By Amado P. Macasaet
The Philippine Stock Exchange and the banking system are scared about the way they say the Bureau of Internal Revenue (BIR) “harasses” investors who pay the correct tax.
The BIR wants to know the identities of people who invested big sums buying shares of stocks or non-bank products of the banking system. The investments are not included in the annual income tax returns because the yields have already imposed a withholding tax.
If the brokers or the exchange and the banks comply, the BIR will get to know the amount of investments of their clients. It will ask the investor where he got the money. If the explanation is not satisfactory, the BIR will take legal action.
In effect, the new regulation is a witch hunt and a lifestyle check.
Companies withhold 10 percent of the dividends paid their stockholders in compliance with BIR regulations. Yields made from investments in non-bank products pay a higher rate also as required by BIR regulations.
Members of the PSE and the banks say there is no reason for the BIR to require them to disclose the identities of their clients only to expose them to the prying eyes of the BIR. A source pointed out the BIR cannot he prevented from issuing letters of authority to taxpayers suspected of not paying the correct amount..
There is no way the investors can escape the withholding tax.
A stockbroker with at least three decades of experience dealing with investors said the new BIR regulation is selective. She explained if the BIR applies its rules with uniformity and fairness, it should also require accredited dealers of sovereign liabilities such as Treasury bills and state bonds to disclose the identities of their clients.
The BIR requires the withholding of at least 20 percent of the yields on these investment instruments. The tax withheld like those from investors in shares of stocks and non-bank products are remitted to the BIR.
The stockbrokers make incomes from commissions at varying rates. The banks collect a fee — not interest incomes on loans — from investors in their non-bank products.
A marketing director of a bank said the BIR lays its hands on tax withheld without any effort. Their sources need not be revealed.
He explained there is no difference between private and state employees and investors in bank products and shares of stocks. The tax due from them is withheld.
The banks and stockbrokers feel they are being singled out for “harassment” that may not produce additional revenues.
On the other hand, the new regulation can stifle the flow of investments in shares of stocks and in non-bank products.
Another broker said the BIR did not thoroughly study the effects of its new regulations on portfolio or hot money that is claimed to account for around 50 percent of market liquidity.
Hot or portfolio money is pooled from many foreign investors. The portfolio managers fan out to all stock markets in the world where they feel they could get the best yields in the shortest possible time.
They also pay the one-fourth of one percent final stock transfer tax when they liquidate their investments, whether at a profit or loss. The tax is final. The portfolio managers cannot be “molested” by the BIR by forcing the brokers to reveal their identities.
Random interviews conducted by Business Insight produced the conclusion the BIR should be more strict on companies which pay obligations under the excise tax system.
The excise tax is applied on the volume of products declared to the BIR. As discovered by A.C. Nielsen and Oxford Economics Mighty Corp. may not be declaring its total cigarette production to the BIR. . The alleged under declaration, according to the two foreign market research firms, may have resulted in the non-payment of an estimated P10 billion to P15 billion due on illicit cigarettes.
Finance Secretary Cesar Purisima and BIR Commissioner Kim Jacinto Henares have not been moved by the findings of A.C. Nielsen and Oxford Economics to verify the actual capacity utilization of Mighty Corp; compared to the volume of cigarettes it declares to the BIR.
Businessmen familiar with taxation claim the withholding tax is fool-proof. Investors in shares of stocks, in non-hank products and private and state employees do not even get to see the money they are required to pay to the BIR.
On the other hand, they said, products subject to excise tax could be “slippery.”
Total production volume may escape the excise tax if not all production is declared to the BIR. Businessmen Business Insight randomly talked to pointed out the BIR should work harder on excise tax “because they could be avoided by the simple expedient of under declaration”
Such under declaration can happen to fuel, beer, distilled spirits and cigarettes. So far cigarettes are the biggest suspects as discovered by A.C. Nielsen and Oxford Economics.
Sources told Business Insight there is no need to identify investors whose tax obligations are withheld from the source. They pointed out the purpose may be noble but the means are not acceptable.
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