It took a lot of guts for the Philippine Stock Exchange to bring the “alphalist” dispute all the way to the Supreme Court.
We heard that until the last minute, fiscal managers were seeking to dialogue with the bourse leadership but, by then, the die was already cast. The PSE board had already voted in a meeting Wednesday last week to pursue the case, which was indeed filed on Thursday.
Apparently, some PSE directors still have bitter memories of what happened to the real estate investment trust (REIT) implementing rules, where talks had gone on and on but led to nowhere.
But if there are less petitioners this time than those who signed up for that strongly worded industry-wide position paper that had warned of a capital flight, it’s because some other signatories are still ambivalent on whether they should risk incurring the wrath of the state, especially tough-cookie Internal Revenue Commissioner Kim Henares.
But for the PSE and the Philippine Association of Securities Brokers and Dealers Inc., it’s a ‘coup’ to have convinced the Bankers Association of the Philippines to add gravitas to the petition against the alphalist rules.
Organizations with members mostly affiliated with banks—Fund Managers Association of the Philippines and Trust Officers Association of the Philippines—likewise joined the crusade.
Apart from Henares, named respondents were Finance Secretary Cesar Purisima and Securities and Exchange Commission Chair Teresita Herbosa, who were noted to have backed the BIR’s order to all withholding agents to submit an alphabetical list—hence “alphalist”—of recipients of income payments subject to creditable and final withholding taxes and prohibit the lumping into a single amount and account of various income payments and taxes withheld.
As applied to dividend income payments by listed companies to their investors, the questioned regulations also prohibit listed companies from naming PCD Nominee Corp. (PCD)—the entity which holds the title of all uncertificated shares traded in the stock market—as the payee of dividends.
This was interpreted by some listed companies as a requirement to disclose the names, addressed and tax identification numbers (TINs) of their investors, which they warned would jeopardize “not only the stability of the Philippine capital market but also the liberty, properties, privacy and security of the market participants, which include the petitioners” in the guise of tax administration.
But wait. We hear that there are 15 more business and professional institutions which may join the class suit against this alphalist policy.
Under court rules, entities not originally part of the proceedings can become a party to the case by filing a complaint-in-intervention to join the petitioners (or unite with the defendants).
“It’s just that if we waited for the rest, it would be too delayed,” said the top official of one petitioner-institution, adding: “We Filipinos must be willing to stand on the principle. Otherwise, we will become a nation of spineless citizens.” Doris C. Dumlao
Unintended consequences
Reports of alphalist-induced capital flight used to be anecdotal. But now, financial industry players have something concrete to use an an example.
The first victim of the BIR’s controversial policy was apparently the preferred share sale of Globe Telecom Inc. where brokers took up only 47 percent of the issue offered to them, despite the attractive dividend yield.
Unless this issue is resolved by the court quickly, expect rough sailing—or worse, no takers—for other preferred share listings.
Apparently, the whole policy (meant to give fiscal authorities better weapons with which to combat tax evasion) has become subject to the so-called Law of Unintended Consequences. And that unintended consequence, according to one financial industry official, is capital flight. In this case, equity investors are shying away from the local market while investors who usually park their funds in debt instruments are taking their cash to overseas “safe havens” like Hong Kong and Singapore.
The alphalist policy is, of course, just one of several disagreements between fiscal authorities and the financial industry. Early on in the Aquino administration, the Department of Finance clamped down on the nascent real estate investment trust industry. There was also the free float rule in 2011 where the BIR threatened to slap higher taxes on firms whose listed shares were illiquid.
Meanwhile, BIR’s Henares said that tax authorities have not imposed any new policies and were merely implementing what was already in the law.
Industry players, however, remain unconvinced.
“The real problem here is that unscrupulous elements can use the information the BIR obtains to ‘triangulate’ how much a person really has,” said one official. “That opens them up to harassment and even the threat of kidnapping.”
Who’s right and who’s wrong? It’s in the Supreme Court’s hands now. Daxim L. Lucas
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