Corporate Securities Info

Check GOCC dividend policy

/ 05:02 AM September 10, 2019

After being criticized by President Duterte in his recent State of the Nation Address for not doing enough to help the farmers, Land Bank of the Philippines seems to have gotten back on his good graces.

Last week, the President issued an executive order reducing the dividend rate of Landbank from 50 percent to 0 percent for 2016, and 10 percent for 2017. A similar reprieve was given to Development Bank of the Philippines (DBP) but at 0 percent for 2017 only.


The order was issued to enable the two government-owned banks to support their viability and mandate.

Under Republic Act No. 7656, government-owned and -controlled corporations (GOCC) are obliged to declare and remit at least 50 percent of their annual net earnings as cash, stock or property dividends to the national government to help meet its financial needs.


The percentage of annual net earnings to be declared by GOCCs may, in the interest of national economy and general welfare, be reduced by the President upon the recommendation of the Secretary of Finance.

As of July, the dividend contributions remitted by GOCCs to the national government have reached a record high of P61.3 billion compared to last year’s P51.24 billion.

It helps that GOCCs are closely monitored by the Governance Commission for GOCCs to make sure their resources are utilized for the purposes for which they were organized and not used as piggy banks by their officials and employees.

There is no question about the propriety of GOCCs sharing their revenues with the national government. It’s only fair that the latter benefit from the funds given to GOCCs to engage in proprietary functions, or business-like activities ordinarily performed by private enterprises.

For GOCCs with high earning capacity, such as Duty Free Philippines and Philippine Economic Zone Authority, the dividend requirement makes good business sense.

They have “captive” markets that ensure their viability and have to reckon only with how much in dividends they have to remit to the national government without adversely affecting their capital and operational requirements.

But the same cannot be said for GOCCs that manage and operate public utilities or infrastructure that serve the general public on a daily basis and have to upgrade their facilities periodically to meet their needs. By way of example, GOCCs that, among others, meet that description are Clark Development Corp. (CDC), Manila International Airport Authority (MIAA) and National Electrification Administration (NEA).


For their 2018 operations, they remitted the following dividends to the national government: CDC, P816 million; MIAA, P3.42 billion; and NEA, P136 million.

These amounts represent money that, if not taken out of the GOCCs’ coffers, could have been used to acquire additional equipment or employ more personnel to improve or expand their services to the public.

They could augment whatever money has been allocated in the national budget for their operations and not have to go through convoluted budgetary processes to meet contingent or emergency purchases.

In other countries, government offices that operate or manage public utilities are allowed to use, subject to certain budgetary limits, the fees or charges they collect from their users or customers.

This way, they are able to quickly take the necessary actions to meet the demands of their services as they arise, and with minimum government intervention.

Considering the improved system of tax collection in the country, it may be time for the Department of Finance to review the dividend obligations of GOCCs and figure out which of them are deserving of the liberal treatment given to Landbank and DBP on dividend rates to enable them to serve their constituencies better.

The GOCCs’ dividend obligations should not be covered by a one-size-fits-all policy. It should be tailored to the peculiar needs of the GOCCs concerned and the nature of the service they perform.

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