“Besides, can there actually be that much tax evasion when the BIR is actually on the floor of the manufacturing plants of cigarette companies, making sure that the proper taxes are levied and paid?”
by Ducky Paredes
by Ducky Paredes
At long last, Finance Secretary Margarito Teves has admitted that he is pushing the SICPA Products Security, S.A. contract with the Department of Finance despite the general congressional disapproval of the project. In fact, the committee report of the House Ways and Means Committee has resulted in House Resolution No. 345, sponsored by Chairman Rep. Exequiel Javier.
The Committee finds many things wrong with the SICPA Contract, which will be awarded to a Swiss company that submitted an unsolicited proposal under the Build-Operate-Transfer (BOT) Law
The BIR argues that it will collect an additional 52 centavos per pack on top of the excise and other taxes will be collected to pay SICPA. This will be at no cost to the government since the 52 centavos will be borne solely by the consumer and not by government. This is in effect an additional tax. This is wrong, says the Javier report, because only Congress can levy taxes.
Answers Teves: “I am saying Congress can test my judgment in the courts. As far as I am concerned, fees and charges are not in the form of taxes and, therefore, this does not need the approval of Congress.”
But, why even go into something that will add a burden to consumers unnecessarily?
According to the BIR, going with SICPA will stop tax evasion. So, how much tax evasion is there really in cigarette manufacturing when revenue agents tax cigarettes at the factory itself. SICPA claims that its system of strip stamps will generate additional revenue of P20 billion a year at a cost of U$266 million or just P2 billion. This will net the government P18 billion more per year! Yet, even before the project has been approved and accepted, the BIR told a congressional hearing that the cost would no longer be two billion pesos but P20 billion. The income it would generate would still be at the rate of $7 per thousand security stamps and a minimum of 20 billion stamps a year. Thus, the original cost of P0.30 per pack would now have to be P0.52.
One has to wonder what the actual cost will finally be specially because SICPA, the proponent, is only marginally funded and has no capital to see the project through without government assistance and government guarantees.
Besides, can there actually be that much tax evasion when the BIR is actually on the floor of the manufacturing plants of cigarette companies, making sure that the proper taxes are levied and paid?
According to a study done by De La Salle University, commissioned by the BIR and funded by USAID and which was cited by SICPA in its presentation, “there was not much of a difference between the potential and the actual collections.” So, why is Teves pushing the project so mightily if it will not increase government revenue? Why burden the consumer with a cost of P20 billion over seven years if the additional take of the government is, at best, nebulous?
In fact, the variance discovered by La Salle ranged only from P91 million to a high of P3.9 billion. But, SICPA says that it will increase revenue at the rate of P16.4 billion a year! Clearly, this is, at best, dreaming on the part of SICPA. It is even highly possible that the government will lose money on the deal even as it charges all of the costs and losses to the cigarette smoker.
Imagine, that the Finance Secretary’s father himself, former congressman and former Chair of the Ways and Means Committee, Reo. Herminio Teves opposed the project and advised the BIR to just ask the National Tobacco Administration how to convert a kilo of tobacco leaf into the number of sticks that can be produced. The Finance Secretary’s father opined that this would not cost the government or the consumer anything and it strengthen cooperation between government agencies besides giving the BIR a figure it could set for its collection efforts.
The Committee Report also notes that, in another case – that of PIATCO – the Supreme Court ruled: “The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be accepted, the following conditions must first be met: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by publication other interested parties to a public bidding and conducted the same.
“The failure to fulfill any of the above conditions will result in the denial of the proposal. The mere inclusion of a direct government guarantee in unsolicited proposals is fatal to the proposal. There is more reason to invalidate a contract if a direct government guarantee provision is inserted later in the contract after the said proposal has been accepted via a backdoor amendment. Such an amendment constitutes a crass circumvention of the BOT Law and renders the entire contract void, notwithstanding its separability clauses.”
So, why is the son of Herminio Teves still pushing this project that will surely raise money for the Swiss company but not necessarily for the Department of Finance, the BIR or the Philippines?
Says Secretary Teves: “Actually one thing the government can do, whether this one or the next, is to go ahead with the project. If it is not revenue helpful then anybody, including members of Congress, can subject this to a challenge in the Supreme Court.”
What a silly thought! If this is not “revenue helpful” we would be stuck once again with something we do not need – like the jeepney, the BNPP, the centennial center in Clark, the election machines of 2004 and a host of other white elephants.
Teves wants the Supreme Court to decide whether the SICPA technology could bring in promised increased revenues and curb smuggling and whether the fees that the Swiss firm would collect from tobacco companies could be treated as taxes.
Why not just have the SC run the Finance Department, then?
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hvp 12.21.09)Readers who missed a column can access www.duckyparedes.com/blogs. This is updated daily. Your reactions are welcome at firstname.lastname@example.org