OPINION: GOOD BYE TO FOREIGN INVESTMENT
MANILA, NOVEMBER 6, 2010 (MANILA STANDARD, OPINION) Is the Philippine government's new policy to put off foreign investment? All along, I'd thought it wanted massive amounts of it to create some of the 4.2 million jobs Filipinos need, much more if you count most of the 8.5 million migrant workers who'd rather be at home with their families. It seems not.
First there was a local governor who prevented the country's biggest investment ever from getting started. And a national government saying it will overturn that decision—but taking an unconscionably long time to do it. Something other mining companies are very cognizant of. Now the national government itself accuses one of the country's longest established (1914), largest (P135.8 billion in gross revenues last year), highest tax payers (P26 billion annually) and in one of the most essential industries (oil, gas and diesel for our cars and buses) companies of cheating on its taxes.
This after the previous administration did the same thing without ever bothering to check the facts. In that case, the Arroyo regime claimed Shell was importing catalytic cracked gasoline (CCG) and light catalytic cracked gasoline (LCCG) to sell as finished product but was declaring them as an intermediate good used to add in the refinery to the blend to produce gas and diesel.
All the government had to do was go and inspect. It would have found CCG and LCCG were, indeed, being used in the refinery and none of it was in the pumps at the gas stations. But it didn't bother, it just sued Shell.
President Aquino's administration seems to be repeating the process. In this case, the oil firm was accused of defrauding the government by not paying excise and value-added taxes for its petroleum shipments of CCG and LCCG. The Bureau of Customs said Pilipinas Shell intentionally misclassified CCG and LCCG as tetra-propylene to evade payment of correct taxes. But Shell only put CCG and LCCG under the tetra-propylene category after discussing it with the Bureau of Customs because there was no specific classification for CCG and LCCG. And Shell declared the items as CCG and LCCG. There was no attempt to hide the products. If it was the wrong classification, it was an honest mistake. A company like Shell doesn't deliberately avoid correct taxes. I could name you plenty of others that do that the government could much better go after.
Shell then paid the 3 percent tariff rate as government required. But in the period 2005-2009, the BIR directed Customs NOT to collect excise taxes as CCG and LCCG were not final products but raw materials for the refinery. The BIR then collected the excise tax on the finished product, which included CCG and LCCG. Shell certainly didn't deliberately mis-classify.
What the government is now insisting on is effectively a double tax payment to BOC on entry, then payment on the same product (now in a finished form) on the end product as it's sold.
Importers of the finished product pay only once, on the finished product. So Shell pays a higher tax for the privilege of having a refinery here. A refinery that adds local value, provides jobs for Filipinos, enhances the living conditions of people in Tabangao, Batangas.
Now it has gone to court because the BOC is claiming it should have paid excise taxes to it during that period. It should not be in court, I suggest Commissioner Alvarez look into who in his department are claiming fraud by Shell, claiming so because they can get the "whistleblowers commission" and have no love lost for the Aquino administration and its efforts to clean up the system.
Shell has been pondering the sensibility of retaining a refinery here. Chevron already closed theirs. Well, no more. I've no doubt the bosses in the Hague will pull the plug on this one. We'll be left with just Petron producing here. The Singapore government will benefit from the value added, jobs created, and taxes paid that a refinery provides.
If this can happen to Shell, a company that is highly regarded as an ethical, honest company by the business community here, you don't need many brains to know what signal this sends to the business community, and those considering investment here.
Goodbye foreign investment.
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Mrs. Arroyo, when she was president, initiated a program of conditional cash transfers. There is money for the poor if they send their kids to school and if pregnant mothers go for regular health check-ups. It's a scheme that's been successfully applied in Brazil and Mexico, and over 30 other countries, and seems to have worked here.
President Aquino has requested budget approval to double the fund to P21 billion, and double the recipients. A laudable aim.
Mrs. Arroyo, now she's a lower-level politician from the opposition is against the increase claiming that asset redistribution (whatever that is), and job creation are more important.
I have argued vociferously, actively and long (some three decades) for job creation as the primary goal of government. Create jobs—all else that's good follows.
But during Mrs. Arroyo's administration, investment—that would create jobs—was turned off. In her almost ten-year term, only US$14 billion came in to create jobs. In Fidel Ramos' six years foreign investment was $9.5 billion. So Ramos attracted $1.58 billion FDIs per year; Arroyo $1.55 billion. Pro-rated to six years, it becomes $9.3 billion for Arroyo, lower than Ramos' $9.5 billion. And even less if you adjust for inflation. Actions speak louder than words (I don't know whom I should attribute that to).
Elsewhere in Asia during Arroyo's term, the contrast is even more startling. Arroyo's $14 billion pales before Vietnam's $43 billion, Thailand's $43.5 billion or Malaysia's $36.4 billion. Or anywhere else in Asia among the major countries. Is this the job creation she now claims so necessary? As to asset redistribution, I think what is meant here is construction of schools, hospitals, health centers (which Arroyo deliberately under-funded) housing, etc. Laudable all, but money for these is abundantly available elsewhere—in the pork barrel. If politicians truly cared for the poor, these are exactly where they'd pour the now vastly increased funds (estimated to be more than P30 billion) into schools, hospitals, health clinics. They don't need a new municipal hall or provincial capital or sub-standard farm-to-market road—they can wait till there are no (far fewer) poor.
CCT is better than other poverty alleviation programs of the past as it is less prone to leakages (i.e., benefits going to unintended beneficiaries, corrupt bureaucrats and greedy politicians). It is better to give the poor cash instead of rice, noodles, etc. where significant losses occur in the procurement, storing and transport of goods. Billions of pesos are lost in shady importation of rice and in making rice available at less than market prices. Give the poor money so they can buy rice in the market. And close NFA down. It serves no purpose now except to waste scarce government funds—it's currently a whopping P171 billion in debt. That equates to around 340,000 classrooms that could have been built. We only need around 200,000 for 25 kids per class, so the rest could have gone into health clinics.
Some politicians will naturally oppose the CCT because the money allocated for the program could mean diversion of funds away from their pet projects, projects that do not directly benefit the poor. Consequently, they would lose political influence even as President Aquino's star rises should the program become successful (and there's a good chance it will be).
There's no question but that job creation should be, must be the overriding priority of President Aquino and his Cabinet. It is the only real way to eliminate poverty. But it will take time (and re-building of business confidence) and a starving child doesn't have time. His/her brain is withering as we speak from lack of nutrients.
So why anyone with even a smidgeon of care for others could heartlessly oppose it, I'm at a loss to know. They need help now, conditional cash transfers can give it while better efforts are made to genuinely attract investment for job creation, not turn it away, as the case against Shell is doing.
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Chief News Editor: Sol Jose Vanzi
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