voice on an individual basis, no matter how radical or violent, is not likely to be very productive or effective. It is only collective action that will push employers — and governments — to narrow the inequality gap between capital and labor.

Perhaps, if the security guard in Virra Mall was a member of a strong labor union, he would not have needed to go to the extreme of hostage taking just to keep his dignity as a worker and to demand better working conditions. The collective voice, however, is necessarily composed of individual voices. In this sense, the voice of that security guard is hugely important. An individual voice may be needed to spark public interest but it is collective action that will uphold the dignity of labor — in all workplaces, and for all workers.

 

Carmel V. Abao is a faculty member of the Political Science Dept of the Ateneo de Manila University. She teaches political theory and international political economy.

State of the national health emergency

Last Saturday, March 8, President Rodrigo Duterte declared a nationwide state of public health emergency pursuant to a Department of Health (DoH) letter of recommendation from Health Secretary Francisco Duque dated Feb. 21 should local transmissions occur. The day before, we learned that the number of confirmed cases of COVID-19 in the country had risen to six, two of which were deemed locally transmitted. Yesterday, four more cases were confirmed. We’re now on alert level Code Red sub-level one. It means we’re one step away from the “possible sustained community transmission” of the virus, or Code Red.

The new alert level is a preemptive call to ensure that national and local governments, as well as public and private health care providers, can prepare for possible increase in suspected and confirmed cases. It alerts the public to stay calm, be situationally aware, and to fully cooperate with concerned government agencies to ensure the nation’s safety and general welfare. For her part, Vice-President Leni Robredo called for national unity and for the right information to be disseminated to the public to stop its spread.

What does Code Red require of everyone? This is what I came across:

“Under the Code Red Alert, the inter-agency should include more government agencies to expand its response to the spread of the viral infection. Selective contact tracing will be done. Vulnerable and high-risk groups will be the priority for testing and care. Authorities should intensify its awareness to minimize the fear, anxiety, and unrest of the public. The government should pursue a “sustained inter-agency, multi-level, whole-of-society coordination and response in its combat against the virus.”

To begin with, this is not the way to communicate with government stakeholders and the general public. They want to hear SPECIFIC instructions. Spell out up front what everyone needs to know. Selective contract tracing means we lack the capacity to cast a wider net; which means many will escape through the cracks; which means that many more out there are likely infected with the virus that we don’t know about. Who are the vulnerable and high-risk groups? How will they be tested? Random just doesn’t cut it. Do we have isolation centers for those under investigation and quarantine centers for confirmed cases? Where are they located, contact details, contact persons?

The government needs to improve the accuracy and quality of information it disseminates (transparency, timeliness, thoroughness). Mass and social media have much to contribute in this area. Make it reader-friendly, clear, crisp, concise. Forget the bureaucratic jargon that puts people in a bad mood. At the moment, the people sense that the information being dished out is inaccurate, late, incomplete; transparency is suspect on account of the attitude that “panic must be averted.” That mindset doesn’t prepare the public mentally for the worst case. It only tends to anger them. The more information we have, the better for mental preparedness and orchestration of specific “whole-of-nation” (government and society) prescribed responses.

The suspicion is instinctive that the figures being fed to us are underreported, considering that the risk posed by COVID-19 is due to our proximity to China. We’re at a far greater risk of witnessing increased cases of the novel coronavirus infection compared to other countries. The country hosts hundreds of thousands of students, tourists, workers (legal and illegal) from China. They’re engaged in Philippine Offshore Gambling Operations (POGOs), mining, micro-small enterprises, construction, supply chains and prostitution; most of them unlicensed or fronted by dummies. Additionally, we have over 230,000 Overseas Filipino Workers (OFWs) working in China and its autonomous territories, excluding South Korea, Japan, and Singapore.

The World Health Organization (WHO), the DoH, and local authorities keep reminding us to take care of our health and to protect others by doing the following:

1. Regularly and thoroughly clean your hands with an alcohol-based hand rub or wash them with soap and water.

2. Maintain social distancing at least one meter (three feet) distance between yourself and anyone who’s coughing or sneezing. They spray small liquid droplets and if you’re too close, you can breathe in the virus.

3. Avoid touching your eyes, nose, and mouth because hands touch many surfaces and can pick up viruses. The virus can enter your body and can make you sick.

4. Practice respiratory hygiene, and make sure that the people around you do too. Cover your mouth and nose with a bent elbow or tissue when you cough or sneeze. Dispose of the used tissue immediately.

5. Stay home if you feel unwell. If you have a fever, cough, and difficulty breathing, seek medical attention and call in so you could be directed to the right health facility.

Governments have responded in different ways. Common among them is travel restrictions — to and from cities, regions or countries — where the virus has reared its ugly head. China locked down specific areas; Italy followed suit. Japan canceled classes till April; Iran is dispensing with Friday prayers (equivalent to our Sunday Masses). Money is being washed and disinfected. Football matches are being played without the fans; classes are being held online. Foreign travel, public events, concerts, and conferences are being canceled. The Tokyo Olympics may fall victim too. In my case, I’ve indefinitely postponed a trip that I was planning for in June.

All that turbulence has devastated stock markets worldwide; trillions in market value have vaporized in the past two weeks. Bankruptcies and unemployment are rising. Malls are tail spinning; travel and tourism are in free fall. Manufacturing and global supply chains are experiencing steady disruption. Compounding matters are billions of locusts that are ravaging parts of Africa and South Asia. The steady plunge in supply and demand has everyone talking about global recession.

From a global pandemic to a global recession, all in one year. Did you ever think in your wildest dreams that 2020 would turn out this way? What else — global food shortages? WW3? That won’t surprise me any longer.

 

Rafael M. Alunan III is a former Secretary of Interior and Local Government and chairs the Philippine Council for Foreign Relations.

rmalunan@gmail.com

CITIRA vs. EODB

The Philippines made remarkable progress in the ranking of the World Bank’s Doing Business (DB) 2020 Report, from ranking 124th rising by 29 notches and landing at 95.

According to the DB 2020 Report, the Philippines has made significant improvements in three areas: starting a business, dealing with construction permits, and protecting minority investors.

Package 1a or the TRAIN (Tax Reform for Acceleration and INclusion) Law was supposed to improve as well our scores in paying taxes with the reduction of the number of income tax return pages from 12 to only four. But such an improvement was offset by the 100% increase in the DST (Documentary Stamp Tax) which means higher costs in doing business.

Unfortunately, the reduction in personal income tax didn’t make an impact as the DB Report monitors ease of doing business for corporations, particularly SMEs. Also, while TRAIN gave some tax relief to middle income earners, it penalized individuals with compensation or taxable income above P8 million by imposing the highest personal income tax rate of 35%.

The Comprehensive Tax Reform Program of the Duterte administration made its goal very clear — to have a simpler, fairer, and more efficient tax system. Although being competitive was not explicitly mentioned, with the amount of time and effort spent in improving ease of doing business and the passage of Ease of Doing Business (EODB) Law or RA 11032 in 2018, the government is committed to really making sure it’s easy and competitive to do business in the Philippines.

But it seems that our Senators and Congressmen overlooked EODB or our competitiveness ranking in drafting Package 2 or CITIRA (the Corporate Income Tax and Incentives Reform Act) as it proposes a reduction of corporate income tax (CIT) from 30% to 20% by 1% every year until 2029. This means improving our ranking in paying taxes will take 10 years — that is if other countries will not decide to further reduce their CIT, as Singapore’s is currently at 17% and the average tax rate in the Asean region is around 24%.

Since most business organizations and sectors have expressed their support for CITIRA, the following proposals will be in addition to existing provisions of HB 4157 and SB 1357. It may take another Congress to revise and pass CITIRA if the goal of making our tax system simpler, fairer and more efficient will be the basis of discussion or argument:

1. If the TRAIN Law included a small business provision, why not consider allowing the same optional 8% for small corporations but with a higher annual sales threshold, e.g., from P3 million to P10 million, so more small corporate taxpayers will declare true profit and pay the right taxes? This is far better than the 5% threshold of the Bureau of Internal Revenue (BIR). If we fail to consider this, a small corporation with annual sales of P3 million will be paying P86,000 more in total taxes since it will be subject to both business and income tax, 3% and 30% respectively, without the benefit of the P250,000 exemption which an individual or a sole proprietor enjoys under the TRAIN Law.

2. Instead of removing the Optional Standard Deduction (OSD) entirely, why not make it available to SMEs only so they will no longer be subject to the usual and costly BIR audit where most of their expenses are disallowed anyway? At the current 30% CIT, the effective rate of a corporation with 60% gross income rate which will use OSD is at least 10% versus the 2% threshold of BIR for income tax payment.

More than improving our competitiveness ranking, this will also help BIR collect more voluntary payments without the need for regular audit and investigation which is the usual suspect or window for corruption.

3. Inevitably, we need to legislate a VAT refund system which will allow at least small corporations to claim a cash refund for unused input tax. The World Bank DB Survey clearly requires this as it gives 50 points to countries with a VAT refund system. This is a big leap for the Philippines since we continue to get zero points in this aspect every year.

The government may have apprehensions about this considering the impact on the budget, but since the priority is to provide a VAT refund to small businesses, we can put a ceiling or threshold on it, e.g., a P100,000 refund per year and make it available only to small businesses. This will definitely favor start-ups and small businesses which will have to invest on truck or equipment during their first two years in operations but will not yet have enough sales to use the input tax. Instead, they may be given an option to avail of a VAT refund.

4. Although the TRAIN Law mentioned simplified bookkeeping, it didn’t address the overly burdensome and costly maintenance of Books of Accounts. For small businesses that will not avail of optional 8% tax, they should be given one book only to record their daily sales and expenses.

But for those who wish to use Excel or spreadsheet, they should be allowed to do so provided they e-mail a PDF copy upon filing of their quarterly income tax return to make sure they will not be able to alter the data provided. This will simplify the bookkeeping requirements, especially since as VAT taxpayers, they are already required to submit the Summary List of Sales and Purchases (SLSP) electronically.

At present, the BIR has three bookkeeping methods: manual, loose leaf, and computerized accounting systems. For the computerized accounting system, the BIR already allows the immediate use of it provided it is subject to post-audit. However, most taxpayers are required to use manual bookkeeping as a default method. This consumes much time and effort for small businesses since they have to manually record what their accountant has encoded using Excel or spreadsheets.

Therefore, making the spreadsheet a default bookkeeping method and having only one book as an option for small businesses will definitely improve EODB, and hopefully improve tax collections.

5. Although preparation of financial statements is management’s responsibility, the accountant and external auditor must be held accountable and equally liable for erroneous and material misstatement that unduly reduces profit and tax payments.

It’s quite ironic that most financial statements are audited but BIR will still find huge tax assessments. This is only possible if the revenues are understated or expenses are overstated which should have been detected by the independent auditor.

The five major points which can be added in the existing CITIRA bill will definitely make a major impact in our competitiveness ranking. It will be best though if reduction of CIT will go from 30% to 25% immediately, and then gradually to 20% rather than go down by 1% every year. This is not just about revenue collections, but fair and efficient taxation.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Raymond A. Abrea is a member of the MAP Tax Committee and MAP EODB Committee. He was recognized as one of the 2017 Outstanding Young Persons of the World, 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), and an Asia CEO Young Leader because of his tax advocacy. Currently, he is the Chairman and Senior Tax Advisor of the Asian Consulting Group (ACG) and founding Trustee of the Center for Strategic Reforms of the Philippines (CSR Philippines).

consult@acg.ph.

map@map.org.ph

http://map.org.ph

Thank you, Metro Manila water concessionaires

In a speech before new appointees in Malacañang on Feb. 6, President Rodrigo Duterte blasted again the two Metro Manila water concessionaires. He said, “Where is the money of the average Filipino who are poor who pays his water bill and he has to pay because if (not) it will be cut off? Where is the money of that son of a b****? Give us back the money. Give it back to the people and maybe we can talk about solving your problem.”

Last December, this column has actually provided some answers to those question (see https://www.bworldonline.com/thank-you-maynilad-manila-water/ Dec. 23, 2019). The table there is expanded here, and the quick answers to “where did the money go” are: the money went to improve service delivery to some 8.5 million additional consumers of both concessionaires, it added 1.66 million new water connections, it expanded 24 hours water service by 70%, and it reduced water leaks and theft by 43% (see Table 1).

Thank you, Maynilad and Manila Water. The public already got the services for the money they paid for. It cannot be “given back” to them or the government via the Metropolitan Waterworks and Sewerage System (MWSS).

In previous attacks by the President, he said that the contracts with the two concessionaires are “onerous” and not beneficial to the public and government. Let us check the numbers again.

One cubic meter (cu.m.) is 1,000 liters. One drum of water is 208 liters so one cu.m. is nearly five drums. Currently, lifeline customers or those consuming 10 cu.m. or less per month pay only P6.13/cu.m. and P9.63/cu.m. basic charges in Manila Water and Maynilad areas respectively. That is very cheap, thank you concessionaires.

If residents consume 11 to 20 cu.m. in a month which is a lot, they will pay only P11.13/cu.m. and P16.42/cu.m. for Manila and Maynilad areas, respectively (see Table 2).

The 11 cu.m. is equivalent to 54 drums of water in a month — that’s a lot and residents will pay only P121 and P170 in basic charges in Manila and Maynilad Water, respectively. That is not “onerous” or “abusive.”

Now, the continuing political harassment of these two water companies has affected them, banks have limited if not stopped lending to them, they will not have enough funds to develop even short-term solutions to the rising water demand.

Data from the Food and Agriculture Organization (FAO) showed that in 2017, the Philippines has natural water production of some 479 billion cubic meters (bcm), higher than those in Vietnam, Thailand, Japan, and South Korea and yet we do not hear of these countries experiencing “water crisis.” Our internal water production of 4,565 cu.m. per person per year is also higher than these four neighbors (see Table 3).

So natural water is there, lots of rain water during the wet months resulting in frequent flash flooding that kill many people and destroy properties. MWSS has failed to build dams to “harvest” and store this huge surplus water which just go straight to the sea. So the two concessionaires have to develop short-term sources of water but their funding is limited.

The President and his supporters should be grateful, not vengeful, to these two water companies. The concession agreement until 2022 should proceed without further harassment, and if possible, the concession extension until 2037 should be honored, not discontinued.

We need more risk-taking concessionaires developing more immediate water supply and charging cheap water rates, not more politics. We need more facts-based discussion of the issue, not more emotional and mindless outbursts.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

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