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Finally, the Department of Justice resolved the issue of whether the Bureau of Internal Revenue should continue negotiating with Switzerland-based SICPA Products Security S.A. regarding the latter’s unsolicited proposal for the application of tax-stamp technology to collect more excise tax from cigarette and liquor. BIR had been designated by the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA) to conduct negotiations with SICPA on its proposal.

But while BIR and SICPA were conducting talks, the House of Representatives, through its ways and means committee, conducted hearings on the SICPA proposal. At the conclusion of its hearings, the ways and means committee recommended in its report that the BIR should drop negotiations with SICPA about its proposal.

Among the objections raised against the SICPA proposal is the P18-billion expense for the application of the system spread over seven years, which the lawmakers felt was too expensive and risked raising the prices of the products to the detriment of the cigarette and liquor industries. The committee recommendation placed the BIR in a bind on whether to continue negotiating. It decided to seek a legal opinion from the DOJ in the light of the committee recommendation.

Acting Justice Secretary Alberto Agra finally conveyed the DOJ opinion in a letter to BIR Commissioner Joel Tan-Torres. It said the BIR cannot proceed with the negotiations with SICPA, citing among others that the proposed SICPA system partakes of a tax and, therefore, encroaches on the exclusive authority of Congress to enact revenue measures.

Agra was also one with the ways and means committee findings that there were flagrant violations of the Built-Operate-Transfer Law and the pre-bidding requirements that had been set by the BIR itself. Among them was SICPA’s failure to meet at least 30 percent of the project cost, the inclusion of a government guarantee in its unsolicited proposal, and its inability to meet all of the 83 pre-bidding requirements (SICPA only complied with 11) laid out by the BIR’s pre-bidding and awards committee.

Agra questioned, in particular, SICPA’s financial capability to handle the project, given that its equity is only CHF 1.38 million (Swiss francs) or about P55 million, which is a paltry amount considering that the project requires an initial investment of P2 billion.

As to the P18-billion cost of the entire project, Agra cited that, in effect, an extra cost of 54 centavos per pack of cigarettes will be passed on to consumers alongside the regular excise tax that they are already paying for every pack right now to pay for the costly tax-stamp scheme.

Another objectionable feature is the “take or pay” provision tucked in the project that would require the government to deposit in an escrow account an amount sufficient to pay for any shortfall in what SICPA should receive each month or each year for the mutually agreed-upon volume of strip stamps that it is supposed to supply to the tobacco companies.

The DOJ opinion, coming at the end of the outgoing Arroyo administration, was a welcome news and was lauded in many sectors of the country, not least of which are the members of the cigarette industry, who fear that the implementation of the expensive tax-stamp scheme  will jack up  prices of local cigarette products leading to lower sales but will not even produce the desired objectives of government as SICPA’s costly technology has been proven ineffective in other countries.

La Union Rep. Victor Ortega noted that “the costly scheme would not benefit the country, while SICPA will rake in millions in profits.”

With the issuance of the DOJ opinion, let us not forget the recommendation of the House committee to investigate officials of the DOF, BIR and SICPA for pushing an expensive scheme despite glaring anomalies attendant to its negotiation. In fact, the Office of the Ombudsman should act on the petition filed by tobacco farmers against Finance officials who approved the anomalous proposal of SICPA.

The DOJ opinion should also serve as a warning to private companies who want to corner fat government contracts, but do not want to comply with legal requirements. Sometimes, our system does work especially in cases of in-your-face transgressions that only a government official pretending to be blind can ignore. One can only wonder what part of the US$ 401 million (the new project cost of SICPA from the original US$266 million when first filed in 2007) was promised to such an official to turn a blind eye.

The DOJ opinion against SICPA is, indeed, a welcome news to the new Aquino administration because it will have one less headache to handle.    

Tale of two signatories

There’s a brewing controversy over the recent publication of a new executive order that seeks to resuscitate the country’s ailing vehicle and auto parts manufacturing sector.

Dubbed the “Comprehensive Motor Vehicle Development Program” or CMVDP, EO 877-A – according to its detractors – is yet another attempt by the outgoing Arroyo administration to give a shot in the arm to an industry that has been “rescued” many times over.

But even before the controversial law could take effect on July 1, 2010 or 15 days after its publication date, EO 877-A is already facing its first ‘acid test’, so to speak, courtesy of its questionable signatories.

Critics point out that the controversial EO was signed by President Arroyo and Executive Secretary Eduardo Ermita on June 3, 2010. However, it is public knowledge that Ermita quit as Arroyo’s executive secretary on February 23, 2010. His resignation came on the heels of a Supreme Court ruling that all appointed government officials running for public office are deemed resigned upon filing of their certificates of candidacy. Ermita ran but lost to former customs commissioner Tomas Apacible in the first congressional district of Batangas.

As to how Ermita became a co-signatory of the questioned EO more than four months after he resigned from the Arroyo cabinet is nothing short of perplexing. What’s more mind boggling is that an almost identical copy of the EO published in another newspaper on the same date shows Leandro Mendoza, Ermita’s replacement, as signatory.

Was it simply a typo error? Or did Ermita pull a fast one over Mendoza? If there are two conflicting versions of the same EO with different signatories, will this have an adverse impact on its effectivity?

Whatever the case, this faux pas is a serious indictment on the kind of haste and sloppy staff work behind EO 877-A. Its defenders can swear to high heavens that the law underwent strict scrutiny but this, too, is doubtful. How else can they explain that the original EO 877 (sans the ‘A’) was first issued on April 23, 2010 only to be replaced with an amended version barely two months later? What’s so important and urgent with this law that its proponents, led by the Board of Investments, would ‘throw caution to the wind’ just to have it enacted pronto?

In fact, the alleged lack of consultation and thorough study prior to the EO’s enactment is the main beef of the Fair Trade Alliance and other groups seeking the EO’s review or recall. Even competing importers of Completely-Built-Up (CBU) vehicles from China, Germany, Korea, United Kingdom and other countries have closed ranks just to oppose the EO insofar as it chooses industry winners and losers by tinkering with the tariff structure.

At the end of the day, it behooves upon Malacanang to clarify this mess. After all, if it stinks, it must be rotten.

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