Congress mulls tax break for ailing pre-need firms

Congress is considering giving distressed pre-need firms some tax relief to alleviate them of their financial burden and at the same time ensure the protection of the investing public.

An SEC official said lawmakers are studying the possibility of giving tax incentives to pre-need firms offering educational plans.

Lawmakers underscored the need to create a legislation that will address the concerns of ailing pre-need firms in view of the collapse of the Yuchengco-owned pre-need firm Pacific Plans Inc. and the huge trust fund deficiency of College Assurance Plans Inc.

The source of funding, however, might be a problem given the country’s huge fiscal deficit.

To promote transparency and cooperation among pre-need companies, planholders and regulators, some lawmakers have urged the Securities and Exchange Commission (SEC) to facilitate a dialogue among players of the industry and planholders to thresh out whatever problems they are facing now.

President Arroyo last week said the government will allocate P1 billion to public universities and colleges that take in students holding education financing plans with companies facing financial difficulties. Funding will come from the dividends paid by state pension fund Government Service Insurance System (GSIS) to the government, which has been struggling to reduce its hefty budget deficit through revenue reforms.

The distressed firms – College Assurance Plan (CAP) and Pacific Plans Inc. – have a combined planholder base of over 800,000.

To save the industry from extinction, lawmakers in both the lower house and the Senate have filed numerous bills that seek to establish a planholders’ protection fund, impose the fit and proper rule for directors and officers, require stronger penalties for offenses and set the grounds for suspension/revocation of licenses of pre-need firms.

The Bangko Sentral ng Pilipinas (BSP), however, has turned down proposals to extend assistance to pre-need firms which have run into serious financial troubles.

The Securities and Exchange Commission had said pre-need companies needed a liquidity window in the BSP to allow them to liquefy their assets and service their obligations to planholders.

The rediscounting facility allows banks to borrow money from the BSP using their government securities as collateral. The BSP also gives emergency loans to banks which are experiencing heavy withdrawals, with government securities as collateral.

Congress has been discussing a proposal to create an insurance corporation for preneed firms that will play a similar role as Philippine Deposit Insurance Corp. in the banking industry.

The proposed pre-need insurance corporation could be given the task of conducting periodic examinations of preneed firms and imposing fines on mismanaged companies.

Senator Manuel Roxas II has long been concerned over the lack of regulation in the preneed industry.

He also proposed placing preneed firms under the supervision of the Insurance Commission

Preneed firms blamed their financial troubles on the lifting of the ceiling on tuition increases in the early 1990s. Most of the preneed firms in trouble, specifically those focusing on education, sold open-ended plans, promising buyers to pay for the tuition of their children in full when the plans mature.