SONA 2017 promises on corruption and governance
President Rodrigo Duterte said he is willing to enter into a compromise deal with cigarette maker Mighty Corp., which is being accused of tax evasion.
This after he ordered the arrest of Mighty Corp. owner Alexander Wongchuking on March 7, following the raid on the firm’s warehouse in Pampanga that yielded P2 billion worth of cigarettes with fake stamps.
On March 15, Justice Secretary Vitaliano Aguirre II said Wongchuking has written the Office of the President, and agreed to pay the settlement price of P3 billion, twice the initial amount of what Duterte said it owed the government.
The amount to be settled however has since skyrocketed to P15 billion.
During a media interview on March 9 Duterte said:
“But if it was part of a tax evasion case, I just had to agree – so his lawyers because tax cases can be compromised. You can settle your issues with tax liability. Those taxes that you forgot to pay, whether it is intentional or not, you can settle that. The law says you can still settle that; it can be compromised. I'll forget about that but what the person said was P1.5-billion…I'll agree but you have to pay twice. Anyway, if somebody else’s would pursue, somebody else’s office or power would pursue against him, I can always pardon him. But here's the wrong part, he said that he'll pay P1.5…as long as he'll pay P3 (billion). He'll give it to the Secretary of Health to fund it for Jolo. And that hospital in Manila...Mary Johnston? The one in Tondo? One billion. So P3 billion, okay na.”
(Source: Media Interview with President Rodrigo Roa Duterte, Bansalan Municipal Hall Lobby, Bansalan, Davao del Sur, March 9, 2017, watch from 14:31-16:31)
On March 13, the president mentioned the amount to be paid must be 10 times the tax liability, and added he’d rather have Congress give the money directly to hospitals than have Wongchuking, whom he referred to as his “mistah,” thrown in jail.
“Sabi ko na pagka-magbayad siya ng P3 billion kasi P1.5 man ‘yon, tanggapin ko, tanggapin ko. Sabihin ko, P3 billion, hospital para sa Mary Johnston; P1 billion, P1 billion para sa i-refurbish ‘yung ospital ng Basilan kasi kawawa talaga ‘yung --- naawa ako sa mga tao doon, pati Jolo... Si ano pabayarin ko ng… Pero sabi man ni… Ayaw man ni Vit, pati ni Sonny kasi 10 times daw...At ipaayos lahat..."Eh ‘di mas okay pa kung… Bakit anong use ko sa kanya? Ipakulong mo? He’s a billionaire. You just…Kumportable ang buhay niya doon. Just like any other millionaire or billionaire na pumasok diyan.”
(Source: Press Conference by President Rodrigo Roa Duterte with Senate President Aquilino Pimentel III and House Speaker Pantaleon Alvarez, Malacañan Palace, March 13, 2017, read transcript)
Was the president correct in saying tax cases can be compromised, and that it’s lawful to go for a P3 billion settlement, leaving Mighty Corp. off the hook as long as it pays up?
A Bureau of Internal Revenue (BIR) lawyer, who requested anonymity, said before the government can even go for a settlement, it should first conduct an investigation and assess the tax liabilities of Mighty Corp.
And even when a settlement for payment has been reached, the company should still face criminal charges, which he said was strictly followed during the term of former BIR commissioner Kim Henares.
Possible violations fall under Section 254 of the Tax Code, which states that “any person who willfully attempts in any manner to evade or defeat any tax shall be punished by a fine not less than P30,000 but not more than P100,000 and suffer imprisonment of not less than two years but not more than four years.”
Section 255 imposes a heavier penalty, as failure to “make a return, keep any record, or supply correct the accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation,” shall face a conviction of imprisonment of not less than one year but not more than 10 years.
Should it be P3 billion?
In its statement, the Action for Economic Reforms (AER) rejected Duterte’s move to settle for a tax amnesty, and insisted that the government should “implement existing law in dealing with Mighty Corporation's tax evasion case instead of unlawfully settling with a measly P3 billion.”
Under Section 263 of the Tax Code, “any manufacturer, owner or person in charge of any article subject to excise tax who removes or allows or causes the unlawful removal of any such articles from the place of production or bonded warehouse, upon which the excise tax has not been paid at the time and in the manner required…shall be for the first offense, be punished with a fine of not less than 10 times the amount of excise tax due on the articles.”
It said the company must first face the court, and if found guilty, should pay the fines for using fake stamps on cigarette packs and evading payment of the tobacco excise tax.
“Amnesty is bad policy. It will send a wrong signal and encourage bad behavior not only to Philip Morris and other tobacco companies, but also among other corporations and taxpayers,” said Jo-Ann Diosana, AER senior economist and trustee.
In July, the Department of Finance considered increasing revenue collections, not by imposing higher taxes, but by pardoning tax evaders.
On the day Duterte ordered the Wongchuking’s arrest, Fi nance Secretary Carlos Dominguez III promptly said the BIR and Bureau of Customs started gathering evidence for the filing of an “air-tight” tax evasion case before the justice department.
But on March 15, Dominguez said a tax case will not be filed anytime soon, as authorities have yet to properly determine if the tax stamps are indeed fake.
“We have to determine first the exact liability. We will first establish the value and we will see if we have a strong case. If we have a strong case then we will file the case and if there is an offer for a... a reasonable offer for a settlement, maybe. But we have to file the case first,” he said.
Dominguez said settlement could be a better option for tax evaders, instead of facing a criminal or administrative case. He reiterated this in September, when he was seeking support for a legislated tax amnesty program, and was planning to pardon pending tax cases in courts.