A number of faithful readers of this column called our attention to a news item which reported that the beleaguered Securities and Exchange Commission (SEC), now under congressional scrutiny because of the Legacy group scandal, has approved the plan of the Philippine Racing Club, Inc. (PRCI) to raise P55.4 million through a stock rights offering.
The amount, which PRCI hopes to raise via the issue of more than 15 million shares to stockholders of record, is ostensibly being eyed for the completion of its racetrack in Cavite. The new racetrack is supposedly a replacement for the P12-billion Sta. Ana racetrack.
The announcement has triggered the resurrection of a long-running controversial issue that a faction of the PRCI board identified with Malaysian business interests have left unanswered.
One major issue that has really roused the business community is the reported bid by the Malaysian-backed faction of the PRCI board to run away with nearly half a billion pesos in value- added tax exemptions that had Finance Secretary Gary Teves fuming mad.
It will be recalled that the VAT exemption was in connection with the controversial transfer of the ownership of the Sta. Ana racetrack property to a holding firm called JTH Davies which is owned and controlled by the Malaysian-backed faction of the PRCI board led by Santiago Cua Sr. a.k.a. Cua Sing Huan.
The transfer has been opposed by a crusading group of Filipino shareholders led by the respected Puyat family which had questioned the alleged lack of transparency and disregard for shareholder rights following the controversial property transfer.
The Cua faction includes Thai-Malaysian-Chinese businessman Surin Upatkoon, who reportedly flew into Manila just before Christmas. Upatkoon was reported to have figured in the scandalous take-over of Thailand’s largest conglomerate Shin Corp. by the Singaporean firm Temasek Holdings. Bangkok authorities have been investigating Upatkoon on suspicions that he allowed his firm Kularb Kaew to be used as a front in the disputed take-over.
Upatkoon represents the Kuala Lumpur-based gaming firm Magnum Holdings in the PRCI board. The Cua faction actually managed to get a certification from then BIR chief Lilian Hefti that the transfer of ownership was “considered a tax-free exchange of properties”.
With the Hefti certification, the Cua faction could have run away with just a payment of documentary stamps in the amount of less than P2 million.
But the alert Secretary Teves got wind of the impending VAT exemption and promptly ordered Hefti to stop the move that would have deprived the country of close to half-a-billion pesos in VAT revenues.
The fuming Finance chief told Hefti that her tax ruling “fails to state the reasons or the legal bases why the transfer transaction qualifies as a tax-free exchange” which is usually done in such rulings. Neither did the Hefti certification state “why transaction is not subject to value added tax,” Teves pointed out through his undersecretary for legal and revenue operations, Estela Sales.
Teves thus ordered Hefti to re-examine the factual and legal bases of her controversial VAT exemption given to the Cua faction “in view of the negative revenue implications, not to mention the allegations of fraud and misrepresentation in the issuance of the (tax exemption) certification”.
The failure of the Cua faction to consummate the VAT exemption resulted in a disclosure to the SEC that it was shelving the controversial property transfer since it was not in a position to pay the close to half-a-billion pesos in VAT slapped by the BIR.
But while the announcement was being made, Hefti received an angry memorandum from an accounting firm telling her why the VAT exemption should be consummated. That strongly-worded letter to the BIR got the business community wondering whether or not the announcement of the shelving of the property transfer was just a PR move to mask the Cua faction’s unrelenting efforts to run away with half-a-billion pesos in VAT exemptions.
With Hefti’s exit, newly-appointed BIR chief Sixto Esquivias IV has now become the object of the pressure to let the VAT exemption bid be consummated.
The business community is now watching developments at the BIR to find out whether or not Esquivias would continue to resist the reported pressure from to “go” the VAT exemption.
The view is that the the Cua faction is on “guarded optimism” regarding the prospects of the exemption. It is allegedly banking on Esquivias’ “lack of familiarity” with the Sta. Ana racetrack issues and on the fact that Secretary Teves’ angry order was “given to Hefti and not to Esquivias”.
Esquivias has been doing marathon deliberations with his top and mid-level officials to map out plans on how the agency can raise P915 billion this year amid the worldwide economic slump.
Already, Secretary Teves has trimmed Esquivias’ target from the original P968 billion by P53 billion.
But P915 billion may still be a difficult target to meet given the bearish atmosphere.
Because of the sleepless nights that the P915 billion target could be causing Esquivias, it is doubtful that he would be in the mood to give Cua Sing Huan his half-a-billion pesos in VAT exemptions.
It would probably take more than to make Esquivias risk his agency’s revenue performance.
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