DAVAO CITY—The government’s full collection of Mighty Corporation’s civil settlement of its tax liabilities, which will amount to about P30 billion, will depend on how swiftly the Philippine Competition Commission (PCC) can approve the sale of the homegrown cigarette company’s assets to Japan Tobacco International (JTI), according to Finance Secretary Carlos Dominguez III.
Dominguez said Mighty’s offer to settle its tax liabilities for P25 billion will rise to around P30 billion once the value-added tax (VAT) and other fees are included in the computation of the final settlement sum.
“This will be the largest sum of taxes collected ever from a single taxpayer in Philippine history. The date of full collection will depend on how fast the Philippine Competition Commission (PCC) approves the sale of Mighty’s assets to the Japan Tobacco International (JTI) whose largest shareholder, incidentally, is the Japanese Government. Mighty will be out of the cigarette manufacturing business from now on,” said Dominguez in his weekend speech at the Davao Investment Conference held at the Lanang SMX Convention Center in this city.
The PCC is an independent quasi-judicial body created by law to promote and maintain market competition and a level playing field for business by checking anti-competitive practices.
Under Section 3 of the Implementing Rules and Regulations of the PCC, parties to any merger or acquisition (M&A) are required to notify and seek prior approval from the Commission if the value of the transaction exceeds P1 billion.
The Bureau of Internal Revenue (BIR) has already received the first tranche of Mighty’s settlement offer of P3.44 billion last July 20, Dominguez said.
In an earlier press briefing in Manila, Dominguez stressed anew that the receipt of this initial amount does not yet mean that the government has already formally accepted Mighty’s P25 billion offer.
Dominguez likewise pointed out that even if the government finally accepts the settlement, it does not preclude any criminal charges that the BIR may file against Mighty, “as criminal cases cannot be compromised.”
The finance chief said “future sin tax collections are expected to rise by at least P1 billion per month,” which can be used to improve health care facilities and pay for additional medicines, commodities and services that will help prevent and control the deadly diseases caused by tobacco use.
Dominguez said Mighty’s offer to finally settle its tax liabilities after the BIR and the Bureau of Customs worked together to expose its tax dodging practices shows that besides tax reform, the Duterte administration is also bent on implementing significant improvements in tax administration to raise more revenues.
He said in his Davao speech that tax policy reforms will be instituted via the proposed Comprehensive Tax Reform Program, of which the first package—the Tax Reform for Acceleration and Inclusion Act (TRAIN)–was recently approved by the House of Representatives and is now under consideration by the Senate.
Besides “revenue-positive” measures from tax reform, the government will also resort to a sustainable borrowing strategy by tapping official development assistance (ODA) to get infrastructure projects implemented faster and at lower financing costs, he said.
“Time is an important element in the interest of economic development. The quicker we can complete the projects, the better we can sustain our pace of economic expansion. We cannot afford to squander the 30 months needed to gestate projects within the Public-Private Partnership (PPP) framework,” Dominguez said, referring to the lengthy period needed to get projects going under the PPP mode.
“We don’t want to wait too long for the public to benefit from new projects and so this administration is willing to take initial steps and spend the funds available to the government both through loans as well as through tax collections,” he added.
Dominguez pointed out, however, that the government is not closing the door to private-sector participation in big-ticket infra projects, as it is still open to unsolicited proposals even as it recognizes that some projects could be better financed using the hybrid PPP mode.
Under the hybrid PPP scheme, the government will undertake the planning, building, and financing of projects and later turn over their operation and maintenance (O&M) to private contractors.
“With its vast expertise in managing and operating large-scale projects, the private sector can do a better job in maintaining them,” Dominguez said.
“Likewise, the door is certainly open for unsolicited proposals from the private sector. Such proposals will be evaluated in terms of social goods delivered and risks assigned to government,” he added.
Dominguez also dispelled fears that the Duterte administration’s ambitious spending strategy could lead to fiscal instability, pointing out that even with ODA loans, the national government’s debt in relation to GDP is still expected to improve between 37 percent to 38 percent from the current level of 42 percent once the TRAIN is passed and enacted into law.
“For 2018, we expect to incur $1.81 billion in ODA loans. This will be used to implement key big-ticket infra projects. We are targeting a financing mix of 80% domestic borrowing to 20% foreign,” Dominguez said.
He said this preference for domestic borrowings has altered the country’s debt portfolio, which is now 67.1% peso-denominated.
“This is a significant improvement from the 58.1% peso-denominated debt in 2010. It will reduce the currency risk and help deploy the excess liquidity in our financial system,” Dominguez said.
“The ambitious infra program will not add to the debt load. It definitely will not bring us close to what might be called a ‘debt crisis.’ Fiscal prudence will continue to rule the day,” he said.
Dominguez said the first tax reform package, which will raise a projected P133.8 billion in incremental revenues in 2018, is expected to be implemented by the third or fourth quarter of 2017.
He said reforms in tax policy and administration are necessary to help fund the government’s massive spending on infrastructure and social services and sustain economic growth at 7 percent annually.
“By modernizing our infra backbone, we will improve efficiency in all economic sectors. The improved efficiency will mean less congestion, lower transport costs and improved investment attractiveness,” he said.
“In order to grow, grow and grow, we have to build, build and build,” Dominguez said.
“We will usher in President Duterte’s Golden Age of Infrastructure with a sense of urgency. We now have a leader with the political will strong enough to realize the ambitious goals we have set to transform our country into Asia’s next economic powerhouse,” he noted.
The government’s infra projects, he said, will create millions of jobs and lower transport and logistics costs, generate broad multiplier effects on small and medium enterprises, and build linkages among our industries.
In Mindanao, for instance, Dominguez said the government “will get the rail system underway. In Davao City, in particular, we will build the modern port we need. We will modernize our ports and airports nationwide to support the growth in tourism industry and boost domestic trade.”