EDITORIAL - How to lose investors

Foreign investors have long complained about the arbitrariness of policies governing business in this country. This has given the Philippines one of the lowest levels of foreign direct investments in the region for several years now. The tax case slapped by the government against Pilipinas Shell Petroleum Corp. can only add to those disincentives.

Today the Bureau of Customs is set to seize Shell imports, after the Court of Tax Appeals threw out the company’s petition to stop the move. The government wants Shell to pay P7.3 billion in import taxes, which Customs officials have admitted would help the bureau achieve its P278-billion tax collection goal for 2010.

Shell had paid its taxes according to rules set by the Bureau of Internal Revenue in 2004. The BIR chief at the time, Jose Mario Bunag, ruled that two Shell imports, catalytic cracked gasoline and light catalytic cracked gasoline, were raw materials, as classified by the Department of Energy, that were exempted from the import tax. The same exemption was not given to the two other major oil refiners, Petron and Caltex. Shell paid billions of pesos in excise taxes on the unleaded premium gasoline churned out by its refineries using the two imported materials.

But when Joel Tan-Torres took over as BIR chief, he reversed Bunag’s ruling and said Shell owed the government P7.8 billion in import taxes from 2004 to 2009. The insinuation was that a payoff was made for the tax exemption. Shell cried foul, complaining of double taxation.

Investors have long complained that business rules and contracts in this country are changed in midstream or from one administration to the next, or even many years after a project has been finished. Shell’s travails are happening within a single administration — and one that claims to be the most business-friendly in many years.

The ways and means committee of the House of Representatives, from which all revenue laws emanate, ruled last week that the new BIR ruling constituted a “naked, arbitrary and whimsical abuse of administrative power” and a usurpation of authority of Congress. 

If the government wants to change the rules, the least that it can do so investors won’t be scared away is to avoid applying the new rules retroactively. If the government believes that there was corruption, it should file the appropriate charges against Bunag, Shell executives and energy officials. The case must be resolved quickly and if guilt is established, that’s the time Shell can be made to pay back taxes, plus fines and damages.