The FDC, which first raised the irregularities in October 2001, said Purisima’s pinning the blame on the nongovernment Caucus of Development NGO Networks (Code-NGO) says a lot about how certain parties had flouted the rules in order to “sweeten the pot” for bond buyers, all in the rush to raise billions for investment advisers while skimming a few hundred millions ostensibly for anti-poverty programs. The anti-poverty fund-raiser, ironically, has burdened the Filipino people with the P35-billion liability for the zero coupon bonds, which had to be paid in one fell swoop at the maturity date on October 18.
In a statement, FDC lauded Secretary Purisima for validating what it has been denouncing for the past 10 years as irregularities in the issuance and transaction of the P35-billion Poverty Eradication and Alleviation Certificates (PEACe) bonds.
In 2002 FDC did a study and found that the deal reeked of rent-seeking and other violations— rules were relaxed and Code-NGO walked away with P1.8 billion in windfall profit plus a commission of P140 million, tax-free, for designing what it had then called an “innovative fund-generating mechanism.”
Milo Tanchuling, FDC secretary-general, said Purisima’s revelations strongly call for a full-scale and transparent investigation by Malacañang and both Houses of Congress to unravel and go deeper into strong signs of rent-seeking, violations of tax rules, rigged bidding, irregular bank and financial transactions, cronyism, even graft on the part of those in government.
FDC also sought investigation into the liability of the banks like Rizal Commercial Banking Corp. (RCBC) and its sister company, RCBC Capital Corp., and Code-NGO and their financial advisers—Red Mayo of Capital Advisors for Private Enterprise Expansion (Capex) Inc., and Bobby Guevarra and Juan Victor Tanjuatco of SEED Capital Ventures, who also benefited from the transactions of the bonds.
“Now, with Secretary Purisima’s statements out in the open, President Benigno S. Aquino III, House Speaker Feliciano Belmonte and Senate President Juan Ponce Enrile can do no less but to conduct an immediate and thoroughgoing investigation of the PEACe bonds,” said Tanchuling.
“Remember, this transaction was made in the name of the poor and made Filipinos P35 billion poorer and deeper in debt,” stressed Tanchuling. “It is high time the present leaders sought the truth, made those who may have erred accountable and put closure to an embarrassing stain brought forth by the previous administration.”
FDC expressed hope the investigation will be reopened by the House Committee on Good Government and Public Accountability on November 14 and the Senate investigation that had lain idle for years will be revived.
The FDC’s call comes as a full-blown word war erupted between Purisima and major associations of banks and financial associations on Friday, after the latter issued full-page newspaper ads expressing support for eight big banks that hold the bonds and were resisting the 20-percent final withholding tax imposed by revenue officials on the bonds.
Purisima had earlier hit back at critics who blamed the Aquino administration for changing the rules in the middle of the game on the tax treatment on PEACe bonds, referring to the Bureau of Internal Revenue’s ruling junking the unprecedented exemption from the 20-percent tax that the bondholders were promised.
“It’s Code-NGO who did [change the rules on collecting the tax],” he said, stressing that all government-issued debt papers are subject to withholding tax except for the PEACe Bonds, and it was illegal of Code-NGO, as initiator of the project, to exempt this particular set of bonds from that tax. He also said the Arroyo administration should be held accountable for the whole controversy.
On October 16, 2001, armed with three BIR rulings exempting the bonds from 20-percent final income tax, Code-NGO, through RCBC, bought the bonds for P10.17 billion, a discounted rate, with interest of 12.75 percent.
However, in 2004, the Bureau of Internal Revenue (BIR) overruled these rulings and imposed a 20-percent withholding tax, amounting to P4.86 billion, to the holders of the 10-year zero coupon bonds.
On October 17, 2011, Internal Revenue Commissioner Kim Henares reiterated this ruling and stressed that “RCBC/Code-NGO and all subsequent holders of the bonds has no vested right to invoke the 2001 rulings and is consequently held liable to pay the final tax due on the discount/interest realized from the PEACe bonds.”
Earlier, Henares said Code-NGO’s P1.83-billion profit from the resale of the bonds is also subject to a 30-percent capital-gains tax, estimated at P549 million.
