Biz sector warns new BIR order may put off investors

CEBU, Philippines - While the government stresses the need of a tax system to increase revenue collection, the business sector warns that requiring the disclosure of income payment recipients may put off investors.

The Supreme Court recently stopped the Bureau of Internal Revenue and Securities and Exchange Commission from asking listed companies to disclose their individual shareholders. These investors are payees of income payments which are subjected to creditable and final withholding taxes.

The said new regulations of the BIR and SEC require bankers, stock brokers and fund managers to divulge the investors' personal details. The regulations include BIR Revenue Regulation 01-14, Revenue Memorandum Circular 05-14 and SEC Memorandum Circular 10-14.

Jose Hector M. Baronda, assistant chief of BIR Cebu's Legal Division, explained the new directive is actually one of the bureau's tax effort strategies to boost revenue collection and tax efficiency.

"Kung naa na ang alphalist (alphabetical list) requirement, ang mga financial institutions kinahanglan na silang mo-submit kinsa tong ilang income recipients," he told The FREEMAN in an interview yesterday.

"Ang mahitabo, mogawas gyod kinsa kadtong naay kwarta ug mga investors nga wa pa na-tap sa BIR," he added.

Impact

Norman Jay Go of BPI Securities Corporation, a stock broker, said the banking and financial institutions have always considered the BIR's order as negative.

"It has been seen to have discouraged inflow of funds into securities," said Go, who is head of the firm's Cebu Equity Sales. He stressed the Internal Revenue's move would just disrupt the government's plan to help the capital market grow.

If the said directive -- which has recently been issued a temporary restraining order by the higher court --  is permitted to be passed, Go said it would pose a negative impact on the nation's stock market growth. 

"It opens up our clients to unnecessary scrutiny of their portfolios and accounts," he said when asked on what would the disclosure entail on the side of the investors.

However, Baronda emphasized that the bureau has just been very proactive in fulfilling its mandate to maintain sufficient income collections from the people and corporations. He even said that this is especially needed now, considering that the World Bank has characterized the country's tax system as having many loopholes. 

He said: "Ang amo lang, ipakita namo nga this is a collection strategy. With the alphalist, mas dali namo ma-identify ang taxable (individuals), assuming nga wa pa sila ka-comply sa taxes. Paagi ni  pag-broaden sa among tax base o mapping."

Regional Director Hermeno Palamine of BIR Cebu echoed the same idea, saying the existing untapped sectors should simply be tapped by the bureau. "Kung naay loopholes, kinahanglan gyod naay regulations to tap these sectors."

Privacy Act

For his part, Cebu Bankers Club President Gino Gonzalez said the government's order that financial firms should submit the list of income payment payees would only violate Republic Act 10173 or the Data Privacy Act.

Data Privacy Act, which was enacted into law in 2012, regulates the processing of personal information of persons collected by both the government and private sector as a way to guard one's privacy.

"This could also affect the Philippine capital market," the bank executive told The FREEMAN, "since the BIR directive will put at risk and expose the privacy of investors which might discourage them to make further investments."

Gonzalez explained that even if banks comply with the BIR order, clients may still possibly sue them for violating the DPA. "On the other hand, if we don't, then the BIR may go after the banks and impose administrative penalties," he added. 

In addition, Business Officer Marco Nino Velasco of UniCapital Securities, Inc. also commented, "we are now doing scripless trading which makes the PCD Nominee as a shareholder of stocks on behalf of the investors. If BIR will go after individuals and let them disclose their earnings, it's a direct violation on the PCD."

He noted the BIR "might just want to make things simpler and easier on its part in its tax collection activities."

He further added, "this will surely affect market stability if they will insist on it. If affected parties will not abide with BIR and SEC, they have some sanctions to face and if they will follow, they will violate RA 10173. Maybe BIR should focus more on structuring their system well rather than running headless." — (FREEMAN)