Tuesday, September 20, 2005

Will the real GMA please stand up?

‘On VAT, will the real GMA please stand up?’

The Senate “will waste no time” in considering any
House resolution that will seek the deferment of the
imposition of the value added tax on oil and power,
Sen. Ralph Recto made this assurance today.

“Tax bills must originate from the House. Once they
will send it to the Senate, our action will be
prompt,” Recto, chair of the Senate ways and means
committee, said.

Defer till  end 2006 ?  

Recto said the Senate may even propose a longer
deferment period, “not just until June 30 next year as
proposed in a House resolution, but even to end of
2006 or to middle of 2007.”  

“Some of my colleagues are, in fact, asking: ‘Why not
December 2006, instead of June 2006? Some are taking
the position that the nine-month reprieve until June
is short,’” he said.

Recto said nobody can predict that oil prices will go
down in June next year. “What gives those who were not
able to predict that oil prices will rise to this
level now the confidence to say that oil prices will
go down nine months from today?”

Recto admitted that “there’s even a bloc in the Senate
that wants to do away with any VAT increase, a
position that we will have to contend with, and if
such becomes the majority opinion, must be respected.”

Bill , not a resolution

Recto said legal experts in the Senate have expressed
reservations as to whether a simple resolution can
stop the effectivity of components of the new VAT law.

“Others contend that it should be a bill considering
the fact that the new VAT law cuts or scraps the
excise tax on certain types of fuel as well as the
franchise tax on electricity.  If we will just defer
VAT on these products without correspondingly
postponing the cut on the excise tax, the result will
be a revenue loss for the government,” he said.

Make up your mind

This, as Recto urged President Arroyo to make up her
mind whether she wants the imposition of VAT or not,
“following her confusing statements in New York where
she see-sawed between VAT rejection and VAT

“To stop this guessing game, the President should
certify the passage of a law deferring the
implementation of VAT, if that is what she wants,”
Recto said.

“Congress is finding a hard time deciphering
Malacanang’s message on VAT. It seems that it has one
message for the market, which is to stick to VAT, and
one for the masses, which is to junk it,” he said.    

“Will the real GMA please stand up?” he said.        

GMA boys for VAT on power, oil  

This as Recto belied President Arroyo’s statement that
the administration did not push for a VAT on power and

Recto said Senate records would bear the fact all the
presentations of the Cabinet men she sent to the
Senate declared the administration’s preference “for a
higher and a wider VAT, meaning they want all the
exemptions lifted and at the same time increase the

“It’s on record. They were never shy in asking for a
VAT on power and oil, and to raise the current VAT
rate on covered goods and services to 12 percent,
simultaneously.  Under oath, they pleaded for these.
Their direct testimonies on these matters fill seven
pages,” he said.  (see attached Chronology of Events)

“For months we were pestered to pass this measure.
When we tried to temper their proposal we were given
all kinds of warning, including a doomsday scenario
for the country,” he said.

House wanted it, too

Recto likewise disputed reports that applying the VAT
on power and fuel was not in the House bill that was
sent to the Senate.

“Albeit on a lower rate, the House version imposed a
VAT on fuel and power. It is incorrect to say that the
House did not even contemplate on including the two on
the VAT net,” he said.

GMA veto  

Recto said the President could have selectively vetoed
the VAT bill when it was brought to her table for
signature if she was not comfortable with them.

“She had that power. She could have excised provisions
she found objectionable. After all, this was her bill.
This was not passed upon the insistence or the
initiative of the House or the Senate. We passed this
grudgingly,” he said.

Senate as scapegoat  

Recto believes that the Senate is “being set up as a
scapegoat for VAT, when what it only did is  to lessen
its impact on consumers.”

“Taxation is not a higher-is-better game. When it
comes to taxes, we do not outbid the executive. The
role of the legislature is to temper, to limit the
taxing appetite of the executive,” he said.

“A tax measure is always an administration measure,
acted on the behest of the executive which will, after
all, enjoy the collections. The VAT was passed based
on the specs given by the administration,” he said.

“This VAT is the administration’s baby. But now
they’re disowning it, denying it parentage. They’re
giving it up for adoption,” Recto said.

Pre-Need Scams

Pyramid scams thrive in pre-need industry
Daxim L. Lucas and Elizabeth L. Sanchez
Inquirer News Service

(Second of a series)

SENATOR Manuel Roxas II believes that it is almost impossible to distinguish some pre-need firms like College Assurance Plan Philippines Inc. (CAP) from companies engaging in pyramid scams.

Having waged a campaign against pyramiding and "Ponzi" schemes when he was secretary of trade and industry, Roxas knows whence he speaks.

"Some pre-need firms are basically pyramid operations," said the lawmaker, who won public office on a consumer advocacy platform. "The bulk of fees paid by new subscribers are used to pay company obligations that are coming due."

In the case of CAP -- in a scheme mimicked by many industry players -- Roxas said only 10 percent of clients' subscription fees are deposited in trust funds for the first two years of the policy. These funds supposedly are managed by independent trustee banks.

Over the next five years, only 50 percent of clients' payments are deposited with the trustee banks. Everything that is not deposited as trust funds are used for the firm's operating expenses.

"Whatever isn't deposited is used to pay off maturing liabilities of the older policy holders," Roxas said. "This is using OPM [other people's money]. This is really the definition of 'kiting.'"

To remedy this situation, Roxas has filed a bill aimed at better regulating the pre-need industry and defining accounting standards that are all too loosely interpreted by companies to cook their books.

Is accounting really killing the pre-need industry?

CAP seems to think so. It has been the most vocal among pre-need firms about how the new set of rules adopted by the Securities and Exchange Commission (SEC) is hurting its business.

In its petition for rehabilitation filed with the Makati Regional Trial Court, CAP claimed that after operating its business for the past two decades, the industry found itself in a bind after the SEC suddenly changed its regulatory guidelines governing pre-need companies. This was aggravated by a regime of uncontrolled tuition fee increases brought about by government deregulation in the early 1990s.

CAP argued that the tighter accounting policies "came about after serious and manifest attempts" failed to place the pre-need industry under the jurisdiction of the Insurance Commission through legislation.

CAP claimed that what added salt to the wound was the imposition of the Pre-Need Uniform Chart of Accounts (PNUCA) in 2002 as a standard for accounting and reporting of finances and liabilities for pre-need companies.

With the PNUCA in place, pre-need educational and pension plans were no longer treated as investment contracts but as insurance contracts, subject to the Actuarial Reserve Liability (ARL) scheme.

The ARL requires pre-need firms to have reserves as of a present cut-off date to match future liabilities in all existing and lapsed plans.

CAP argued that plans do not mature simultaneously in the immediate future. It added that change of rules -- without proper notice and consultation, it claimed -- in the middle of the game made it nearly impossible for a pre-need firm to meet SEC's requirements.

Worse, CAP's dealer's license and permit to sell were suspended last year due to what it claimed was a "theoretical" trust fund deficiency that was due to the application of the PNUCA.

"It is the insurance companies that largely benefited from the strict impositions of the SEC on pre-need companies like CAP," the company said in its court filing. "Why would a genuine Filipino invention like educational pre-need be allowed to suffer or be extinguished when it has helped fulfill thousands of parents' dreams to send their children to college?"

CAP argued that the SEC should have applied the International Accounting Standards 39, which classifies pre-need education and pension products as investments. PNUCA, it claimed, was patterned after accounting rules for insurance companies.

Much ado over ARL

Much ado has been made over the Actuarial Reserve Liability, a fundamental calculation that takes a snapshot of a pre-need company's liabilities to plan holders at a given point in time.

Some pre-need firms have blamed the ARL for reflecting a supposed weakness in their ability to pay plan holders. CAP, for one, has strongly assailed the calculation, saying it is not a reliable estimate.

The ARL is the present value of projected future liabilities of a pre-need company as determined by an expert called an actuary. The estimate is based on a "discount rate" that must not exceed 80 percent of the interest rate for the longest maturing Philippine government security traded over the previous three months.

The main indicator of a pre-need company's financial health is a comparison of its trust fund versus its ARL. If the ARL is greater than the trust fund assets of a pre-need firm, it means the company does not have enough assets today to answer for the future value of its plan holder liabilities. In theory, the firm is headed toward bankruptcy.

Roberto Manabat, the Securities and Exchange Commission's general accountant, explains that pre-need companies, in their contract with plan holders, promise to pay benefits in the future.

Under present accounting practices, pre-need companies record income as they collect premiums," Manabat said. "For proper matching, the build up of the ARL should be expensed. If no ARL is recognized, the income that may ultimately be issued as dividends to stockholders will be overstated."

While some pre-need firms point out that the ARL is an unreliable estimate, Manabat said, a lot of figures in any company's financial statements are estimates and still provide the best insight to its health.

Philippine Dream

Youngblood : European lessons

Theresa A. O. Esteban
Inquirer News Service

I LEFT Manila in October 2004 to study in Europe for one year. I was excited about the trip since it was the first time I would be living alone, without my mom and dad, my siblings and my dogs.

The day I arrived in Rotterdam, I immediately felt at home. It was so very much like the Makati or Ortigas business districts that I thought I wouldn't feel anything different. But while Rotterdam is one of those busy cities bustling with activity during the day, unlike Manila where the night likewise becomes as busy, it finitely goes to sleep. Although there are clubs, bars and pubs, it is not the same as either Makati or Manila's Malate district at night. Makati, Malate, Timog Avenue and the Libis area come alive at 9 p.m. when the happy hour begins and throb with life until the wee hours of morning.

Studying abroad is a true test of one's character, faith and stamina. I came to Holland wearing rose-colored glasses. Seeing some things for the first time, being thrown into a diverse mix of culture and values, especially in my international course, which has 74 students of 26 different nationalities and 101 extreme personalities, I said to myself this was going to be a great learning experience.

I studied in a school that also had American students. When I went to graduate school, I had German, Nepalese and Italian classmates. My mom trains and teaches foreign students, and I grew up meeting her students in functions and gatherings. As an adult, I have worked with Aussies, Americans, Kiwis, Britons and Germans. The first Dutch friend I had was a guy who worked with my mom in a training seminar for Indian participants. He wore funny Sesame Street socks and he gave me a pair. So, I thought that it would not make any difference if I had so many people of different nationalities for classmates.

I have a strong faith and I am levelheaded, but when St. Augustine said that man is innately good, he had not heard about our class.

My first three months was a roller-coaster ride. I got homesick from time to time, but I amused myself by going out with friends and attending parties whenever I could. Since I have had a sheltered life, I learned to trust other people and believed everyone to be my friend.

But soon the differences started to kick in. At first I thought that their seemingly brusque manner had to do with the language. But after three months, I knew it was more than that. When I started to complain to friend, who happens to be a priest, he told me the honeymoon was over.

Until then I didn't know that like snakes, people molt. I am quite tolerant. For a time, I tried to put to good use my training in psychology in an effort to understand them. The exercise led me to realize where they were coming from, but that still did not justify their actions and attitude toward other people. I became convinced that the problem was not being caused by their inability to carry on a proper discourse but by some basic character defect. We have colleagues who are not really very refined in their language but still they don't sound insolent. And so I said goodbye to tolerance.

I don't regret coming here. I love Holland. It is a beautiful country and the Dutch (or most of them, anyway) are a nice and kind people. I have two great Dutch friends with whom I can discuss almost anything, and I know a Dutch family I can always rely on. I am greatly indebted to the Dutch government for giving me the opportunity to study here.

In the past months, I have learned more about life and people. I have learned that sincerity does not always get repaid, and that the only person you can really count on is yourself.

I have also learned that friends should be carefully chosen. It is hard when you get hurt by so-called friends while you are away from home and you do not have a shoulder to cry on. But if you do find friends, take care of them and love them for they can be surrogate family.

Finally, I have learned to fight back. Asians are said to be submissive. There may be some truth to that, given the many centuries we had been colonized. But sometimes other people mistake our warmth and politeness for submissiveness. It is hard for us to be brutally frank, since we don't want to hurt other people's feelings. But when push comes to shove, we know how to fight back.

Certainly absence has made my heart grow fonder of Manila and the Philippines in general. Understanding my colleagues' behavior and where they are coming from has made me realize how lucky I am to grow up in a happy and peace-loving society. I feel proud when colleagues and professors from different countries refer to our People Power revolution as a true example of an empowered society and a peaceful revolution.

Studying in a different country has made me appreciate more my culture and my upbringing. I don't need to be loud and rude to assert myself. I know what I am capable of achieving. The society where I come from has already given me the opportunity to enrich myself as a person and as a professional. It has already given me security.

Studying in Holland has also made me feel proud of being Asian, seeing how my Asian colleagues can be so good and artistic in their presentations, how fast they can calculate financial and economic stuff, how good they are with computers, and most especially how good they are as friends.

Living in Holland has also made me dream of the time when the Philippines will become another Asian tiger. Holland had humble beginnings, but is now wealthier than many of its bigger neighbors. Maybe the Philippines cannot leap right away to the status of an Asian tiger, but we can be one of Southeast Asia's more progressive countries.

My stay here has given me the opportunity to work on a development project in the Philippines. I have very high hopes that my project will work and that I will finally realize my dream of helping the country that I love.

My experiences so far have left me with a bittersweet taste, but they were still very enriching.

Theresa A. O. Esteban, 28, is a student in urban planning and is enrolled at Erasmus Universiteit Rotterdam, the Netherlands.