Protecting sin tax gains

Elated by the success of their hard-won campaign to overhaul the country’s excise tax system, civil society groups are now shifting gear from raising taxes on so-called “sin products” to ensuring proper collection and preventing tax evasion, particularly on cigarettes.

Anti-smoking advocate FCTC Alliance Philippines led by its president, Dr. Maricar Limpin, said that strict monitoring was crucial in protecting the gains of Republic Act 10351 or the Excise Tax Reform Law of 2013.

While higher rates resulted in record “sin tax” collections, the group recognized that tax evasion through underdeclaration of volume removals by unscrupulous cigarette firms was one of the biggest threats to sustained collections.

And if they’ll have their way, FCTC wants to help prevent such nefarious practices by offering their services to the Bureau of Internal Revenue (BIR) as third party monitors.

This arrangement is expected to prevent BIR personnel assigned to cigarette companies 24/7 from playing “deaf, mute and blind” to the illegal removal of cigarette products without paying taxes to the government.

With anti-smoking advocates helping as “gatekeepers,” tax evaders would think twice before they even try to sneak out cigarettes from their factory gates without paying taxes.

Strangely, FCTC’s proposal could benefit, instead of hurt, it’s arch-nemesis—tobacco giant PMFTC—who has long been advocating for third-party monitoring of cigarette companies claiming that its main competitor was engaged in massive tax evasion, which allows it to sell underpriced cigarettes at economically unsustainable levels.

But the juicier news is how the BIR will react to FCTC’s offer. Abangan! Daxim L. Lucas

Speaking of which…

Internal Revenue chief Kim Henares reiterated Tuesday that no agreement has been struck between tax authorities and Philippine Amusement and Gaming Corp. (Pagcor) regarding the controversial levies on locators at the Pagcor Entertainment City.

“No deal,” Henares said, saying she was standing pat on her strict interpretation of current tax laws.

The tax chief expressed doubt that the scheme proposed by Pagcor was robust enough to withstand legal scrutiny, in the first place.

Pagcor, meanwhile, clarified that in 2008 and 2009, its previous board issued provisional gaming licenses to four proponents of Entertainment City. These licenses required the proponents to pay to Pagcor license fees of 15 percent to 25 percent of gross gaming revenues. These license fees included a 5-percent franchise tax payable to the BIR. The licenses state that these license fees are in lieu of all taxes.

On April 17, 2013, the BIR issued Revenue Memorandum Circular No. 33-2013 clarifying that the proponents need not pay the 5-percent franchise tax but were liable for income tax.

Following the contracts entered into by the previous Pagcor board for the license fees to be in lieu of all taxes, the license fees were adjusted by 10 percent to range from 5 to 15 percent, instead of the original range of 15 to 25 percent, so that the proponents could give the 10-percent adjustment directly to the BIR as income tax.

The proponents will still pay a total of 15 to 25 percent of their gaming revenues to the government except that the 10 percent will be directly remitted to the BIR instead of passing through Pagcor. If the proponents pay income taxes greater than 10 percent of gaming revenues, then the proponents will end up paying more than 15 to 25 percent of gross gaming revenues to the government.

If the proponents pay income taxes lower than 10 percent of gaming revenues, they must still pay 15 to 25 percent of gross gaming revenues to the government. Thus, at the very least, this formula preserves the government’s financial benefits.

Meanwhile, Pagcor chair Cristino Naguiat Jr.—reacting to word going around that one faction in the government wanted him unseated—said: “That’s OK. I’m more than willing to give [the post] to them.” Daxim L. Lucas

Strategic partner

A mid-sized bank—which successfully weaned itself from government support recently—is rumored to be just about ready to take in a new strategic partner.

This bank, which was teetering on the verge of collapse after a massive bank run in the previous decade, has been fully rehabilitated and is now under new management.

But we understand that the new management is smart enough to know that size and scale is important if it is to be (even more) successful in the cutthroat world of banking.

At the same time, however, the new management is not ready to just sell the bank, which it nursed back to health over several years. As such, it is not ready to sell the bank to another financial institution, which is only out to get its branches (and will most likely not pay a significant premium for it).

The solution: Bring in a strategic partner—specifically, an “industrial group”—which will have significant synergies with the bank’s present business.

And what industry is this strategic partner involved in? The word on the street is … retail. A big retail chain, to be exact. Watch this space, folks. Daxim L. Lucas

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