'Tax on text' to be condemned, not passed!

(Second of two parts)

Sept. 27, Sunday: The immediate aftermath of typhoon Ondoy found me rushing to the Christ the King Church in Greenmeadows to pay my respects to one of the two brilliant co-founders of Smart Communications, Inc., David T. Fernando, the other being Doy Vea. In a freak accident in his home at Loyola Heights Subdivision, Dave died when he went to inspect the onrushing waters cascading down to his home — the perimeter wall fell and struck the back of his head, killing him almost instantly.

As I condoled with his wife and children and told them that I was privileged to have known Dave as one of the deep-thinking, extremely intelligent members of the telecom sector — the accelerated development of which I had been privileged to supervise for a total of 19 years — I could not help but realize that Dave’s death was such a tragedy, for at 61 years of age, he had still so much to offer. As I spoke to Doy, we both fondly recalled those days when the telecom giant was in the throes of being born.

We were de-monopolizing and liberalizing the sector, not really the easiest task to undertake, but we managed to do so successfully … not ideally, though, for I remember having said in my speeches during those times that we were looking towards forging a “triopoly.” This word is not legitimate, for you won’t find it in any dictionary. What I had meant then was a telecom environment with three players, but as we are all aware, this was not the way the industry evolved.

I knew Doy Vea was hurting, but we never question the Lord’s will. Dave Fernando, more than anything, was a good man. All we can do is pray for the eternal peace of his beloved soul.

I got a query from a Globe subscriber, who posed what he called a “critical” question, which actually referred to the “enormous” profits that Globe and Smart are making right now. He said that these telcos could absorb the tax and still make sizeable profits. In his words: “It will hardly make a dent in their income.”

Being a Globe subscriber, I passed on the query to Atty. Rodolfo A. Salalima, chief legal counsel and senior adviser of Globe Telecom. The late Dave Fernando, Maricor Akol — who was kind enough to give me a statement that was featured in my part one — and Rudy Salalima, were members of the Philippine delegation, which I headed. These three were among those who provided me with valuable support that year when the Philippines won more votes than the host country, the United States. We topped the elections for Asia and I have remained proud of this team of excellent professionals. Rudy Salalima, with his deep-thinking legal mind, provided valuable help and was kind enough to provide his answer to the Globe Subscriber who sent his query. Salalima’s answer follows hereunder:

 “Our constitution requires that the rule of taxation shall be uniform, equitable and progressive (Section 28 [I], Art. VI). Uniformity refers to taxing at the same rate people or things belonging to the same class or classification, which, in turn, must have a substantive, reasonable and not arbitrary basis. If earnings or profitability is the criterion for this tax on text, why not also impose the same on the power, food and retail sectors, which earn as much as, if not more than, Globe? Why singularly discriminate against the cellular telcos?

“A progressive system of taxation has been considered an equitable way of distributing the tax burden and is consistent with the principle of ability to pay. The telcos are already paying the progressive corporate income tax of 32 percent based on our earnings. Thus, the more we earn, the more we pay on our earnings.

“Besides, from the practical viewpoint, the five-centavo tax per text will not work. In Globe’s case, 25 percent of all its texts are free or zero-rated. Of the remaining 75 percent, the blended or average cost per text is 23 centavos. Of these 23 centavos per text, Globe earns only two centavos per text. Impose this five-centavo tax, then Globe suffers a loss of three centavos per text. The one-peso texts (part of the 75 percent above) constitute only nine percent of Globe’s total texts. But the government wants to impose the five-centavo tax per text on all texts, including the promotional free and unlimited texts, as well as the overseas calls that are already subject to the overseas communications tax, the value-added tax of 12 percent and the corporate income tax.

“Business and public service cannot operate if it cannot even recover its cost of business/production.

“Besides, the telco industry is already overburdened by all kinds of taxes and fees — running into billions of pesos — imposed by the national government, the local governments and the National Telecommunications Commission.”

Alvin Peters, the bright and idealistic president of the National Union of Students of the Philippines (NUSP), said that the student population was not even heard in the hearing of the Committee on Ways and Means of Congress, and felt that this could not have come at a worse time for the students who were not even invited to present their views. They, too, are condemning this proposed legislation.

It is possible this tax on text will go the way of the “Road User’s Tax,” which Senator Miriam Defensor-Santiago exposed in the Senate as possibly the worst misuse of the decade. Her exposé was confirmed by a government agency, the Commission on Audit (COA), a few days ago.

According to the COA report, millions of pesos allocated for the maintenance and improvement of roads nationwide have been misused. The state auditors said that P76.22 million taken from the Motor Vehicle User Charge (MVUC) fund had in fact not been used for the improvement of roads, drainage systems and air pollution-control activities. They reported that the money had been spent on the salaries and allowances of casual, contractual, even regular employees, the incentives and even purchase of equipment.

Pursuant to RA 8794, the road tax was supposed to be used exclusively for road maintenance and the improvement of road drainage, and other specified uses related to road improvement. Specifically, our state auditors said that the repainting of guardrails with a contract cost of P966,500 was allegedly 187.56 percent above the COA evaluated cost; hence, the contractor was heftily overpaid.

There is simply no legal justification for the imposition of an excise tax for telecom services. Such a specific, selective imposition is usually justified on the basis that this imposition will contribute to the curtailment of the consumption of those commodities that are considered harmful to the individual or community such as tobacco, alcohol — in fact, gambling should be included — but certainly, SMS, MMS, and overseas text services do not deserve to be classified under the same category as the abovementioned “sin taxes.”

This industry already pays a sizeable amount as spectrum user fees as well as supervision fees to their regulatory body, the NTC. We all know that tax legislation that creates an arbitrary and unreasonable classification is unconstitutional, violating as it does the equal protection clause; there has to be a reasonable basis for such legislation. And prohibiting the telcos from passing on the tax is abhorrent. When a business passes on the tax as cost of production, it is just doing what is regular and normal for businesses. Jurisprudence pertaining to Meralco allows all taxes to be passed on to the consumers with the exception of the income tax. This is a destructive excise tax and the framers should be warned about the evils of class legislation.

I am not certain whether the information I received yesterday that the proposed consolidated bill has been remanded back to the Committee on Ways and Means of the House of Representatives is true. If this is, in fact, the case, it would be advisable and beneficial for the congressional authorities to respect the right of the citizen to be heard and invite the affected sectors, and to please lend them an ear. This is still our beloved country prevailing under the fundamental principles and ideals of democracy.

Let us prove Mussolini wrong when he said that “Democracy is a kingless regime infested by many kings who are sometimes more exclusive, tyrannical, and destructive than one, if he be a tyrant.”

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