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Teves:
One of the most important questions about my job is—what
is really finance. We usually try to associate this with
the family budget. In a family the father tries to
generate income for the family through his compensation
from a company or a business. And then, on the other
side of the ledger, you have the family’s expenses:
food, clothing, shelter, education, medicines and
others. The never-ending struggle is how to have
sufficient revenues to cover the needs of the family.
Extending this to the government, there is the
difficulty of balancing what is derived from a
combination of tax revenues, normally from the Bureau of
Internal Revenue (BIR) and the Bureau of Customs, and
nontax revenues from dividend payments from
government-owned and -controlled corporations (GOCC) as
well as the sale of assets; these assets can come from a
combination of power and nonpower assets.
The
government’s objective is to have the revenues to
support the requirements of the nation. Unfortunately,
as in most developing countries as well as in most poor
income families, the income is not enough to cover the
needs. That’s why, on many occasions, both the family
and the government borrow money. But the problem, and
later the challenge, is that there comes a time when
what we borrow is just to return to the financial
institution, by way of paying interest. That’s what
happens to a family who has not really given much
thought about trying to be prudent in this combination
of revenues and spending.
That’s
what we’re trying to do now. We’re trying to go back to
basics, to try to see whether we can support the
economy’s requirements with sufficient revenues to
gradually take care of our own needs [now, as well as]
the needs that will enable us to grow even more in the
years to come, by investing in social services and
infrastructure and gradually reducing reliance on
borrowing.
Cristobal:
What is the equivalent of the Department of Finance—for
example, in the United States, there is the Treasury,
there is no finance department; in England, you have the
Chancellor of the Exchequer—how does the Department of
Finance relate, for example, to the National Economic
and Development Authority (Neda) and other Economic
Councils?
Teves:
Our model is different from the US and other European
models. In the American model they have the Secretary of
the Treasury, [whose] responsibilities are more
encompassing than that of the Secretary of Finance in
the
Philippines
in the sense that the Treasury there covers the
expenditure side. Here the Secretary of Finance is
essentially responsible for generating revenues. The
expenditure side is handled by the Department of Budget
and Management, also headed by a Secretary. So the
coordinating effort is important here and we do this
through the Development Budget Coordinating Committee,
headed by the budget secretary, as well as the informal
weekly meeting among economic managers. In the British
Parliament, you have a Minister of Exchequer and it’s
simpler because the expenditure side is also handled by
the Minister of Exchequer or Chancellor of the
Exchequer, so he has an immediate picture of what’s
happening on the expenditure side. Adjustments are
handled more easily in the British model because in a
parliamentary system the Chancellor of the Exchequer is
a member of Parliament [where] the legislature and the
Executive department [are fused]. So when they present
the budget, they can immediately present the new tax
measures they want to propose to Parliament. Since in a
parliamentary system the effective power lies in the
Cabinet, it’s easier to make those adjustments; here, we
have to work through Congress whenever we propose
legislation such as tax measures.
Butch
del Castillo:
You have started purging nonperformers in the revenue
collection effort. You started with [BIR Commissioner
Jose Mario] Buñag but you seem to have left out the
Bureau of Customs. Smuggling in this country has
worsened—the other day, they were smuggling high-powered
guns. What will you or the President do about this?
Teves:
There is continuous monitoring of our performance,
including myself. In the Bureau of Customs, in fact, a
major reorganization has taken place [with] the presence
now of the Presidential Antismuggling Group, headed by
Undersecretary [Antonio] Villar, who reports directly to
the President. But from an organizational point of view,
the revenue collection and trade facilitation will be
concentrated in Commissioner [Napoleon] Morales; the
antismuggling [effort] and governance-related activities
will be handled by Usec Villar, but actually in the
dynamics of the Bureau of Customs there should be
coordination in the process. Of course, like most people
working in an organization, there are possible overlaps—
but, most important, is that they are in constant
dialogue with each other and we get involved in this
conflict that might take place from time to time.
Last
week we presented to the President our action plan to
recover part of the shortfall in the first half of 2007.
As indicated in the papers, we have projected cumulative
shortfall of about P53 billion for the first semester in
relation to target. The plan is to meet monthly targets
for the rest of the year and partly recover that, so
that by the end of the year, if we worked hard enough,
then we hope to be able to reduce this to anywhere
between P25 billion and P30 billion, in terms of tax
revenues, because the biggest challenge are the tax
revenues. We have more flexibility on the nontax
revenues, meaning, we have some assets that we can
dispose of.
As I
said, it’s a function of our policy: The government will
move out of business that we believe can be best placed
in private hands. Admittedly, it has been accelerated by
the inadequacies in the case of tax revenues. [But
through a] combination of tax and nontax, with support
coming from the accelerated privatization as well as
improvements in tax administration, we will still be
able to live within the P53-billion deficit and finance
the 2007 Expenditure Program, especially social services
and infrastructure.
Del
Castillo:
The Arroyo administration seems to have set the standard
when it lopped off the head of the BIR, but it seems
inconsistent that it did not do the same with Customs.
Is this not an indication of a lack of political will to
effect reforms in revenue collection?
Teves:
The Bureau of Customs, as you know, hit their target
last year, so that was also a consideration; and [we’re
testing to see] whether the advent of the Presidential
antismuggling group would work. But I’m sure the
President is also monitoring carefully performance in
the next few months. I’d rather leave it at that because
we all serve at the pleasure of the President, who knows
exactly what needs to be done [if we don’t] meet our
targets, especially if we [cannot] meet them
consistently.
Cristobal:
Before, the collection in Customs was made by the SGS.
Did they perform better than how we are performing now?
Johnny
Dayang:
If your collection improves, would you forgo selling
government property?
Teves:
We will not; it’s really just a question of the pacing
because it’s government policy to move out of business.
The principle is, we believe that in most cases, all
other things being equal, the private sector can operate
most of the corporations or establishments where the
government has some stake—they’re better left in private
hands. And we believe the government should concentrate
on its core business. And that’s to concentrate on
providing social services and infrastructure.
It will
be very helpful if the government were just to
concentrate on this core business and let the private
sector do the rest. But as we do this, what’s also very
important is that we have a good sense of our approach
on regulation. It has to be a regulatory body that will
combine enforcement with a sense of the market.
Jake
Macasaet:
I thought I’d take up with you, again, what I consider
the anomaly of the stock transfer tax. You sell at a
loss, you pay a transfer tax of three-fourths or
one-fourth of 1 percent, whatever. You make a huge gain,
you pay the same tax, you repay capital gains tax. I
thought that some people, specifically the Department of
Finance which is in charge of raising money, might take
a look. At a little loss, I am penalized. That’s fine.
That’s law. If I sell say, 10, 20 times my cost, I pay a
final minimal tax that’s very low—.25 percent or .75
percent—in that sense, I thought that some people in
your department might start thinking of a schedule of
tax: If your gains is let’s say, five times or 10 times,
or twice or three times, you’ll have a multitiered tax,
so the more money you make the heavier tax you will pay.
I think that is fair and just. Because if I sell at a
loss, I also pay.
Teves:
I’ve read your commentary on this, Jake. We have to be
very sure about the things that we do. For example, if
we do try to have a hand in this, first, we must make
sure that will be construed as an enhancement, rather
than a new tax, since the President has announced that
she would rather concentrate on enhancement and tax
administration. We must also consider this: To what
extent should we have a multitier system because, other
things being equal, when you go into multitier it
becomes more administratively difficult to handle
especially in terms of collection, as we have
experienced in the case of tobacco. So, we also have to
probably have an intercountry comparison; [find out] how
other stock exchanges have treated this transfer tax.
Del
Castillo:
One of the parting remarks of Jose Mario Buñag was, you
have set a very unrealistic target collection goal. As a
result of that, I heard that you are reducing your
targets, in effect confirming his charge that the goal
was unrealistic in the first place.
Teves:
We are not changing our target. For the BIR, the total
target is P730 billion, which went through a very long
process, including working on historical performance,
the growth of the gross domestic product, the various
assumptions associated with collections such as
inflation rates, interest rates, as well as a factor
called efficiency. So that the sum total of this, based
on those assumptions, [is] P730 billion. And in any kind
of target-setting there should be a discussion either
coming from the top, starting from the top or starting
from the bottom, it goes through [discussions] and
finally an agreement. The agreement is manifested by
both the BIR and the Bureau of Customs commissioners
signing the document. We have to sign documents
indicating they are willing and they can handle targets
and this was reinforced by at least three occasions of
making sure verbally that they can handle this.
The
targets are not unrealistic, they went through a process
and this was manifested by an agreement and a commitment
by both (BIR and BOC) commissioners through their
signing of those documents.
Lourdes Fernandez:
You mentioned efficiency as a factor in the assumption
of targets. The UP College of Public Administration said
that based on their monitoring of reforms in the fiscal
sector over [several] decades, they noticed that in
those years where there are big reforms within agencies
like BIR or BOC, for the first year of implementation
usually there’s ironically a slump because of the factor
of internal resistance. I understand that a few months
ago the BOC and BIR, especially BOC, were still having
serious questions about the implementation of the
lateral attrition law. Can you give us an update about
what’s happening there?
Teves:
In the case of the lateral attrition law, based on the
date of the agreement of the implementing rules, this
was to be implemented effective 2006. [But] there was an
oversight on everybody’s part; we were not able to
allocate in the budget the amount that would be
available in case we hit the target. For example, the
BOC exceeded their target by a little over P2 billion;
they should be given an allocation from the budget based
on a certain percentage of what they exceeded. We will
have to correct that by way of a supplemental
appropriation to cover the rewards that should be given
to the institution. The BIR was not able to meet their
target but they did not exceed the limit of 7.5 percent.
In other words, if you go beyond 7.5-percent
underperformance, then you are subjected to the lateral
attrition law. If you missed your target but it’s below
7.5, there are other forms of penalties but not removal
from the service.
So,
these are aspects that work on motivation. But you know,
in terms of human dynamics in any organization, there
are other factors outside a lateral attrition law that
will either provide the motivation or decrease the
motivation.
Unfortunately, in the case of the BIR and the BOC, like
most government agencies, the compensation package is
still relatively low compared to their overall
responsibility of generating resources for the
government. If we were to do it the way we do it in the
private sector, we would probably have a leaner
organization, provide better compensation and a better
system of reward and penalty. But it takes time in an
organization called the government.
Tony
Figueroa of
Mindanao Times:
I’d like to know the status of the collection of the
government in relation to the productivity that Mindanao
may have achieved through the years, especially in terms
of investments coming in and so forth in relation to
what government collects.
Teves:
I must admit that our monitoring, at least in the case
of the Secretary of Finance and the Department, is
really the macropicture. For example in 2007, our
revenue target from tax and nontax is over P1.1
trillion. I don’t have the data to find out how much of
that P1.1 trillion goes to
Mindanao. That will be available, perhaps from the Department of Budget and
Management.
Fernandez:
Just a follow-up question. You said the lateral
attrition law was not implemented immediately because of
the oversight, in terms of allocating the budget for the
rewards. So, what’s being done now?
Teves:
It’s not so much the actual implementation but the
support associated with the implementation. We didn’t
have the budget to provide rewards. So, the solution is
to come up with a supplemental appropriation to cover
that amount at least for 2006 and to make sure we have a
certain amount for 2007 and onwards. I’ll have to check
again with DBM.
Del
Castillo:
You are saying you [will] allocate a supplemental
budget for the reward that’s due to the Customs people
under the [lateral] attrition law. But there is an
accusation that the P2-billion excess collection was the
result of window-dressing and the P2-billion excess
actually represents an advance made by Petron to the BOC
and that is why no revenues were recorded in the first
and second quarters.
Teves:
We probably will have to get the help of COA [Commission
on Audit] before the amount of P2 billion is paid. I’m
not privy to that information that says this P2 billion
came from window-dressing. What we know is that these
are legitimate collections, so I cannot make any
conclusion at the moment.
Macasaet:
I wouldn’t doubt that the collection by the BOC went up
by, did you say P2 billion?—over target. You might also
notice, from Central Bank figures last year for example,
that import of consumption goods went up by 21 percent.
On the other hand, imports of capital assets went up by
about half, 12 percent. Necessarily, the more you import
even if the tariff has been communized as a function of
concession to the WTO, Customs collection will have to
increase because the volume of imported goods is
increasing. It is sad, though that increases in volume
are happening in the consumption goods sector; the
capital assets is not moving that fast, which means the
creation of jobs is a little more difficult to do.
Is it
fair to make a relationship between the growth of the
GNP and BIR collections?
Teves:
Let’s start with the last, the BIR collections and GDP.
Yes, we’ve seen that relationship taking place and
that’s why we’re surprised, at least during the first
quarter, that the growth in collection of the BIR was
very much below the growth in the GDP. For example, the
nominal growth of the GDP is around 9.9 percent—because
the real growth was 6.9, you factor in inflation of
about 3 percent that brings you 9.9—but what we’re
seeing is that growth in collection was only about 4.7
percent. So, beyond the macrofigure we have to go into
the microcomponents of the GDP, so we look into the
inflation rate, interest rates and other assumptions.
The inflation rate has gone down, interest rates have
also gone down—this will have a negative effect on the
collection. But other factors also increased the
collection of the BIR, such as the interest income on
deposit and so on.
What
happened was that our performance audit indicated to us
that collection should have increased [beyond] what the
BIR had collected. What was also significant is this
component called “tax administration bar collection
efficiency”—there was no gain at all.
In
summary, we felt there should have been more than what
we achieved during the first quarter and we know that
unfortunately, the revenue performance has deteriorated
when we began to have the April, May and June figures.
We still don’t have the GDP figures because the GDP
figure for the second quarter will come about August.
So, when we make an audit of the GDP versus the April,
May and June, then we have a more reliable correlation
on what should have been, given the various movements,
not only of the GDP but the components of the GDP.
In the
case of BOC, we find rather difficult to comprehend and
counterintuitive, that the volume of all imports and all
products is declining when the economy is growing. I’ve
never seen such a correlation taking place in my so many
years as a student and it doesn’t take to be a student
of economics to understand that this kind of
relationship does not happen, at least, not normally.
Cristobal:
Is it possible that the economy is not growing?
Teves:
No, what I’m saying is that the economy is growing and
therefore the volume of imports of oil and all products
should also be growing. But the figure we’re getting
from the BOC is different. It is declining.
Cristobal:
How do you account for this?
Teves:
We’re not making any conclusion yet because if the
figures are not reflected in the official document, then
there must be something else somewhere and that’s what
we’re trying to find out.
Ed
Tipton:
For the government to meet its budgetary needs you
mentioned moves to sell assets of the government to
enable the private sector to run the business that the
government has been involved with in the past. I’m just
wondering if there are enough assets to sell because I
noticed that from the time of the last two or three
administrations, assets are always sold to meet
budgetary needs.
Teves:
Again, I must repeat, there are two major considerations
[for] selling assets. One is a policy move because we
believe that the government should not be in business,
that this business wherein the government has a stake
right now can be placed better in the private sector.
Number
two is to generate revenues. Let’s focus on that because
that’s your concern. You’re quite correct, we’ll run out
of asset soon. We still have enough assets today and
this year to meet our twin targets of attaining the
overall revenue program, which is a little over P1.1
trillion, fund our expenditures especially social
services and infrastructure, and not go beyond a
P63-billion deficit. That is a commitment and that is
important in terms of our relationship and our
credibility in the financial community, both local and
foreign.
Next
year, when we hope to achieve a balanced budget, we hope
our efforts to improve tax administration will begin to
be realized partly. Next year, we still have some
assets, but I think [after that] we will probably run
out of assets so we will have to rely already on a
combination of tax administration bar collection
efficiency, some revenue- enhancement measures such as
the rationalization of fiscal incentives, the
rationalization of the way we tax our employed
individuals—because we believe that we can get more from
self-employed individuals than what we are getting now.
All of these combined will enable us to [balance] the
budget, having sufficient resources to continue
investing in social services and infrastructure which,
in turn, will [encourage] private investors to invest in
the Philippines and therefore, as they invest, more
people will be employed, there will be more revenues,
more income and so on.
But the
government has to do its part now because we’ve been
inadequate in our investment in infrastructure and
that’s the only way where we can encourage private
investment to take part in a large way in our country.
Cristobal:
I’d like to interpose a frivolous suggestion that if we
run out of assets, we can always sell our liabilities
like Congress, Malacañang, the cronies, the police, the
military, the BIR and BOC. We can still generate money.
Teves:
For those of you not yet familiar with the so-called
consolidated public sector—which consists of the 14
government-owned and -controlled corporations [GOCC]
such as the Napocor, the NFA; the social security
institutions like the GSIS and SSS; the GFIs [government
financial institutions] like LandBank and DBP—there’s
one big-ticket item that’s quite burdensome to the
public sector and that is the National Food Authority.
It’s the biggest ticket item now; it used to be Napocor.
So, the
challenge for NFA is also to find out whether this can
be privatized but if it will be privatized right away, I
guess we should go by the dictum of “a corporation
providing the best service at the least cost to
taxpayers,” meaning, try to minimize the subsidy as much
as we can.
Cristobal:
But not the GSIS or the SSS.
Teves:
No, no, GSIS is doing well. The GFIs are doing well. By
the way, taken as a whole, the consolidated public
sector registered a surplus for the first time in 10
years in 2006. They registered a surplus of over P5
billion.
Tipton:
When the government sells the assets, we the private
sector apparently suffer because of either the increased
costs by the corporations that bind these assets,
because they want to make more profits, they want to get
back their money right away. Can’t the government keep
certain assets that in the long run keep the cost of
daily living [stable]?
Right
now the cost of electricity just went up. Why? Because
certain government assets were sold to the private
sector.
Teves:
Two types of cost can be reflected in the market. One is
the price of the product itself and or the service. The
other, which is probably not too well known but we get
hit, anyway, is the cost to the taxpayers when it comes
to subsidizing a relatively inefficient corporation. So,
other things being equal, as we have seen in other
countries, the more the private sector gets involved
with assets that are more traditionally being held by
the government, the more efficient these corporations
become.
Fernandez:
OIC Commissioner Lilian Hefti bared a menu of measures
for the BIR in terms of improving tax administration
efficiency. Given the urgency of meeting their targets,
which of the 20 or so measures she listed do you think
would be—in terms of immediacy and impact on the bottom
line of government, be most doable this year?
Teves:
Actually, she presented this to the command conference
last Wednesday and there were five major initiatives,
although there were actually subsets of this five and
all of these are doable. That’s why, in her estimate, we
would be able not only to meet our target for the next
six months but recover part of the shortfall. If I
recall, these include offhand intelligence, audit,
governance-related activities.
In
qualitative terms, you have intensifying audit,
expanding the coverage of the industry profiling and
benchmarking program, enhancing the taxpayers’ database
both by cleaning up the list and updating the
information on taxpayers on the list.
A
relatively new item is improving arrears
management—those delinquent accounts—we should probably
be able to collect more from them.
Amb.
Antonio Cabangon Chua:
A few years ago there were reports on this tax-credit
scam and we heard that the perpetrator was brought to
court. After so many years, has any decision been
rendered, and if not, what are the causes of the delay?
Teves:
I’ll have to check on that. We have been focusing lately
on the purging of tax-credit certificates. The analogy
here is like the old bills of the Central Bank, we’ve
asked them to return this bills and we’ll exchange them
with new bills, we were able to purge about P2.8 billion
that were considered fake. I have to check on whether
there have been cases filed against the perpetrators. I
have no immediate information.
Ding
Generoso:
For months, the government has been claiming a lot of
credit; in fact, the full credit was the perceived
appreciation of the peso. I say “perceived” because it’s
only half of the story; the other half is that the
dollar has been weakening against all currencies
worldwide. And in fact, the dollar is now the weakest
currency compared with the yen, the euro, the pound and
all other major currencies. As Al Gore says, it’s like
the rooster claiming credit for the sunrise. Please
react?
Teves:
I agree that when we talk about the peso, we should
relate it to the other currencies and you’re also quite
right that the peso has not actually appreciated as much
as other countries like Singapore, Korea, Thailand
because we have to look at the peso in two ways. One is,
the peso and its effects on competitiveness, especially
on our exports, and on what kind of motivation or lack
of motivation this will have on our overseas Filipinos.
The other thing is looking at this issue in terms of
winners and losers. The peso has its advantage when it
continues to strengthen—it is an advantage to us because
we happen to have a very large stock of foreign debt.
So, every time the peso appreciates, it significantly
reduces our interest payment on debt. When it comes to
the rating agencies for example—unfortunately, we are
coming from a very high level [and] that’s why it’s
taking time for them, among others, to bring us to the
level of an upgrade because our debt frigidity ratio is
still higher than the median countries. The median
countries, among others, include Thailand and Malaysia.
So, when
you [decide] an important issue like the peso, you have
to go through an exercise of winners and losers and
what’s the net effect of this. That is a balance sheet,
there is what you call “net worth”—what is the net worth
of a peso that continues to strengthen versus a peso
continuously declining.
In our
case, on a “net basis,” I would say that a continuous
strengthening of the peso has a net positive effect on
our net worth, if you look at it on a balance sheet
basis. But the thing about the peso like most things is
that, with any improvement likely to take place if the
Philippines’ macroeconomic fundamentals will continue to
improve, the peso is likely to strengthen.
The next
question that should be raised is what should be the
pace of the improvement of the peso. As students of
economics we would like to see the peso improving in a
gradual fashion because we want the exporters and those
affected by the peso to be able to adjust to the new
condition. What are the adjustments that might take
place? If you have a continuous strength of the peso,
the likelihood is that the goods and services will
likely have a dampening effect when you look at it in
terms of inflation. The other thing is that, with the
peso improving, with the government paying less in terms
of interest payments, the government will be competing
less with the private sector in the market, Because of
that, interest rate is also likely to go down. And
therefore, that is the adjustment exporters need, since
most exporters still borrow working capital from the
financial institutions. |
