Banks told to wait for court decision on PEACe Bonds

Finance Secretary Cesar Purisima reiterated that no rules are being changed in the decision to tax the zero-coupon PEACe Bonds issued in 2001.

“This is a problem that the current administration only inherited. No rules are being changed by the current administration,” Purisima said, adding that it was the previous administration that erroneously changed the rules.

“It is only incumbent upon the current administration to clarify the various issuances released during the previous administration,” Purisima said.

Purisima was referring to the Bureau of Internal Revenue (BIR) ruling issued early this month that “reiterated” the rules regulating the Poverty Eradication and Alleviation Certificates or PEACe bonds.

The bonds fell due last Oct. 18 and on that day, the banks were able to secure a temporary restraining order (TRO) from the Supreme Court preventing the Bureau of Treasury from withholding the tax. Sources said the Treasury received the court order only after it was already able to withhold the tax.

Treasury officials declined to speak on the matter, saying that the case is already pending in court.

Purisima said that without an enabling law, the Treasury has no power to contractually provide for a tax exemption.

“Taxes and tax exemptions are the sole domain of Congress.   Moreover, it is a basic principle that all laws – including tax laws – are read into every contract. Hence, the collection of the final withholding tax, pursuant to existing law, does not abridge the sanctity of contracts,” he said.

He urged the banks and their supporters to let the courts decide on this unique and isolated case and refrain from mounting a sustained media campaign that merely muddles the issues and confuses the public – even at the risk of disrupting the financial markets.

“As the recent experience of more developed markets has shown, unfettered profit seeking and corporate greed coupled with weakened or co-opted regulators only result in financial disaster for all,” Purisima noted.