Raising revenues, raising fear

In trying to combat tax evasion, President Benigno Aquino III and his government had announced in the second week after assuming office that they had every intention of ferreting out tax cheats by filing one “celebrated” case a week, alternately so by the bureaus of customs and internal revenue.

There is something perilous in undertaking such a route of action. For starters, one can already imagine the justice department sinking further into its black sea of pending cases, and harried government prosecutors barely coping with the demand for focused attention and quick action.

Second, the pressure to produce a case every two weeks poses a risk for each collection agency of making mistakes. These may not necessarily be blatant disregard for facts, but nevertheless mistakes that would make a seemingly tight-clad case thrown out of the judge’s court on technical deficiencies.

New Shell tax cheat case

Take the case filed by the Bureau of Customs last week against Pilipinas Shell Petroleum Corp. for P24.5 billion, a large part being penalties, for depriving the government of P2.7 billion by allegedly misclassifying fuel imports between 2007 and 2009 and mis-declaring imports between August 2005 and December 2008.

The Royal Dutch Shell plc local unit has vehemently denied any wrongdoing, and countered that it would file a case against customs officials for negligence, incompetence, and defamation when Customs made it appear that the firm was involved in technical smuggling as well as evasion of excise and value added tax payments.

In addition, Pilipinas Shell pointed out that the P24.5-billion case filed the government was already covered by a pending case with the Court of Tax Appeals dealing with the tax treatment on imported catalytic-cracked gasoline(CCG) and light catalytic-cracked gasoline (LCCG) from 2004 to 2009.

CTA case

In the CTA case, Customs is seeking payment for P7.34 billion in alleged unpaid excise taxes (not including penalties), and had threatened to confiscate Shell’s imports worth more than P40 billion in February if it failed to pay.

Pilipinas Shell contended the CCG and LCCG imports are mere raw materials or a blending component used for the production of unleaded gasoline. As such, Shell argued that no excise taxes must be imposed by Customs on CCG and LCCG since excise taxes are levied only on finished products. As a result, the oil firm started paying taxes with the BIR for the finished output.

According to reports, Customs has argued that Shell previously declared in its import documents up to 2004 that it was importing CCG for sale and was thus paying taxes to Customs. From 2004, however, Shell changed its import declaration by stating its importation of CCG was for processing, and thereafter started paying taxes to the BIR.

Meanwhile, Shell argued that the BIR’s two previous commissioners – Jose Mario Bunag and Sixto Esquivias – exempted Shell from paying taxes to the BOC on grounds that CCG is a raw material.

Shell legal counsel Simeon Marcelo, a former Ombudsman who left the Arroyo administration years ago, complains that the BOC’s demand constitutes double taxation since Shell already paid billions of pesos on finished products that used the CCG.

Technical smuggling

Whether the latest case filed by Customs against Shell is indeed distinct and separate from what is currently pending with the CTA is an issue that the courts will have to decide.

In the meantime, and to really help in the government’s mission to eliminate tax evasion, a radical review of the current tariff and customs code is necessary to simplify and update nomenclature that could be sources of misinterpretation and possible avenue for “corrupt” compromises.

In the case at hand, for instance, the tariff code had no equivalent nomenclature for CCG and LCCG, and Pilipinas Shell had, with supposed approval by the BOC, declared the shipment as tetrapropylene. Not exactly the same, but close to.

Technical smuggling is a practice that many unscrupulous companies and individuals resort to. It is considered as one of the biggest problems at Customs, effectively robbing the national coffers of an estimated P200 billion annually.

Technical smuggling presents a double whammy for the country. The government loses millions of pesos on mis-declared and undervalued shipments coming in, while our affected local manufacturers and farmers find themselves unable to cope with the flooded market of cheap goods.

This has killed our textile industry, and is now attacking our farmers, fishermen, and livestock raisers. Cheap potatoes, onions, garlic, fish, fowl and meat may be a boon to consumers, but if they are smuggled in without the right taxes, it ultimately hurts the economy.

Plugging leaks

The country needs better ideas on how to plug its tax leaks, and definitely getting the house in order is one way. Tax money lost to an inefficient and corrupt system is estimated at P250 billion. This is indeed relevant when seen against an estimated P325-billion budget shortfall this year.

Another example of leaks that need plugging is in the case of the cigar and cigarette industry. A faulty system of taxation has reduced the government’s potential revenue take from this product. No wonder the health department is up in arms after comparing the nation’s health bill due to smoking vis-à-vis taxes collected.

Jailing culprits

Let’s hope that the cases being filed against alleged tax cheats are able to send the guilty ones and their accomplices to jail, and thus become a stern warning to those tempted to cling to the old ways. On the other hand, if nothing substantial happens (as was frequently the case in the past), subsequent calls for change by P-Noy and his buddies would sound more and more empty and meaningless.

Collegiate basketball update

Noli Eala, Samahang Basketbol ng Pilipinas (SBP) executive director, gave the Champions League (PCCL) 2010 Philippine Collegiate Championship games a boost when he announced that SBP is going to send the Champions League winner as Philippine representative to the prestigious 18^th Super Kung Sheung International Basketball Invitational Championship to be held at Hong Kong from December 14 to 19, 2010.

Eala said that SBP is keen on putting back the Philippines in the international basketball scene through active participation in international competitions. He added that sending the Philippine Collegiate Champion to represent the country is great motivation for collegiate teams to aim higher.

PCCL welcomes this latest SBP move as it continues, in partnership with PLDT and SMART, to bring together the best collegiate teams nationwide in search for the one and only national collegiate champion.

Visit www.CollegiateChampionsLeague.net for more details about the 2010 Philippine Collegiate Championship games.

Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.