GOCC cash dividends

For the second consecutive year, the National Treasury received substantial cash dividends from government-owned and -controlled corporations.

According to reports, the government’s share in the earnings of 38 GOCCs from their 2012 operations is approximately P28 billion. Last year, the dividends amounted to P29 billion.

This year’s list of billion peso contributors include the Philippine Ports Authority, Manila International Airport Authority, Philippine Amusement and Gaming Corp., Power Sector Assets and Liabilities Management Corp., Bases Conversion and Development Authority, Development Bank of the Philippines and Land Bank of the Philippines.

All these corporations are engaged in, or otherwise supervise, businesses that have made and continue to make significant contributions to the country’s present economic resurgence, i.e. tourism, air travel, gaming, construction and financial services.

Until the enactment of Republic Act 10149 (or the GOCC Governance Act of 2011), dividend remittance was a touch-and-go affair for 89 or so GOCCs.

Their governing boards declared dividends depending on their mood or how influential their executive officers were with the powers-that-be in Malacañang. Those who had the right connections were “excused” from sharing their earnings with the government. The extra income went to their allowances and perks.

Requirement

This self-serving attitude was in vogue despite the fact that, as early as 1993, Republic Act 7656 required all GOCCs to “declare and remit at least fifty percent (50 percent) of their annual net earnings as cash, stock or property dividends to the National Government.”

Net earnings mean income derived from all sources, whether exempt or subject to tax, net of deductions allowed under Sec. 29 of the Tax Code and income tax and other taxes paid on them.

The law exempted from the dividend obligation GOCCs that administer real or private properties or funds held in trust for the use and benefit of its members, such as the Government Service Insurance System, Home Development Mutual Fund, Employees Compensation Commission, Overseas Workers Welfare Administration and Philippine Medical Care Commission.

The exemption is understandable because these GOCCs are not engaged in commercial or profit making activities and their funds come from the contributions of their members.

To require GOCCs engaged in social welfare activities for the benefit of underprivileged members of our society to share their resources with the government would be like taxing the poor to sustain the opulent lifestyle of our politicians.

Governance

If at all, the dividends then remitted by GOCCs to the government were either token in character or made in compliance with direct orders from the president to fund certain projects.

Faithful compliance with the dividend obligation started only after the enactment of the GOCC Governance Act in 2011, the first major piece of legislation sponsored and successfully pushed by the Aquino administration.

The new law streamlined the organization process of GOCCs and laid down the criteria to be followed to ensure transparency, responsibility and accountability by their key officials.

It created a Governance Commission—composed of a chair with Cabinet rank, two members with undersecretary rank and the secretaries of the finance and budget and management—to oversee and monitor compliance by GOCCs with the objectives of the law.

An attached agency of the Office of the President, the commission can recommend to the president the abolition, merger or consolidation of GOCCs to align their operations with the national economic policy.

Corollary to that power, the Commission is tasked with identifying the necessary skills and qualifications for appointment to the board of directors or trustees of GOCCs and, most importantly, recommending to the president a short list of suitable and qualified candidates for those appointments.

Appointment

To maintain close supervision over the actions of the appointed directors or trustees of GOCCs, the law limits their term of office to one year, unless earlier removed for cause.

In effect, they are like contractual employees whose appointments have to be renewed every year by the President upon the favorable recommendation of the commission.

But there is a catch in that recommendation, the director or trustee concerned should have obtained “a performance score of above average or its equivalent or higher in the immediately preceding year of tenure as appointive director based on the performance criteria for appointive directors” prescribed by the commission.

And what better way for a director or trustee to remain in the good graces of the commission than making sure his GOCC meets its revenue targets and, this is critical, able to remit substantial cash dividends to the National Treasury on D (or Delivery) Day.

By remitting hefty dividends, the GOCC concerned is able to help the secretary of finance meet his revenue targets and, in the process, make it less problematic for the DBM head to allocate funds to government offices.

With the two secretaries made happy by the dividend payment, only one member of the commission has to be convinced by the directors or trustees to be recommended for reappointment by the President.

Of course, political connections play a major role in the appointment process. But the ability to deliver hefty dividends to the government is a plus factor that can win significant brownie points for the director or trustee who made that possible.

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