Sunday, December 11, 2011

Finance Dept. on airlines tax: Equal gain must offset revenue loss

December 9, 2011 3:37pm

The Department of Finance has no objections to repealing the common carrier’s tax (CCT) as long as Congress can come up with a counter measure to compensate for the revenue loss.

Government stands to lose P1.6 billion a year once the tax on airlines operating in the Philippines has been scrapped, according to Finance Department estimates.

The Aquino administration’s position on the CCT issue was relayed to House committee on ways and means chair Hermilando Mandanas and Senate committee on ways and means chair Ralph Recto.

“We subscribe to the position that any revenue loss measure enacted in Congress should at least be compensated by a corresponding revenue gain,” said Finance Secretary Cesar Purisima.

Legislators want to remove the 5.5 percent CCT and the 2.5 percent gross Philippine billings tax (GPBT) on international airlines.

Section 118 of the National Internal Revenue Code of 1997 allows government to impose the CCT — equivalent to 3 percent of airlines and shippers quarterly gross receipts — and the GPBT on their airlines flying to the Philippines.

A World Bank report in June called for the CCT’s repeal, in line with international practice that encourages growth in tourism.

Government’s position is consistent with the World Bank stand on the matter, Purisima noted.

“We acknowledge the role of tourism in generating investments, employment and reducing poverty in the country,” he said.

But when it comes to the GPBT, the Aquino administration maintains that it should not be dropped. There is no compelling reason to drop the GPBT, which is also implemented in other countries, said Purisima.

“We do not support its elimination…Freeing international airlines from income taxes is not in accordance with the basic principle of reciprocity which governs international taxation,” the Finance secretary noted.

Air France-KLM earlier said it plans to cancel its Amsterdam-Manila- Amsterdam route early next year because of the CCT.

The route is the only remaining direct flight serving Manila and Europe. — VS, GMA News

Friday, December 09, 2011

Financial services for the poor

By: Gemma Rita R. Marin
Philippine Daily Inquirer

It is interesting to be studying microfinance in a classroom setting after 20 years of being involved in the business. I was accepted to a three-week certificate program on Community-Based Microfinance at the Coady International Institute in Antigonish, Nova Scotia, which began last Sept. 26, 2011. We were 12 in the class coming from nine countries. I introduced myself as working in a research and advocacy organization, which has microfinance for one of the focus themes of its rural development program. Others in the class included the director of an NGO in West Nile, Uganda, a Nepalese working for a refugee camp in Thailand, a Jesuit priest assisting a savings and credit cooperative in Jharkhand, India, another Indian working for a consulting company which provides organizational development and technical services to institutions in Bihar, two development workers from CARE-Bangladesh, another Bangladeshi working for the Bangladesh Rural Advancement Committee (BRAC)  but based in Afghanistan, an Australian working for low-income groups in Tasmania, a senior manager in a Canadian organization providing financial services to young entrepreneurs, a volunteer program coordinator worker for a women’s organization in Zimbabwe, and a regulator from the Department of Cooperatives in St. Vincent and the Grenadines. Despite our experiences in microfinance work, we all felt overwhelmed and enriched by the amount of information and the deluge of experiences shared during the first days of class.

The program at the Coady Institute promotes community-based microfinance approaches typified by member-owned institutions (MOIs). We learned about the village savings and loan associations (VSLA) approach promoted by CARE across the continent under its Access Africa Program. Twenty to thirty members, mostly women, come together to save weekly, and are allowed to borrow from the fund after three months of saving. At the end of the year, the savings and income accumulated by the group are distributed among its members in proportion to the number of shares each has contributed. Three factors account for the success of the VSLA: flexibility where different savings schemes are adopted by different members depending on their agreements; informality which makes it easy for anyone to join the group; and transparency where loans are taken in front of the whole group.

Another MOI we studied was the self-help groups (SHG), similar to VSLAs but operating in perpetuity. SHGs are “small groups with 10 to 20 members who have voluntarily organized themselves and are related by affinity for a specific purpose and whose members engage in savings, credit and social involvement as instruments of empowerment.” As saving continues, and financing and other requirements expand, the group finds the need to access additional capital and often acquires a legal status through the formation of a federation to be able to link up with formal financial institutions. This model has flourished especially in India where seven million SHGs composed of over 70 million women have been formed, and many of them have opened bank accounts.  A total of $2 billion in savings is estimated to be rotating as loan capital and the groups have accessed a total of $6 billion in loans from mainstream formal banks to date.

Interestingly in the late 1990s, the government of India began to promote SHGs on a large scale and began offering revolving loan funds through state-owned banks. The self-help character of SHGs thus took a back seat, as groups started to organize themselves to access the loan funds from banks, with lower incentive and motivation for saving. (This resonates with the unsuccessful Samahang Nayon program of the Marcos government in the 1970s and the recurrent failures of the cooperative movement in the Philippines during earlier years due to government intervention.) But the SHG federations have managed to sustain the movement by providing value-adding services to member groups, with the encouragement of the non-government sector.

In one of our sessions, the class took a field trip to downtown Antigonish to visit the Bergengren Credit Union and learn about its operations. It was amazing to see how this credit union has grown in more than 70 years so that now it is run like a bank. While it cannot always compete with the more sophisticated products of a bank, it manages to stay in competition with the other savings and loan products by providing better customer relations and offering innovative products to the youth and students. As a member-owned institution, it continues to attract members by providing additional income in the form of patronage reward. It also shares its surplus with the community through contributions to hospitals, youth sports events, and partnerships with St. Francis Xavier University and the Coady International Institute.

Time and again in class, Anuj Jain and C.S. Reddy, our facilitators reminded us that there is no one ideal model for providing financial services to the poor. The key to the design and meaningful implementation of a microfinance program is to look at the people and situation of an area or country, to be mindful of the institution’s goals, and to ask the essential question, which is, “Whom are you serving? And why?” In the end, selecting the features that are appropriate for the target groups being served or one intends to serve is more important than the model itself. The partiality towards community-based or member-owned approaches is premised on the belief that the members find savings to be useful when they need small loans and know their situation well enough to make their own decisions and chart the directions of their institution as well as their own lives.

Friday, December 02, 2011

Time to deliver

Philippine Daily Inquirer

Are Filipinos dreaming, or are they experiencing something that economic statistics cannot capture? The latest survey conducted by the Social Weather Stations found a growing number of Filipinos saying their lives had improved during the previous 12 months. While still more people—32 percent of respondents—said their quality of life had worsened, 26 percent said it had improved, up from 22 percent three months earlier in June. Looking ahead to the next 12 months, 39 percent expected a better quality of life, higher by 3 percentage points from the 36 percent in June, while the percentage of those who expected it to worsen remained at 9. This made for a “very high” net optimism level of +30 percent, higher than the +27 percent level in June and 24 percent in March, according to SWS.

Businessmen apparently share this optimistic outlook.  The Business Expectation Survey of the Bangko Sentral ng Pilipinas for the fourth quarter showed the business confidence index rising to 38.7 percent from 34.1 percent in the third quarter. A BSP official said the rise in the business confidence index could be traced to anticipation of higher consumer demand during the harvest and Christmas seasons, higher remittances from overseas Filipino workers and sound economic fundamentals.

Economic statistics, however, indicate that both the average Filipino and the businessman may have little reason to feel better about their lives, much less to expect an even better year ahead. The year has been marked by a progressive deceleration in the rate of growth, with growth in gross domestic product slowing down to 4.9 percent in the first quarter, 3.4 percent in the second quarter and 3.2 percent in the third quarter, way lower than the 3.8 to 4.8 percent GDP growth forecast for the quarter of the National Economic and Development Authority. Year on year, the GDP growth for the first nine months was recorded at a very disappointing 3.6 percent, less than half the 8 percent growth that the government was aiming for at the start of the year. To achieve the government’s much-reduced target of 4.5 percent GDP growth for the whole year, the economy would have to grow by 6.9 percent in the last quarter of the year, according to the National Statistical Coordination Board. Estimates by private economists and financial institutions, however, place the full-year GDP growth at between 3.5 percent and 4 percent.

Socioeconomic Planning Secretary Cayetano Paderanga said the “modest performance” of the economy was caused by typhoons which damaged crops, the global economic slowdown caused by worries over the huge debts of several European countries and the weakness of the US economy and the “contraction of the construction sector amid stricter project reviews for public construction projects.”

These are the same excuses heard from government officials, and true enough there is nothing government can do to change some of them. For instance, nobody expects the Philippines to do anything that would improve the financial condition of Greece or push the US economy to higher levels of growth. Neither is there an instant solution to the heavy dependence on electronics of our export sector, although diversification should be started soon. But certainly there is much government can do to speed up the implementation of its centerpiece public-private partnership program as well as its own infrastructure projects. Where once the government had to scale down its construction program for lack of funds, now that it has the money it is too slow in spending it. Of course, the government can never be too careful in safeguarding the people’s money and ensuring it is spent wisely, but fiscal prudence should not lead to economic paralysis. Now that the government has put its financial house in order, it should devote its full attention to fixing the economy.

Optimism such as the one being expressed by businessmen and ordinary people alike is good for the the country’s economic health. But it could burst easily. The slowdown in GDP growth has gone on for far too long and should be cause for alarm. It is time for the country’s economic managers to deliver on their promise to provide the stimulus that would push the economy to faster rates of growth.

Sunday, November 27, 2011

Bangko Sentral mulls raising microfinance loan ceiling

November 25, 2011 5:54pm

The ceiling on microfinance loans — at P150,000 since 2003 — could soon be raised to give entrepreneurs better access to credit, the Bangko Sentral ng Pilipinas (BSP) said on Friday.

"Although monitoring of microfinance loan is quite strict, a microfinance loan does not require collateral. [Increasing the ceiling] will have an advantage to low-income earners who want to engage in business," BSP Deputy Gov. Nestor Espenilla explained.

Last year, P13 billion in microfinance loans were issued to about 2.3 million borrowers. The size of the average loan per microentrepreneur was lower at P5,650.

“Beyond the wholesale and high-end retail markets, the growth of microfinance and non-traditional delivery channels is something we are most proud of. The banking system is much more inclusive today with almost 980,000 [979,353] microfinance borrowers at a portfolio of P7.3 billion covering over 200 [202] banking institutions,” BSP Gov. Amando Tetangco Jr. said in a recent convention.

The BSP issued Circular No. 409, series of 2003 to set the ceiling, while a series of other circulars diversified the type of microfinance loans to include housing, agriculture, and microinsurance purposes.

In particular, BSP Circular 678 widened the scope of microfinance by allowing qualified loans up to P150,000 for home improvement and up to P300,000 for lot acquisition and house construction.

Another issuance, Circular No. 680, allowed authorized banks to offer micro-agri loans to small farmers. —ELR/VS, GMA News

What to say to cash-rich, debt-free Pacman


By: Dax Lucas, Margie Quimpo-Espino
Philippine Daily Inquirer

What Saranggani Representative Manny Pacquiao owns today is more than what 95 percent of Filipinos will ever have – a house in Forbes Park that reportedly cost P388 million, properties in Los Angeles, a residence in Brentville, expensive cars, businesses, and loads of cash, among others.

Endorsements left and right abound, with some price tags reaching about P50 million, and more are coming.

For now he is the richest lawmaker in the country, or he’s the only one who declared his statement of assets and liabilities and net worth at P1.13 billion as of Dec. 31, 2010.

But rumors of his expensive ways abound – taking an entourage via a private plane anywhere in the United States, having his own bus when he travels during his fights or workouts, betting big in cockfights.

Bulk of his wealth comes from his winnings of the past few years plus the percentage of the pay-per-view buys, closed-circuit tickets, gate receipts and merchandise sales.

SundayBiz sought some unsolicited advice for Pacman – what would you say to rich and debt-free Manny?

If he listens to some of these, he may not go the way of Mike Tyson, who went bankrupt, or some other boxers and star athletes who died poor after being very rich.

Put it in BDO

Put it in equity, in property and of course, BDO! (SM owns the bank, one of the biggest in the country.)

Tessie Sy
Chair, SM Foundation

Get an investment consultant
I would advise him to see an investment consultant who can help him plan his portfolio so he can spend what he wants but not risk losing everything with a bad decision.

Next, I would put up a foundation like Bill Gates/Warren Buffett and share my wealth to help solve a problem, say education or public health. But a real solution that is sustainable and not a one time thing.

Third, I would look for a business for my family to get into so they stop asking for doleouts and so they will learn how to earn their own money.

Last, I will plan for retirement from boxing and concentrate on being a remarkable congressman.

Chit Juan
Social Entrepreneur
ECHOstore sustainable lifestyle

A cash-rich, debt-free institution has several options:

Expand its core business if he sees more growth potential in it.

Be on the prowl for strategically relevant acquisitions.

Buy back its shares if its stock is undervalued.

The one thing it must not do is mindlessly acquire companies that have no strategic significance to its business in the hope that it can flip these holdings at a quick profit.

Joey A. Bermudez
Chair of Maybridge (Asia) Inc.
Past president of the Management Association of the Philippines

Meet the objectives
From the many times I have heard Pacman speak, my sense is that he has three financial objectives.

One is to provide a very high quality of life for the current and future generations of his family.

Second, I believe he would like to use some of his wealth to help alleviate poverty in the Philippines.

Third, he would like to have a separate source of funds from which to indulge in his personal hobbies and make bets on higher risk investments and ventures.

My first advice would be to divide the enormous wealth he has into these three parts; each of which will have its own investment and management strategy. His vision for his family, and the kind of upliftment he would like to make in our society should be as clear and as specific as possible.

Family. He should quantify the costs and resources needed to provide a very comfortable life for his family today, and for succeeding generations. There will be annual costs (education, health, some luxuries, etc.) and large one-time costs (house, capital for a new venture, etc.). The investment approach for the “Take Great Care of My Family” fund should be for preservation, continuity and stability. The right investments would be in cash or bonds denominated in strong currencies or backed by highly stable companies and countries.

Philanthropy. Once again he should estimate the resources required for the kind of philanthropic projects that he would like to pursue.

I would strongly recommend that he follow the model developed by Bill Gates. He and his wife Melinda made a 5- and 10-year plan, and were therefore able to pinpoint specific areas where to achieve concrete and sustainable results.

Bill Gates set up a trust structure and hired a professional and very competent team to manage his foundation.

If anyone approaches the Pacman for support, he can refer them to the management team. It will go through a certain process and increase the chances that Pacman will be able to make the greatest difference in vital areas to alleviate poverty in our country.

This foundation and his legacy will be crystal clear, and will continue to help the poorest and most defenseless of our country beyond Pacman’s lifetime.

Personal hobbies and higher risk investments. This is Pacman’s discretionary or “do whatever he wants with it” fund. This is where he can draw funds to buy himself a nice sports car, or invest in higher    risk but also higher reward ventures, equities, bonds, etc.
DONNIE Tantoco

He can be more daring with this fund because he has already provided very well for his two other responsibilities or objectives which are his family and his country.

This is how I would advise him to manage the considerable and hard-earned wealth that he has today. He should divide his money by objective or vision; and use a structure and investment approach that best suits each objective.

Donnie V. Tantoco
President, Rustan’s Supercenters Inc.

Surround himself with right people
He should surround himself with people who can preserve or grow what he has in the proper way. No need to rush and aim for quick big bets since the base is already huge to begin with. A professional financial advisor who can talk to him in the same wavelength is definitely a must-do.

Defining a significant portion of his wealth to help others in a structured way is wise.

Ferdz de la Cruz
FERDZ de la Cruz
Manila Water Group director for East Zone Business and concurrent Corporate Strategic Affairs head

Life insurance
Mr. Pacquiao is a perfect example of a Filipino who had humble beginnings but made it big, in fact bigger than what he thought he would ever become. He is at the peak of his career and probably will be even more successful years ahead.

But just like every good thing, one day, he will have to hang up his gloves. Apart from his legacy in the annals of global boxing history, he has well created a big estate for his family along the way. The world created a product that conserves one’s estate, that insures the most important asset which is the breadwinner, and one that creates money where none existed before.

This is the beauty of life insurance which protects more than 10 times one’s annual income. Instead of buying Hermes’, getting a “bagful” of life insurance is the incomparable lasting gift for the people dearest to him, his loved ones.
Peter G. Coyiuto

Peter G. Coyiuto
President and chief executive officer
First Life Financial Co. Inc.

Depends on goals
According to tycoon Manuel V. Pangilinan, Pacquiao should examine closely what he intends to achieve with his assets and juxtapose this with what he is willing to do to achieve those goals.

“That’s pretty much, for me, an individual decision,” Pangilinan says. “It depends on several factors. It depends on his risk [profile].”

The head of the PLDT conglomerate declined to provide specific advice for the boxer, but noted that there is “an entire spectrum” of potential asset management methods and vehicles, depending on Pacquiao’s stomach for risk.

“At the end of the day, it depends on whether he’s a risk taker or if he’s risk averse,” Pangilinan says.

He notes, however, that Pacquiao’s main earning asset – his physical abilities as a champion athlete – is a finite resource that will, at some point in the future, exhaust itself naturally.

“So, you have to plan for your future based on that ‘shelf life,’ so to speak,” he says.

Manuel V. Pangilinan
V. Pangilinan
Tycoon, head of major firms like PLDT

Healthy mix
The head of San Miguel Corp. – the boxer’s other main commercial sponsor in the Philippines – notes that Pacquiao should have a healthy mix of investments in his portfolio, just like the way the smartest investors manage their assets.

According to SMC president Ramon Ang, the boxer may want to set aside a small portion of his assets for relatively riskier investments like the stock market, while keeping the bulk of his assets in long term investments, like bonds and real estate.

“Maybe a small portion should be allocated for investments with faster turnaround times, which tend to be riskier,” he says. “But a large amount should be set aside for the long term future, like when he retires years from now.”

Ang says that the boxer’s investments in prime real estate – like his recent purchase of a mansion in Forbes Park – are good moves which will reap benefits down the road.

“It’s all about being smart about your money, and he has shown that he can do that,” he says.

Ramon Ang President, San Miguel Corp.

Saturday, November 19, 2011

Philamlife sells pre-need, healthcare units to STI group

Posted at 09/04/2009 1:02 PM | Updated as of 09/06/2009 3:47 AM
MANILA - Local financial services firm Philippine American Life and General Life Insurance Co. (Philamlife) has sold its stakes in its pre-need and healthcare units as part of its continuing efforts to focus on its core businesses.

According to Philamlife, Filipino-owned firms Systems Technology Institute Inc. (STI) and Philippines First Insurance Co. Inc. (PhilFirst) are set to acquire Philam Plans and PhilamCare through a share-sale agreement.

Both deals are still subject to regulatory approvals. Deutsche Bank was the sole adviser in both transactions.

The announcement did not include the terms of the deals.

This is the second set of deals that Philamlife, a leader in the local life insurance industry, has announced since its fate as a subsidiary of American Insurance Group (AIG), the world's largest corporate mess, has turned.

Philamlife was put on the auction bloc last year to help pay for AIG's massive loans. It was eventually spared after the global strategy changed into pooling Philamlife with other Asian assets of AIG under American International Assurance Co Ltd (AIA).

With the sale of its pre-need and healthcare units, and previously its thrift banking arm and leasing unit, Philamlife is now focused on its diversified insurance and investment businesses.

Philamlife has beefed up its insurance business by expanding its distribution network through a 51% recently acquired stake in Ayala Ayala Life Assurance. The 2 now have a bancassurance partnership.


The sale of Philam Plans to the STI group creates a new twist to the usual business model of pre-need firms. Usually, a pre-need firm is part of a portfolio of products of a financial or property conglomerate.

For years, the pre-need industry has been hit  by bankruptcies and legal troubles as some firms, including the industry's key players, failed to meet their financial obligations to clients.

The pre-need woes have snowballed into lesser sales in the insurance industry, which is erroneously considered to be in the same business as pre-need.

Philam Plans, however, is one of the 22 surviving pre-need firms. It said in its website that it has a liquid trust fund of P29 billion. It is now the leader in the pre-need industry
It has over 300,000 plans in force, according to its website. Of these, educational plans are its key product.

With the sale of Philam Plans to STI, a synergy is formed.

STI, an eductional institution, could now effectively integrate financing, through educational pre-need plans in its product portfolio.

"While other pre-need plan firms rely on third-party schools for the provision of education, STI provides the education services itself. It can also increase Philam Plans's product portfolio by accessing STI's network of education services," STI Executive Committee Chairman Eusebio Tanco said.

At present, STI operates a network of 95 tertiary schools which offer information technology, engineering, healthcare, business administration, and hotel management courses.

Health care

The sale of PhilamCare is also seen as a good fit for the 2 Filipino-owned firms, given STI's presence in the health care business.

PhilamCare is one of the country's leading health maintenance organizations, offering healthcare products and services to about 160,000 cardholders.

A couple of years ago STI, which started as a school focused on Information Technology, has branched out into offering courses in the medical services field.

STI, through affiliates, also operates the De Los Santos-STI (DLS-STI) MegaClinic in Mandaluyong city, the DLS-STI Medical Center in Quezon city, and the DLS-STI College of Health Professions. The education service provider also manages the Dr. Fe del Mundo Medical Center.

"We believe STI can further enhance PhilamCare's growth since we are in the process of developing our network of health care professionals and affiliated hospitals and clinics nationwide," STI President and Chief Executive Officer Monico Jacob said.

For his part, Philamlife Vice Chairman Jose Cuisia said: "The divestment of PhilamCare is part of our strategy to focus on our core life insurance and wealth management operations, as we move towards becoming part of the AIA Group."

STI group

The STI group was founded in 1983 by 4 enterprising friends: Augusto C. Lagman, Herman T. Gamboa, Benjamin A. Santos and Edgar H. Sarte. Starting with just 2 schools in the 1980's, then called Systems Technology Institute was addressing the increasing demand for computer professionals. At the time, the information technology (IT) was just booming.

Twenty five years after, STI has grown to more than 100 campuses here and abroad. It has also expanded its network to provide education at the basic, secondary, and tertiary levels. It has one of the largest networks of nursing colleges in the Philippines.

The STI group is now led by individuals well-known in the business industry. On the board are Eusebio Tanco (a stockbroker, investment banker, insurer, property developer and educator) and Monico Jacob (former head of National Housing Authority, Pag-IBIG Fund, Petron Corp, and Philippine National Oil Company)

STI's portfolio includes an overseas recruitment and staffing agency, Global Resource for Outsourced Workers, Inc. (GROW), a stake in Bank of Commerce, and in Philippine Insurance Co. (PhilFirst).

One of the parties in the transaction with the Philamlife Group, PhilFirst is a provider of non-life insurance coverage to individuals and corporations. It is said to be the first domestic non-life insurance company, founded way back in 1906.


Friday, November 18, 2011

BIR taxing voluntary contributions to SSS, GSIS, Pag-IBIG, PhilHealth

11/18/2011 | 05:16 AM

After tollways, government-backed bonds, professional fees, and retirement funds, the Bureau of Internal Revenue (BIR) has set its sights on collecting taxes on ordinary citizens’ payroll deductions made for their contributions to housing, health and pension funds.

BIR Commissioner Kim S. Jacinto-Henares claimed that, “It has been observed that the grant of income tax exemption to SSS, GSIS, PhilHealth, and Pag-IBIG contributions in excess of the mandatory contributions is being abused."

The BIR has admitted a collection shortfall of P35 billion this year. So starting last July, the BIR is collecting taxes on voluntary contributions made by citizens to the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine Health Insurance Corp. (PhilHealth), and Home Development Mutual Fund (“Pagtutulungan sa kinabukasan Ikaw, Bangko, Industriya at Gobyerno" or Pag-IBIG Fund).

GMA News TV program “On Call" interviewed BIR Assistant Commissioner for Legal Service Marissa O. Cabreros on Revenue Memorandum Circular (RMC) 53-2011 which states that voluntary contributions to the SSS, GSIS, HDMF, Pag-IBIG and PhilHealth are subject to tax.

The BIR said that such contributions are considered investments and thus taxable and the bureau will no longer entertain any request for tax exemption on them.

The BIR considers as “investments" the contributions made over and above those mandated by law, particularly because the benefits that members of these institutions are bound to receive – such as pension or loans extended – will be enhanced.

Voluntary contributions entitle members to avail of extra retirement, sickness, or unemployment benefits beyond regular or usual financial assistance extended to the members who only make mandatory contributions.

“Kung sasabihin po natin na exempt pati din yung voluntary, nawawalan ng tax po yun kasi kumbaga the exemption is no longer dictated by law but dictated by the income earner," explained BIR Assistant Commissioner Marissa Cabreros in an interview with GMA News which was aired on “24 Oras", “SONA" and “Saksi".

New relevant BIR Circulars

Last Nov. 4, the BIR issued RMC 53-2011, to clarify that RMC 27-2011 does not apply to contributions made before July this year.

RMC 27-11 was issued July 2, 2011 and subjects to withholding tax on compensation the voluntary contributions to SSS, GSIS, PHIC and HDMF only covers all voluntary contributions made beginning July 1 of this year.

RMC 27-11 also revoked BIR Ruling Nos. 002-99, DA-184-04, DA-569-04 and DA-087-06 – all of which are earlier rulings exempting such contributions from income tax.

RMC 53-2011 further clarified that only the mandatory or compulsory contributions of employees made to SSS, GSIS, PHIC and HDMF are exempt from income tax and consequently, from the withholding tax on compensation.

The voluntary contributions in excess of compulsory contributions are now considered taxable gross income subject to income tax and withholding tax on compensation.

Thus, the exemption from withholding tax on compensation referred to in Section 2.78.1(B)(12) of Revenue Regulations (RR) No. 2-98 shall apply only to mandatory/compulsory SSS, GSIS, Medicare and Pag-IBIG contributions – and not voluntary contributions.

Contrary to laws and implementing rules?

But the new BIR rule does not apply to contributions of PhilHealth members because contribution cannot exceed its mandated ceiling of P1,200 per year.

Likewise for GSIS and SSS contributions, these amounts are automatically deducted from the salaries of government employees as well as workers in the private sector. In other words, no voluntary contributions.

Businessmen, however, can become voluntary members of the SSS but they cannot raise the amounts of their contributions year in and year out.

RA 8282 (Social Security Law) in Sec. 16. states that “[a]ll laws to the contrary notwithstanding, the SSS and all its assets and properties, all contributions collected and all accruals thereto and income or investment earnings… shall be exempt from any tax, assessment, fee, charge, or customs or import duty; and all benefit payments made by the SSS shall likewise be exempt from all kinds of taxes, fees or charges."

Moreover, the said law “No tax measure of whatever nature enacted shall apply to the SSS, unless it expressly revokes the declared policy of the State in Section 2 hereof granting tax exemption to the SSS. Any tax assessment imposed against the SSS shall be null and void."

Rule IX, Sec. 3 of the Implementing Rules and Regulations of RA 9679 (Home Development Mutual “Pag-IBIG" Fund Law of 2009) states that “[a]ll laws to the contrary notwithstanding, all contributions collected and all accruals thereto and income or investment earnings … shall be exempt from any tax, assessment, fee, charge, or customs or import duty; and all benefit payments made by the Fund shall likewise be exempt from all kinds of taxes, fees or charges."

RA 8291 (GSIS Act of 1997) provides in Section 39 that “It is declared policy of the State that …contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers," and “[a]ccordingly, notwithstanding any laws to the contrary, the GSIS, its assets, properties, revenues including all accruals thereto, and benefits paid, shall be exempt by virtue of this Act from all taxes, assessments, fees, charges and duties of all kinds."

The same section: “These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS, as of the approval of RA 8291, are hereby considered paid," and that “[a]ll laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are deemed repealed, superseded and rendered ineffective and without legal force and effect."

"Moreover, these exemptions shall not be affected by subsequent laws to the contrary, unless (Section 39 of RA 8291) is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemptions grant."

Other recent tax moves

Henares’ new issuances on the taxation of voluntary contributions to pension and mutual funds is not her first time to reverse established policies.

The incumbent BIR chief issued BIR Ruling No. 370-2011 which “confirmed that the 20 percent final withholding tax is applicable to the so-called PEACe bonds."

This issuance reversed BIR Ruling No. 20-2001 dated May 31, 2001 which did not consider the PEACe bonds as deposit substitutes and therefore not subject to 20 percent final withholding tax.

Another new BIR regulation issued only last October 27 pertained to the Personal Equiy Retirement Account (PERA) Law or Republic Act No. 9505 , which was intended to encourage investment and saving among the middle class and overseas Filipino workers.

RA 9505 took effect on November 1, 2008. It granted tax exemptions to PERA accounts with up to P100,000 or P200,000—depending on the type of types of account holders. The tax exemption provisions are:

SEC.9. Tax Treatment of Investment Income. – All income earned from the investments and reinvestments of the maximum amount allowed herein is tax exempt.

SEC.10. Tax Treatment of Distributions. – All distributions in accordance with Section 12 hereof are tax exempt.

Nearly three years after RA 9505 became a law, Finance Secretary Cesar Purisima issued Revenue Regulations (RR) 17-2011 implementing the tax provisions of RA 9505. Henares recommended approval.

RR 17-2011 enumerates the taxes the PERA is exempt from although the law itself does not enumerate any. It also provides that “non-income taxes, if applicable, relating to the investment income of the PERA Account of a Contributor, shall remain imposable," and those listed as imposable are value-added tax, documentary stamp tax, stock transaction tax, and percentage taxes. — ELR, GMA News

Wednesday, November 16, 2011

SMEs seek informal lenders for assistance

Tuesday, 15 November 2011 19:40 Dennis D. Estopace / Reporter 

AMID the drop in formal sector lending in the past decade, micro, small, and medium enterprises (MSMEs) turned more to informal sources of cash, a 2009 survey recently released by the Asian Institute of Management reported.

Data from 1,740 respondents noted that while majority of the country's MSMEs consider access to credit to be important in their operation, a document survey by the Asian Development Bank (ADB) bared formal sector lending has dropped from a high of nearly 20 percent of the total loan portfolio in 2008 to a mere one  percent by 2010. 

"There is still room to grow for SME financing, especially in the micro-small segments," Niny Khor of the ADB economics research department said in her presentation at an AIM-sponsored forum Tuesday.

Citing the ADB 2011 SME financing survey, Khor said that this room is built on a significant increase in bank branches from 1980 to 2010 and that the total amount of bank loans increased through the global financial crisis.

"Universal and commercial banks [UKBs] remain as the primary source of MSME funds," Khor said, adding that this accounts "for over 72 percent of the total amount lent to the sector."

Last year, Khor said that the average UKB released about P6 billion ($134 million) to MSMEs in direct loans.

"While this is seven times the average of thrift banks, thrift, rural and cooperative banks have managed to increase their market share to 27 percent last year from just 16 percent more than a decade ago."

Nonetheless, the graph based on the author's calculations using Bangko Sentral ng Pilipinas (BSP) data showed total bank loans to MSMEs as share of total loan portfolio net of exclusions declined.

Still, the decline from UKB lending reached its 1999 level of 20 percent while thrift, rural and cooperative banks' lending has declined below the levels they posted prior to a new millennium.

Khor's data coincide with the AIM survey that showed majority of the respondents (35 percent among micro-enterprises and 34 percent among small and medium businesses) consider access to credit to be important in their operations.

Majority, too, tapped their savings accounts for the largest financing requirements of their businesses.

Interestingly, relatives, immediate family, friends and usurers were tapped as sources for loan or credit before these businesses went to rural banks, other financial institutions and government banks.

More than half (54 percent) of micro-enterprises and majority (74 percent) of small and medium businesses said they borrowed from informal sources because these had no or very little interest.

These capitalists also cited that they went to such sources because the transaction was fast; no or fewer guarantee requirements were needed; they are required to pay only when able or offered flexible payment schemes; and there was no collateral needed.

Majority of the respondents said they didn't need much when they started a business, citing that low capital was the top-most consideration.

Thirty percent of the enterprises surveyed by AIM started with less than P150,000 capitalization.

The AIM Policy Center, which conducted the survey, said that there is a need "to match the requirements of the financial institutions to the capacity of the MSMEs to produce such requirements for loan availments."

Tuesday, November 15, 2011

‘Biggest free trade zone’


Philippine Daily Inquirer 

Last Friday, before leaving for the 19th Leaders’ Summit of the Asia-Pacific Economic Cooperation (Apec) forum in Honolulu, President Aquino said that the meeting would help solve the problems of the Philippines. He mentioned in particular economic growth, job creation, regulatory reforms, competitiveness and protection from the turbulence that has swept the European Union.

Well, indeed he may be getting some ideas on how to solve the problems of the country from the strategies, proposals and other information that he will gather at the Apec summit. The biggest proposal presented at the Apec meeting is the Trans-Pacific Partnership (TPP), a framework for a vast trade agreement spanning the Pacific which could develop into the world’s biggest free trade zone and dwarf the European Union.

Already 12 nations, including Japan, the world’s third largest economy—and, only on Monday, Canada and Mexico—have become members of the TPP. That’s a big boost to an economic organization that could serve as a counterpoise to China, a developing economic giant that could overtake the United States as the world’s biggest economy and completely dominate economic affairs in the Pacific.

As of now, the TPP trade bloc includes Japan, Chile, New Zealand, Brunei and Singapore, and possibly later, the United States, Australia, Malaysia, Vietnam and Peru. The Philippines, if it has not yet done so, should join the free trade bloc. Indonesian President Susilo Bambang Yudhono has said that the TPP could be the Asian pillar in the global economy. If the TPP could help develop economic equilibrium in Asia-Pacific and East Asia, the participation of the United States could be a mainstay that would ensure that the region would grow economically.

One problem in the formation of the TPP is the reluctance of China to join it. It has described the plan as “over-ambitious” and Chinese President Hu Jintao has said that Beijing has to “play by the rules” in international trade and the protection of intellectual property. China has also differed with the United States on rules about trade by state-owned enterprises.

Some quarters have remained optimistic that while China has some objections, it will ultimately join the TPP. For instance, Peter Petri, an expert of the East-West Center think-tank, said, “it’s very important for China to join eventually, and China has left that possibility open.”

Opposition also comes from farm groups in the United States and Japan which have expressed alarm that they would be swamped by global competition. These fears, which are not entirely groundless, will have to be addressed if the TPP is to attract more nations and get off to a good start.

The TPP, by promoting free trade, could spur global economic growth. With Europe moving toward recession, a fast-growing Asia-Pacific region could be an engine for faster global economic growth. Forecasts of the International Monetary Fund have said that Asia is expected to grow 8 percent next year, about four times faster than the United States. In the narrower, local perspective, Philippine membership in the TPP could help it cope with the major problems of spurring economic growth, creating jobs, instituting regulatory reforms and promoting competitiveness. With a stronger economy, the Philippines could protect itself more effectively from the turbulence that is rocking the United States and the European Union. 

New payment app aims to make shopping easier

11/14/2011 | 07:40 PM

TORONTO — Ready to ditch your wallet, cash and credit cards? A mobile payment app lets users make purchases with their smartphone without taking the device out of their pocket or purse.

Developed by electronic payment startup Square, the app called Card Case allows customers to pay for products and services at local merchants automatically by simply providing their name to complete the transaction.

"You walk in, say your name, and walk out. It's a seamless payment experience," said Megan Quinn, director of products for Square.

The app automatically opens a tab when it detects that a customer is within 100 meters (328 feet) of a business, as long as they've enabled the functionality in the app and approved the business.

The user's arrival, along with their name and photo, is announced on the merchant's app giving them the ability to charge products and services to the customer's credit card.

"You can pay without ever reaching for your purse, taking out your wallet, or even your phone," said Quinn. "It requires no new or unusual customer behavior — you don't have to wave your phone, or preload money."

By giving the merchant access to customers' names up front, and removing the transactional aspect, the company hopes to provide a personal touch, helping customers feel like regulars even at unexplored shops.

"We've removed the mechanics of the transaction and brought it back to the relationship and conversation between the merchant and their customer," Quinn explained, adding customers tend to return to places where they feel comfortable.

Over 20,000 merchants have signed up for the app across the United States in eight weeks, including coffee shops, bakers, barbers and even farmers market stalls.

Although other companies have announced mobile payment apps, many have implemented Near Field Communication (NFC) technology, which uses a chip in smartphones to send encrypted payment data when the phone is waved in front of the merchant's reader.

Last week, PayPal announced an update to their Android app that uses this technology to allow users to swap payments between each other by tapping their phones together. The Google Wallet app available for the Nexus S, uses the technology to allow payments anywhere MasterCard PayPass is accepted.

"NFC is an interesting technology that has the potential to power many interesting new applications," said Quinn. "We just don't think it's necessary to help small businesses grow."

There is currently no NFC chip included in iPhones, and NFC equipment amongst merchants is not yet mainstream.

Card Case, available for iOS and Android smartphones is only available in the United States, but the company plans to expand to international markets in 2012. — Reuters