Gov’t borrows P1.8-B to pay excise tax share of tobacco provinces

The Arroyo administration borrowed P1.8 billion through the issuance of five-year certificates to pay for the share of tobacco-producing areas in the proceeds of the excise tax on tobacco.

The transaction was concluded today, with the Land Bank of the Philippines (LandBank) appointed as the trustee that would securitize the receivables of local government units (LGUs) qualified to receive a share of the excise tax.

Under Republic Act 7171, regions that produce Virginia tobacco were entitled to a share of the excise tax being collected by the government from tobacco manufacturers.

However, the Arroyo administration’s budget deficit forced it to miss payments of this share to tobacco regions for two years. The securitization of these receivables would allow the government to release the funds without carving a P1.8-billion hole in its already stressed budget.

According to the Bangko Sentral ng Pilipinas (BSP), the Monetary Board (MB) approved the issuance in its meeting last week although the board granted only two eligibilities to the government notes.

The securitization of LGU receivables was undertaken through the issuance of the so-called Tobacco Excise Tax Receivable (TEXTR) Investment certificates. This instrument represented the unreleased shares of tobacco-producing areas in the tobacco excise taxes for the years 2001 and 2002.

"Essentially, the National Government recognized this obligation to tobacco-producing regions," Finance Undersecretary Nieves Osorio said. "But since the NG can not afford to pay for it because of budgetary constraints, an alternative way of raising the money became necessary."

Essentially, LGUs were given the option of monetizing their receivables from the NG by assigning their notice of payment schedule (NPS) to the LandBank which would then issue TEXTR investment certificates that it could sell to investors.

The maturity of the certificates was aligned with the schedule of payments of the Department of Budget Management (DBM) which said that it would be able to settle the NG obligation to tobacco regions by 2005.

The proceeds of the certificates would be given to qualified LGUs for use in development projects and programs in the tobacco-producing regions of the country.

Essentially, investors would be advancing the money that government should have released to tobacco areas. When the certificates mature in five years, the Land-bank will pay back investors the amount they invested plus interest.

On the other hand, BSP Deputy Governor Alberto V. Reyes told reporters that the MB only gave two eligibilities to the TEXTR certificates. He said that banks could buy the instrument and count it as part of the liquidity floor for government deposits and they could also count it as security for the faithful performance of trust duties.