BIR shelves BOT scheme for tax reform plan

MANILA, Philippines – The Bureau of Internal Revenue (BIR) has shelved the build-operate-transfer (BOT) scheme in reforming the excise tax scheme on sin products and would instead pursue a direct procurement process for the proposed use of fuse-on stamp or bar coding technology to ensure the payment of the correct taxes for alcohol and tobacco products.

BIR Commissioner Kim Henares said the agency has ruled out the use of the BOT program on its current plan to reform the excise tax system and would instead undertake a direct procurement process.

“There will no longer be a BOT project. The law mandates us to use the fused-on stamp or bar code technology on tobacco products. We are required by law to implement the same. And we will do this via a straight procurement process and anyone who is qualified can bid for it,” Henares stressed.

The straight procurement mode effectively ruled out the participation of the Swiss firm SICPA Security Products SA that submitted an unsolicited proposal during the term of former President and now Rep. Gloria Macapagal-Arroyo.

SICPA has offered a technology-driven but expensive track-and-trace system touted to generate up to P70 billion a year in additional revenues from alcohol and cigarette manufacturers.

However, legislators and industry players objected to its multi-billion peso price tag, saying it would force the industry to pass on the added burden in the form of price increases to consumers at precisely the time when the economy and consuming power are weak.

Likewise, the Department of Justice also issued an opinon saying that forging a contract with SICPA would violate the BOT law and would usurp the exclusive power of Congress to tax. It cited SICPA’s failure to meet the pre-contract criteria set by the BIR negotiating panel, adding the company is undercapitalized for such a multi-billion undertaking.

With the opinion, the BIR started looking at parallel prosposals that should not only prove superior to the technology-driven SICPA proposal but costing considerably less than its rivals but without sacrificng the degree of security the government was looking for in an excise collection scheme.

Philip Morris Fortune Tobacco Corp. (PMFTC), on the other hand, proposed an alternative technology that uses bar codes to track and appropriately tax cigarette and alcohol products as they leave the manufacturing plants, plugging a leak that various estimates show ranging in the tens of billions of pesos each year.

“There is a new search for a more appropriate technology whose capabilities are more to scale and certainly not expensive,” Henares earlier said.

The BIR chief reiterated that the BOT scheme remains the favored choice in pursuing infrastructure and other growth-enhancing projects submitted under the public-private partnership (PPP) scheme of the Aquino government but not in the excise tax area where players continue to pay tax on the basis of legislation that has yet to run the full course.

“This is only for the BIR as far as the fused-one stamp and bar code requirement is concerned. The BOT is still being used for the PPP projects,” she clarified.