NEDA gives green light on cigarette stamp tax

Posted on October 29, 2009
 

The National Economic and Development Authority (NEDA) has just given the green light to the Bureau of Internal Revenue (BIR) to pursue negotiations with Swiss firm SICPA Product Security S.A. on the latter’s unsolicited proposal to introduce a fool-proof tax stamps technology on cigarettes and alcohol.

NEDA’s Investment Coordination Committee-Cabinet Committee (ICC-CC) said the SICPA proposal could “enhance excise tax collection for all locally-manufactured cigarettes sold in the domestic market and to reduce illicit trade in the country using an integrated technology solution.”

The committee said the BIR must undertake the negotiations in accordance with Built-Operate-Transfer Law.

The committee “advised” the BIR to subject SICPA’s proposal to a Swiss challenge.

“The BIR is then expected to notify the (NEDA) ICC of the result of its negotiation with the unsolicited proponent of the proposal, towards undertaking the Swiss challenge,” it said.

In a Swiss challenge, other proponents are invited to offer better proposals. The original proponent, however, has the right to match the challenger’s terms.

NEDA’s opinion on the SICPA proposal was sought last March after the Department of Finance (DOF) opted to freeze action on the unsolicited proposal.

“Kapag pumasa, BIR will implement the project with the unsolicited proposal. If not, BIR has options, BIR will offer it for a Swiss challenge or bid out the project,” a DOF official said.

The DOF official said the DOF wants the project to be implemented soon to improve its tax revenues.

A law mandating government to use fool-proof tax stamps on cigarette and liquor products has not been enforced for 12 years.

Finance undersecretary Gil Beltran earlier said the unsolicited nature of the SICPA’s proposal does not exempt the BIR from submitting the program to a bidding process.

Beltran also pointed out that SICPA is not the only foreign company that could offer such technology.

The BIR had endorsed SICPA Product Security SA’s unsolicited proposal to undertake a P10.12 billion tamper-proof tracking and inventory system for affixing excise stamps into cigarette products as they leave the manufacturing plants.

The Swiss firm made representations that its proprietary tracking and inventory system for cigarette products is tamper-proof and would benefit the government.

SICPA was later found, however, to have an operating capital the equivalent of only P56.4 million when the entire project should cost government P10.12 billion over a seven-year period.

It was also pointed out that SICPA’s financial statements submitted for evaluation of financial capacity do not comply with Philippine financial reporting standards.

SICPA said its proposal would guarantee additional revenues for government of at least P13.31 billion.

But SICPA’s state-the-art services could mean an expense of $193 million in fees to be charged from tobacco and liquor companies.

The fee is to be collected by the BIR from producers of tobacco and alcohol products for remittance to SICPA.

The foreign company expects to collect from the government another P2 billion in professional fees to be taken from the budget.

SICPA submitted its unsolicited proposal as early as Jan. 2, 2008. However, the BIR informed the DOF of the alleged acceptance of the proposal only on Oct. 14, 2008.

A local umbrella group of cigarette manufacturers and importers said the tax stamp technology being dangled by SICPA was “outdated,” “costly” and “unsecure.”

It said the system could wipe out its smaller members because of the huge cost of adopting it.

The Philippine Tobacco Institute (PTI) said the SICPA system is also vulnerable to counterfeiters which could duplicate or “mimic” even the most sophisticated paper stamps.

“In today’s world, paper stamps or stickers are an outdated, costly and not very secure technology,” PTI president Rodolfo Salanga told the House committee on ways and means during a previous hearing.

Salanga said SICPA has unhappy clients in Malaysia, Turkey and Brazil for failing to deliver on its promise of increasing customs revenues as attested by their affiliates.

WHAT'S IN BIR (LTS) UNIT THAT ATTRACTS MIRIAM & HUSBAND JUN SANTIAGO?

BY DENNIS GADIL (Malaya)

MANILA, October 5, 2009 - What’s in the Large Taxpayers Service (LTS) unit of the Bureau of Internal Revenue (BIR) that drives Miriam Defensor Santiago hell-bent in having it transferred under the supervision of her husband Narciso Santiago Jr., presidential adviser on revenue enhancement (PARE).

Sen. Santiago, chair of the Senate economics chair and Senate finance sub-chair, was fuming mad last week at Internal Revenue Commissioner Sixto Esquivias IV for refusing to turn over the LTS to her husband.

The LTS monitors and analyzes the tax payments of the Top 1,000 corporations and persons with a net worth of P300 million who pay an annual income tax of at least P1 million.

The LTS accounts for more than half of the BIR’s annual collection. This year, it is assigned 60 percent of the assigned goal of P798.5 billion.

At the budget hearing of the BIR, the woman senator said Esquivias has been ignoring Administrative Order 236 issued six months ago by President Arroyo’s which provides for the transfer of the LTS.

"What is your problem Mr. BIR Commissioner? What is your interest in the large taxpayers unit?" Sen. Santiago shouted at Esquivias.

Sen. Santiago said that in her presence, Arroyo reminded Esquivias to turn over the LTS to her husband during the President’s last visit to New York.

The senator recalled that Esquivias was overheard telling the President that Narciso as PARE should concentrate on companies and persons not covered by the LTS.

She said Esquivias also threatened to resign if the f the LTS was taken away from him.
"How dare you talk back to President that way? You know that the President has the absolute authority and control over this," Santiago said.

The senator hinted that the BIR chief was refusing to turn over the LTS because he was going to use it for his fund-raising campaign in next year’s elections.

"You’re so possessive of the large taxpayers unit. Are you going to use it for your campaign?" Santiago asked.

"No, I’m not running for public office," Esquivias said.

Santiago herself has declared she will seek re-election in May.

The BIR chief said he did not immediately implement AO 236 because he felt that "giving away" the LTS would be tantamount to abdicating his duties.

He, nevertheless, said he was in the process of making the turnover after recently receiving the go-ahead signal from Finance Secretary Margarito Teves.

Santiago said the turnover would just be an "internal procedure" and, thus, would not violate the mandate of Esquivias’ office.

She said the BIR should be abolished, saying it should be renamed as the "Bureau of Unexplained Wealth" because of many cases filed against revenue personnel who have allegedly amassed questionable wealth.

During the budget hearing, Esquivias was sandwiched between Teves and Customs Commissioner Napoleon Morales, who both appeared unsympathetic to the former’s travails.
Esquivias, at the end of Santiago’s outburst, promised to make the turnover "right away."
Sought for comment after the hearing, Esquivias said he was "depressed" as he has not been so embarrassed in his entire life.

Narciso, an Estrada administration interior undersecretary, was named PARE by Arroyo in 2004 but took office only in 2005. He was given the vague general mandate of helping the government’s two top revenue generators, the BIR and the Bureau of Customs, improve their collections.

In May this year, the President issued AO 236 expanding the PARE’s powers by authorizing him to run after suspected big-time tax evaders which are under the LTS.

"With the concurrence of the Secretary of Finance, he may initiate the filing of appropriate action, if warranted, against persons liable for the violation of pertinent laws, rules and regulations in relation to the Large Taxpayers Units," the AO said.

Narciso’s office was given a P10 million budget.

BIR insiders regarded Narciso’s appointment as redundant and was meant to undermine Esquivias, who was said at that time to be on the verge of being sacked for failing to meet revenue targets.
In defending the order, Executive Secretary Eduardo Ermita earlier said AO 263 should be taken "positively" since it is simply aimed at aiding the BIR in running after erring taxpayers

"It’s not that the presidential adviser on revenue enhancement has taken over the job of BIR. Precisely, that is the very purpose of his job, for enhancement of revenue collection. The PARE has direct contact with the President, and that will somehow show that there’s an effort for us to collect the taxes," Ermita said

The BIR has created six groups to monitor major industries covered by the LTS: manufacturing, banking and other financial intermediaries, insurance, real estate and trading, utilities and transportation, and other services

Last August, Sen. Santiago said in her Senate Resolution 1266 that her economics committee would hold public hearings on alleged anomalies in the collection of taxes by the LTS unit.
Santiago said she would summon the top 20 large taxpayers to a hearing to shed light on charges of inefficiency and corruption in the LTS.