Senator Sherwin Gatchalian seeks the exclusion of the Bangko Sentral ng Pilipinas (BSP) as a fund source for the proposed Maharlika Investment Fund (MIF) bill.
Meanwhile, Albay Rep. Joey Sarte Salceda filed House Bill 7653 that criminalizes tax racketeering on top of “usual tax evasion,” as a “means of empowering the Bureau of Internal Revenue in prosecuting more systematic cases of tax fraud.”
Gatchalian enunciated his stand on the MIF measure in a four-page letter addressed to Senator Mark Villar, chairman of the Senate Committee on Banks, Financial Institutions and Currencies, Villar’s committee is currently hearing a Senate version MIF bill.
According to Gatchalian, the BSP’s declared dividends should be removed as a source of funds both for the capitalization of the MIF and the Maharlika Investment Corporation (MIC), envisioned to be an independent body that would govern and manage the state fund.
“By approving the proposal to include BSP as a source of MIF, we will be exposing our financial system to uncertainties,” Gatchalian said.
“We will be hindering the BSP from enabling itself to meet the challenges to the economy since anything can happen in a span of 17 years,” he added.
The senator pointed out that it will take 17 years for the BSP to fully realize its capitalization requirements if the central bank is mandated to contribute its dividends to the MIF.
He cited as an example the current liquidity crunch facing the banking sector in the United States, triggered by the collapse of the Silicon Valley Bank (SVB) and the Signature Bank, shaking investor confidence across the globe.
Reports said the SVB’s shutdown was caused by concerns about the bank’s solvency, causing a wider sell-off in stocks and prompting an increase in clients pulling out their deposits.
Concerns over the health of the global financial system were further stoked by Credit Suisse’s largest single-day sell-off on US and European markets.
These developments are reminiscent of the 2008 collapse of Lehman Brothers that prompted a market meltdown and a global recession, leading central banks all over the world to execute dramatic easing of monetary policy rates, Gatchalian said.
Instead of fortifying and readying the BSP to handle crises facing the banking sector, the proposed MIF bill weakens the very institution capable to quickly intervene and take action during a banking crisis, Gatchalian noted.
It constrains BSP’s capability to take extraordinary measures to reduce bank run risks and shore up confidence in the financial system during uncertain times, he added.
Gatchalian further said agreeing to the current proposal to source from the BSP’s declared dividends the MIC’s capitalization would mean contradicting the Senate’s vote in the 18th Congress when it approved Republic Act 11211, also known as The New Central Bank Act.
“With the passage of RA 11211, we have approved the increase in the capitalization of the BSP from P50 billion to P200 billion. We were made to understand the urgency to increase the capitalization of the BSP to ensure the financial strength of the institution given the growth of the banking industry through the years,” Gatchalian said.
He added that mandating the BSP to declare dividends in favor of the MIC will affect BSP’s independence and credibility in performing its price and financial stability mandates.
“By declaring dividends to contribute to MIC’s capitalization, BSP will have lesser funds to take full action against inflationary pressures which entail huge costs on the financial markets and can result to output loss and unemployment and eventually affecting the public’s perception on the track record of the BSP in anchoring inflation expectations,” he said.
On the other hand, Salceda, reputed as the House resident economist, described the scheme as “large-scale use” of fraudulent or fictitious tax receipts to pad deductions or input tax credits.
“According to estimates by tax authorities, as much as P100 billion in revenues are being evaded due to the padding of deductions and input tax credits through the systematic and fraudulent use of fake receipts and other records,” Salceda said.
In March 17, 2023 alone, the Bureau of Internal Revenue announced the filing of charges for evasion of taxes worth P25.5 billion against corporations using fictitious receipts, following a December 2022 raid on the corporations Buildforce Trading Inc, Crazykitchen Foodtrade Corp., Decarich Supertrade Inc., Redington Corporation. BIR alleges that these corporations have been operating for more than three years.
“These corporations do not have any legitimate business activity, and were set only to sell fictitious sales invoices or receipts to their buyers for the latter’s claim of false and anomalous purchases. These receipts or invoices are called “ghost receipts,” and economists have called the practice “ghosting the tax authority.””
According to the BIR, Salceda said the fraudulent operations of these corporations have resulted in some P17.63 billion in foregone income taxes and total deficiency value added tax amounting to P7.91 billion, for taxable years 2019-2021.”
Salceda cited that while the crime of tax evasion is punished under the Tax Code, it does not define the systematic and coordinated evasion of taxes, “which in every essential manner is economic sabotage, going by the doctrine that taxes are the lifeblood of the State.”
“Schemes such as these should be distinguished from the usual attempt to evade taxes precisely because they constitute a systematic attempt to dismantle the credibility of the entire tax system, and could not be committed without networks of accomplices across the business sector and among tax authorities,” Salceda said.
“Because of the scale of their operations, unlike individual acts of tax evasion, systematic attempts to use fictitious transactions to evade taxes could completely undermine the tax system.”
Salceda’s proposal sseeks to define the offense of tax racketeering as “any coordinated scheme or operation to repeatedly or consistently evade or defeat any tax imposed under this Code through the fraudulent use of receipts, returns, and other records, with a minimum amount of Ten Million Pesos (P10,000,000.00) in taxes avoided or attempted to be avoided.”
The proposal also defines being a principal in such an offense as non-bailable, and subject to 17 to 20 years in prison. Taxpayers who benefit from tax racketeering, including those who purchase fake receipts, shall be punished as accessories. Meanwhile, public officials who facilitate such activities shall be charged as accomplices and punished with perpetual disqualification from public office.
“The stiffer penalties aim to be a deterrent to the commission of such crimes, as well as a tool for tax authorities to be able to prosecute such offenses in a manner distinct from usual tax evasion.” Lumagui lauded for “big fish” catch on first months in post
Salceda also lauded BIR Commissioner Romeo Lumagui “for cracking down on big fish” on his fist months in the post.
“Commissioner Lumagui’s personal commitment to catching big fish among tax evaders is encouraging. And it’s a departure from the old tone and
style of being harsh on small and medium taxpayers but letting the big catch off the hook.”
“I congratulate the BIR for this initial success. We also encourage the DOJ in its efforts to prosecute tax racketeers.”
“This bill is a request from the BIR, which shows you that their commitment to fighting these schemes is sincere. We will take the proposal up as soon as we can, of course, without getting in the way of the BIR’s intelligence and crackdown operations,” Salceda stressed.