Sick of wasted taxes

Buried by the wide media play up on pork barrel scam and the Zamboanga siege is an economic time bomb that threatens to blow up in the face again of President Benigno “Noy” Aquino III.

For one, this could even reverse the gains chalked up so far by the Aquino administration in the past three years. Worse, this could thwart further efforts to attract investors to government projects under the administration’s Public-Private Partnership (PPP) program.

If the concerned government authorities do not give this issue equal importance right now, it will have its hands full later on defending the decision of Metropolitan Waterworks and Sewerage System (MWSS) not to honor its perfectly valid contract with Manila Water Corp. and the Maynilad Water Services Inc.

Last Thursday, MWSS decided to roll back water rates instead of acting on the water rate hike petitions filed separately by Manila Water and Maynilad. All that the water regulatory body needs to act on these twin petitions is to either grant the entire amount of rate hike or cut it within reasonable rate of increase, or freeze the present rates as the worse that the two concessionaires could expect.

However, the MWSS did what it deemed was the most popular thing to do — order the rollback of water rates. With a single stroke by MWSS, it has succeeded in telling investors — foreign and Filipino — that doing business with the government is risky because its contracts are not honored. It can, in fact, be ignored for the sake of earning brownie points to save an embattled agency.

In short, the government cannot be trusted. Even for the sake of argument that MWSS was right in saying the terms of its water contracts were onerous, still it was the one that drafted the terms of reference during the bidding to improve water service way back in 1996. It was the government that offered that income taxes are recoverable expenses and could be passed on to consumers.

Who doesn’t remember the days when we had to wake up early in the morning to collect water from trickles from the tap? Do not forget the water trucks we had to pay for their expensive water delivery to our homes in Parañaque City. Now we have potable water 24/7 and this was because the private companies delivered on their end of the bargain.

Now that we have water, MWSS is saying income taxes are no longer deductible. Mind you this directly contradicts a Malacañang position earlier this year that the contracts should be respected. Even BIR Commissioner Kim Henares said all taxes are taken from buyers and customers. Where else will the money come from to pay them?

Worse, MWSS wants Manila Water and Maynilad to continue investing billions more to expand their service — but at reduced rates. This is like telling Meralco to expand its network and invest billions more but its rates would be reduced. This does not make sense. Companies need to make money to keep serving the public.

But right now, MWSS has done enough damage. The business community is already talking of thrashing PPP projects while people and newspapers are still talking about the alleged pork barrel scam by businesswoman Janet Napoles and the Zamboanga siege now on its second week. The time bomb has started ticking under the radar. Eventually we will have to explain to the whole world why we succeeded in aborting — again — our economic takeoff.

The agreement requires the concessionaires to invest billions first in pipes and water infrastructure for five years. They can recover these expenses, including business taxes, in the next five years. If they cannot recover their previous investments because the tariff is too low, why will they continue investing? And where will they get the funds since the banks won’t lend to them since they have poor cash flow and therefore not bankable?

So what happens next? The parties will go to court via arbitration. Legal experts noted the very weak grounds for the government to win in these cases. If that happens, the consumers again are the ultimate losers with such prospects of disruption in water services. But the biggest loser is our country with investors not getting in and much-needed jobs nowhere created.

After languishing in the doldrums as the “Sick Man of Asia,” the Philippines is now being touted as the economic leader in Southeast Asia, with successive upgrades from credit rating agencies Standard & Poor’s (S&P) and Fitch ratings helping the country shed off its “stray cat” image to emerge as a roaring tiger.

We may be perceived now as a hot investment destination. But it seems we are not getting the excited attention of foreign investors. This is underscored by the fact that the amount of foreign direct investments that have come in last year at $2.8 billion is only a drop in the bucket compared to our neighbors in Asia.

One of the things that people could look into is the International Monetary Fund (IMF) report that the Philippine mining fiscal regime is not “competitive internationally.” And since the whole nation is already up in arms about taxes going to the hogs, might as well add another tax issue into the mix.

According to the IMF report, the Philippine government’s share in the value of a mining project under the current fiscal regime is approximately 60 percent — considerably bigger than the other countries recognized as global mining industry leaders. This was highlighted at the Chamber of Mines conference held in Manila last week.

This IMF report could serve as a wake-up call to our government. It is correct to aspire for and sustain our economic leadership. But the same report opens our eyes to the reality that the Philippines might not be investor-friendly at all.

The only problem is that people are now very suspicious whenever they hear about taxes – thinking that the bulk of taxpayer money will just line the pockets of the greedily corrupt. Sure, we want to make our country more investor friendly and globally competitive, but first let’s make sure that the taxes paid by businesses — like mining companies that shell out 60 percent in taxes — will not be added to the pork barrel that for so long Janet Napoles and her ilk have supposedly been feasting on.

Yes, we’re no longer the “Sick Man of Asia.” We’re just people sick of wasted taxes, period.