That’s of course, oversimplification of the complicated case of the Poverty Eradication and Alleviation Certificates (PEACe) bonds which became due yesterday.
Ten years ago the Caucus of Development Non-Government Organization ( CODE-NGO) whose members actively participated in the ouster of an elected president, Joseph Estrada, and the installation of Gloria Arroyo in Malacañang in January 2001, concocted the PEACe bonds to raise money for projects for the poor.
CODE-NGO stalwarts include Social Services Secretary Dinky Soliman, Peace Process Adviser Ging Deles, and former DBP Director Dan Songco.
Under the so-called innovative funding mechanism, the Bureau of Treasury would sell P10 billion worth of zero-coupon bonds . On Oct. 16, 2001, Code-NGO, through Rizal Commercial Banking Corp., bought the bonds on Oct. 16, 2001 at the discounted rate of P10.17 billion and at 12.75 percent interest.
CODE-NGO re-sold the bonds to banks who bought on the understanding that they were tax-free. The transaction earned for CODE-NGO a whooping P1.8 billion.
Redemption time. The government is supposed to have redeemed those bonds yesterday which are now worth P35 billion including the P24.3 billion earnings of the banks who hold them.
But Kim Henares of the Bureau of Internal Revenue, issued a ruling last Oct. 7 that the banks would not be able to get the full P35 billion because they will withhold the 20 per cent tax worth P4.86 billion.
The banks protested. When it comes to money, bankers will not give an inch. Eight banks -Banco De Oro, Bank of Commerce, China Banking Corporation, Metropolitan Bank and Trust Company, Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank and Planters Development Bank – went to the Supreme Court asking for a temporary restraining order from what BIR was planning to do invoking “sanctity of the contract.”
Petitioners said the BIR ruling that retroactively applies to the government bonds sold in 2001 is prohibited under the 1997 Tax Code “for being extremely prejudicial to the bondholders, including petitioners who relied in good faith on the BIR declaration that the bonds are exempt from final tax.”
The Supreme Court yesterday said the government must pay in full its P35-billion sovereign debt on the PEACe but ordered that the 20-percent final withholding tax be held on escrow until the issue can be resolved.
What about the CODE-NGO? They are included in the petition but can they be made to pay because they have long ago sold the bonds and enjoyed the P1.8 billion earnings from it?
We are told some of the bank owners, most of them major contributors to the Aquino presidential campaign, have directly complained to him.
Aquino yesterday said he will meet with Finance Secretary Cesar Purisima and Henares. “We will then review this specifically to address the complaints of those who undertook the PEACe bonds,” he said.
Meanwhile, here’s a reaction from a blogger who is apparently into finance, TonGuE-tWisTeD:
“Anong kakasuhan? Sino ipu-put in jail? E kung yung nakinabang mismo na CODE-NGO, at RCBC/RCBC Capital na tumubo sa pera hindi kasali sa tax sabi ni Henares.
“Tapos ang sasagot sa tax yung nag-invest ng pera para tulungan yung pangangailangan ng pondo ng gobyerno?
“Hindi biro ang kinita nila Red Mayo at Bobby Guevarra na P400M yata para sa pagporma at pagluto nitong letseng PEACe Bonds na ito. Isama na sila Yuchengco at Camacho/Songco pati sila Dinky at Deles sa bilyun-bilyong naraket nila.
“Tapos ang kakarga ng kakaguhan ng BIR yung mga inosenteng bangko at mga namili ng Bonds?
“Ang tingin dito ng mga negosyante, isang malaking con-job perpetrated by government itself against the country’s banking system and the investing public.
“Stupid, stupid, stupid.”
ah, they too will die as greed kills. but unlike us ordinary mortals their bodies will rot and stink even worms would refuse to devour their cadavers. parurusahan din ng Diyos ang mga yan. just wait and see.
wala, puro fish talk lamang ang alam ng mga mahilig mangotong sa gobyerno.
galing din naman ng may pakana nireng katarantaduhang pinagkuwartahang ire lalo na ‘yung mga alalay ng dating never president. malakas ang paniwala nilang pagkatapos ng sampung taon ay sila pa rin ang nasa poder at hindi sasabog ang amoy nireng tumpok ng baho nila at walang singaw nilang malulusutan. akala nila ay habambuhay ang pananatili sa malakanyang ng kanilang sinasandalang kawatan.
ipagpapatuloy pa ba ‘yang bulok na raket na ‘yan?
naghihingalo na si juan, maawa na kayo!
The BIR is right. It is their duty to collect taxes from all income, from all the people involved and earned money in the peace bond scam. Income tax code provides that all income from all sources from within or without will be subject to income tax. Whether there’s a contract, it doesn’t matter because tax obligations can not be contracted out; otherwise it’s a violation of the tax code.
The BIR has to admit that they erred in their earlier ruling, maybe put under heavy pressure by someone from the high and the mighty to issue such to favor a group without a foresight that some problems may arise in the future about its taxability.
On the other hand, banks claimed that government reputation be questioned from investors foreign or local are being overstated. Most investors are well aware of the ins and outs of investing especially in negotiable instruments. They know that no one can avoid the tax implications in these kinds of investments whether contracted or not, one way or the other, they have to be subjected to the law of taxation.
One can’t imagine how big an amount of 24B that will not be subjected to income tax. This is not about greediness of the government but of the banks. They always give out a little and take in so many.
We know that only organized crime syndicates evade taxes. It’s because of their illegal operation. But banks, we don’t expect them to avoid it because they are licensed and operate legally.
The bottomline, it will be the government of the day under Noynoy who will decide. Some of the perpetrators of the scam are now his KKKs and how strong-willed, decisive and determined is just another test of his so far lackluster leadership. Just hope that he will do it right this time around, stand solidly behind his BIR Commis.
“The BIR is right. It is their duty to collect taxes from all income, from all the people involved and earned money in the peace bond scam ” – florry
But that is not the case, CODE-NGO/RCBC will go scot-free (refer to the origin of “scot-free” and you find the pun there) because BIR will still honor the tax-free promise it made thru Comm. Bañez in 2001 BUT will not apply to buyers of the Bond after 2004 – when a new BIR directive said the Bonds are NOT tax free. If you bought the “sweetened” Bonds after 2004, sorry na lang daw.
Wow, meron nang fraudulent flavor – tapos sorry lang? The BIR afterwards kept its silence, so did BTr, Bangko Sentral, the traders. All these times, innocent final bondholders were made to believe the bonds were still tax-free up to maturity. Until Henares announced it on Oct. 17.
This is how you run a mafia syndicate. Not a country’s financial institutions.
“Most investors are well aware of the ins and outs of investing especially in negotiable instruments. They know that no one can avoid the tax implications in these kinds of investments whether contracted or not, one way or the other, they have to be subjected to the law of taxation.”
Totally absurd. For your education, florry, Bañez issued 3 BIR directives authorizing the tax-free feature of the PEACe Bonds.
Relaxing taxes as a come-on is practiced in all countries that wish to bring in fresh money from investors, especially when competing for big-ticket projects. That is why we have Export Processing Zones, tax holidays and tax perks are major considerations for new enterprises willing to locate in EPZAs, at least make them survive in the initial stages of production in exchange for future government revenues and much-needed local employment.
For example, we actively- bidded in, but lost the Billion-dollar Ford Stamping plant to Indonesia a decade ago because Indonesia “sweetened” the offer by allowing a huge tax break. Many other big projects in the region were decided by tax-relaxing offers.
This is no exemption.
The entity that oversees taxation says no tax, so no tax it is. Not in the Philippines.
I am not questioning the power of the BIR to tax. They can do it if they want to. They already tax the tollgates. But what is collected is VAT or value added tax. What value is added to the use of a road? None. Don’t car owners pay road users’ tax already? This is double-taxation. You pay tax to use the roads. When someone collects the payment via tollgates, you pay tax again.
Next year, do you know that Henares will be implementing a new ITR form? It will include items that you earn outside of your regular payroll income. Stock and bond trading income yata ang tinatarget.
Pero kung nagbebenta ka ng chocolate o tocino sa opisina ninyo, dapat mo na ring ideklara yan dahil ita-tax ka.
To disabuse your simplistic views, let me remind you that the 20% that will be held in escrow is just the “witholding tax” portion.
What does that mean? The money will be paid to the banks in full (P35B) by the government. But what is unique in this SC order is that the Bond-trading banks themselves, not a third-party escrow company, will handle the trust accounts amounting to about P4.9B. If the case takes ten years, the banks will have made the same money they were supposed to have “lost”. “Quits” na lang sila. They get the chance to break-even even if the SC decides, after TEN YEARS, that the deal is subject to tax.
The tax is therefore borne fully by the final buyers of the zeroes.
What are the other implications?
It is not only a 20% final tax that will be charged the buyers/holders. 20% is witheld as a PORTION ONLY of the full final tax that will have to be paid. In amounts larger than P1M, the tax due is about one-third or about 33%. Assuming that government collects the full tax, it is therefore not only P4.9B but a whopping P8.1B (one-third of the P24.3B PEACe Bond earnings) that will be a windfall to the BIR coffers.
People will think they do not have anything to lose because the money that was supposed to go to the “greedy” banks and businessmen is back to government. It looks like it but not so.
I agree with the analysts that this deal weighed down on the macro-economic scale as it affects revenues, debts, and investor confidence. Anything that impacts these would eventually be felt down the economic food chain in terms of social services, jobs, prices, among others.
Still fresh from losing billions in the educational plans that insurers blame on Cory’s changing the rules on tuition control, the pre-need industry now faces a similar situation uner Cory’s son, those who invested on the zeroes to recoup some of the loses in the 80s are up for more surprises.
Those still hoping to send their children through college via educational plans are praying their fund managers be one of those who avoided buying the zeroes.
To shake off any perceived bias, I will not repeat here how it will impact on the predictability and stability of government rules as it affects foreign investments which small businessmen like me have been trumpeting since time immemorial. Ramos was the only president who heeded that call and unless future leaders are willing to make the same paradigm shift in exchange for a few billions today, forget long-lasting prosperity for the country. I am sad that I may not see that in my lifetime.
We will always be exporters of warm bodies to countries where business rules are stable, where government stimulates job generation, where laws are investment-friendly, and financial markets are more predictable and less prone to manipulations of the powerful few.
Forget the smallness of stability defined only by minimum wage, thinking beyond the next payroll and focusing on what’s in for the long haul is what will save this country that flaunts its college-educated English-speaking nannies, its gene pool of creative artisans and pound-for-pound champs, its savvy techies, accountants and engineers who are nothing but.
Naku, dapat maikalat ang pinagsasabi ni Tongue dito para maaralan ang publiko sa technicalities ng Peace Bonds nina Dinky! I got to admit, I did not know anything about this questionable Peace Bonds aside from being an immoral transaction during Gloria’s illegal occupation. Daming tenkyus, Tongue!
Mukhang blind-sided ang mga bangko, pati Kataas-Taasang Hukuman. Ang BIR ay maniningil sa CODE-NGO, hindi sa mga bangkong bumili sa pangalawahing palengke (secondary market). Ito ang sabi doon sa naunang sinulid (thread).
Now people should know why many recycled people are seen running our bureaucracy over and over again dahil dito sa dilihensiya. I’m not saying all but most of them are…mga operator..mga corrupt! they should be investigated and if found to have violated any rules and law, punish to the fullest. If found to be unethical, force to resign!
As much as i have confidence with pnoy, i do not have confidence with soliman and others. I mean, if they are really there to do public service, they will not get themselves involved in this kind of transaction billion na tax free pa. Government officials are not allowed by law to enter into this kinds of transaction. Problem is they know it but they still keep doing it. Other in government, obligated by law to maintain check and balance, keep mum or take part silently on the side. Dilehensya kasi!!!
In addition, our judiciary sucks..kahit me kaso na they delay dahil sa lagay or for their cut!
This is the reality of governance in our country! we can argue all day long but thi is what they are showing. The issue that tongue-twisted is saying makes sense from the investor point of view but for governnance, it very clear there is unethical bahaviour and corruption. ito dapat ang hindi pinapayagan..mitsa ng mas malaki pang nakawan o delihensyahan gamit ang impluwensiya ng gobyerno!!!
tama ulit si tonque-twisted as time goes by, the aquino administration is taxing the people too much without doing anything concrete to stop the bleeding due to nakawan sa gobyerno and providing appropriate public benefit commensurate sa taxation. If we have road user tax, toll fees with VAT, car registration payments via LTO, tax sa gasolina at krudo, personal income tax, sales tax at kung anu anu pang fees left and right ano ba ito tapos walang kalye at di man lang ma improve ang trapiko lalo na sa mga probinsya…top it na walang pagbabago sa pamamalakad , sa hustisya, basic services na meaningful to many and yet all they do is hand-outs?? People needs job with meaningful pay not handouts. Enough is enough with taxation!..then later on nakawan na naman by the same group of people tsk tsk…
These are the reactions of financial gurus Margarito Teves, Felipe Medalla, and Benjamin Punongbayan.
http://www.youtube.com/watch?feature=player_embedded&v=bvQSBwz0yew
There are only two sure things in this world, death and taxes sabi nga nila. BIR is right. Banks should know better. There is no such thing as tax free. Ganun talaga ang bonds. Maliit lang ang kita kaya lang sigurado ang kita. Ang hindi ko lang maiintindihan ay kung bakit ang RCBC ay exempted sa capital gains eh kumita naman sila kahit na ba na ginamit lang sila ng Code-NGO at sino ba ang humahawak sa ‘Peace and Equity Foundation’ na tumanggap ng donasyon na mahigit na P1 billion na galing sa proceeds ng pag benta ng bonds?
sino ba ang humahawak sa ‘Peace and Equity Foundation’ na tumanggap ng donasyon na mahigit na P1 billion na galing sa proceeds ng pag benta ng bonds?-Jake Las Pinas #13
Si Hector Soliman, asawa ni DSWD Secretary Dinky Soliman.
Conjugal partnership din pala ang Peace Bond na yan!
“I did not know anything about this questionable Peace Bonds aside from being an immoral transaction during Gloria’s illegal occupation.”
Yup. You deal with an illegal regime, you’re going to pay somehow. Too bad for the bond buyers. If its too good to be true, it probably is. Next time read the fine print.
Erroneous or Anomalous?
Under Section 22 (Y) of the 1997 Tax Code, the borrowing of funds can be classified as deposit substitutes “if the funds are obtained from twenty (20) or more individuals or corporate lenders at any one time.” The 2001 Banez Rulings on the PEACe Bonds were erroneous because they very narrowly defined the phrase “at any one time” to mean the point of origination or the point at which the bonds are first issued to the public at a Treasury Bond auction. Ordinarily, common sense would dictate the phrase “at any one time” to mean throughout the life of the bond. In this case, “at any one time” meant only the primary Treasury bond auction and not the secondary market where the bonds are actively traded back and forth among institutional investors. Why is this crucial? Because it expands the size of the potential market for the bonds – enormously. The bonds can now be sold in the secondary market in much much smaller chunks without losing its tax-exempt status. By eliminating the 19-lender constraint, the bonds now had more uses. The bonds could be used for the creation of retail products based on the zero coupon bonds. More importantly, they can be “sold” down to the level of a bank’s delinquent borrowers to wash the NPLs of a bank’s books. Is it any wonder that of the nine banks that are affected by the imposition of the 20% FWT, five of them have very high levels of distressed assets relative to their capital?
All this and more at: A Tax on the PEACe Bonds – Who is Left Holding the Bag? http://systemisbroken.blogspot.com/2011/10/tax-on-peace-bonds-who-is-left-holding.html
If you want a video explanation of the PEACe Bonds Controversy, click on this Youtube Video link:
http://www.youtube.com/watch?v=twiJJEuMAxA