Retroactive rulings make us the Wild Wild West

For all we know the revised ruling of the BIR on how to treat the importations of Shell is the correct ruling. The agency is also well within its powers to revise a previous ruling by a previous commissioner. But the retroactive nature of the ruling bothers me.

From what I remember of the basic principles of our legal system, there is no way laws (or rulings) can be made with retroactive effect. That seems pretty logical and fair because how can anyone force compliance to a law or a regulation that was non-existent for the period?

Put another way, as in the Shell example, if Shell knew about the new ruling of the BIR, Shell could have made a business decision not to import those products even if it means shutting down its refinery for lack of raw materials. Shell could have made the decision to be just like all the other independent players who buy gasoline ready to sell in the local market.

As it happened, we are penalizing Shell for using its Batangas refinery and putting some amount of local value added (labor and other materials) into the gasoline it sells in the country. Worse of all, Shell is being penalized for following a ruling of the very same agency that was presumed to be effective until it was recently changed. Between 2004 and December last year a different rule prevailed upon which business decisions were made.

It isn’t also as if the old ruling was done by the then BIR Deputy Commissioner Jojo Bunag in a vacuum. Jojo told me at the Tuesday Club this week that he consulted with the Department of Energy on what to make of the products Shell was importing: should these components be treated as raw materials to be processed to gasoline or processed gasoline already? Jojo based his ruling on the DOE opinion that these are raw materials.

I can understand why Shell feels aggrieved by the whole thing. In fact, any investor, local or foreign, should now feel very uneasy. The retroactive effect is pretty scary. It shows lack of consistency or stability in government policies. The BIR Chief, who worked at SGV should know that. No wonder even the PCCI, which has always been a knee jerk supporter of any policy from Malacañang came out strongly in support of Shell.

The Joint Foreign Chambers, a group representing foreign investors’ interests, “are concerned about the heavy hand of government in this case, threatening to confiscate future shipments, endangering the supply of vital products to the economy, on the basis of retroactive changes in government regulations.”

By way of background, Shell claims that said products (light catalytic cracked gasoline/catalytic cracked gasoline) are raw materials and thus not subject to excise taxes was based on a DOE conclusion and BIR opinion that was arrived at in 2004 and had been affirmed by the BIR under three previous commissioners, with the latest affirmation being done in July 2009.

Then in December, with the entry of a new BIR commissioner, the opinion was reversed and Shell is now being asked to pay taxes retroactively from 2004 onwards. This smells like official extortion specially if reports are true that an official close to Malacañang is poised to collect P1.4 billion in “informer’s reward” if they manage to collect from Shell.

The European Chamber of Commerce of the Philippines (ECCP) said “any opinion by any government agency can be reversed anytime so there is no stability that business expects and investment decisions are built upon.”

The ECCP also noted that with the ruling, “the country is discouraging investments in manufacturing because raw materials are taxed and the finished products are taxed again and such double taxation favors traders over manufacturers.” ECCP said it believes that “strong arm tactics are being employed to force a legitimate investor to follow regardless of the implications either to the company or to the country.”

The ECCP said that for any country to be attractive, the government must provide the necessary elements of a good peace and order situation, adequate infrastructure, a competent pool of human resources, a level playing field in a competitive environment, and stability of rules and regulations. “On this last point, the record of the Philippines has not been good.  The current dispute between the two bureaus under the Department of Finance and Shell is a case in point,” it said.

In a separate letter, Edgardo Lacson, president of the Employers Confederation of the Philippines (ECOP), shared the apprehension of the European investors. This reversal, Lacson said, has a chilling impact on the financial operations of all companies in the country as it imposes a monetary and criminal liability with retroactive effect on enterprises that faithfully complied with existing tax policies prevailing before the shift in BIR policies.

“There will be a disruptive consequence on the companies’ cash flow with such policy reversals and it could be a disincentive to investors as it bolsters misconceptions that our policies are unstable and whimsical,” the ECOP president said.

Even the House of Representatives ways and means committee hit the BIR. In a report, the committee described the position taken by BIR Commissioner Joel Tan-Torres that Pilipinas Shell’s imports are subject to excise tax as “arbitrary.”

This problem of inconsistent and unstable laws, regulations and policies are the things that worry investors in emerging markets. It is a problem that even China is trying to fix. And here we are making sure the world gets the message that our business environment is like the Wild Wild West or where the law of the jungle prevails.

If I were Shell, I would just pull out of the country. The impact of a large investor doing that would scare off investors for a long time to come. Hopefully it will put some sense in our officials. For Shell, we are just a blip in their operations anyway and not worthwhile for them to give in to such bullying by a country that can ill afford to do that.

The thing is… why can’t they be that tough on the real oil smugglers?

Kong Hee Huat Chai

I was about to greet all my readers a Kong Hei Fat Choi but I got a note from my Facebook friend Phons Ang saying that would be wrong. Here is his e-mail:

“Year of the Tiger is just few days away! Whenever I come across signage in the malls or streamers on the streets with ‘Kong Hei Fat Choi’, I feel quite uncomfortable, especially in Chinese owned establishments like SM, Robinson and Landmark.

“In a predominantly Fujianese-resided Chinese community in the Philippines,”Kong Hee Huat Chai” should have been used rather than “Kong Hei Fat Choi” which is Cantonese, sounding so alien for the local Chinese ears.”

Whatever it is, I like the message. Chinese Ambassador Liu Jianchao told me during the reception he hosted at the Mandarin last Wednesday that the greeting can be roughly translated as wishing you a good fortune or plenty of money in the New Year.  Kong Hei Fat Choi it is.

Anyway, this New Year will be the Year of the Metal Tiger. Having been born in a Metal Tiger year (1950), this could well be my year, my favorite astrologer says.

I also like the characteristics of people born in a Tiger Year. Tigers are embodiments of animal magnetism. They are born leaders, ultra competitive and will never run away from a fight. They exude confidence and star quality.

People born on a Metal tiger Year are tough, hardworking and generous; prone to mood swings and will complain vigorously if insulted or deceived, but their anger is short-lived; forgiving and rarely hold grudges for long. They have a caring nature and are likely to have a supportive family.

As for what luck awaits the other members of the Chinese Animal Zodiac Wheel in the Year of the Metal Tiger 4708, I invite my readers to log in to  http://lopezlink.ph/special-feature/870-the-year-of-the-metal-tiger-will-2010-be-your-year <http://lopezlink.ph/special-feature/870-the-year-of-the-metal-tiger-will-2010-be-your-year.

Pamana

This is from Robert Young Jr.’s Facebook posting.

LOLA : apo, alam mu namang mtanda naqo, malapit nqu mamatay. ipamamana ko sayo ang aking sakahan, prutasan, bahay at mga hayop.

APO : saLamat po lola. san po un?

LOLA : sa facebook apo. Eto email ko [email protected]  .. at ung pasword kou sexyganda169. click mo sa bookmark ang FARMViLLe. !

Boo Chanco’s e-mail address is [email protected]. This and some past columns can also be viewed at www.boochanco.com