Photographer: Julian Abram Wainwright/Bloomberg

A $500 Million Philippine Tax Deal May Be Too Hard to Resist

  • Tax chief keen on accepting a tobacco company’s offer
  • Agency misses collection goal in first six months of the year

A $500 million tax settlement offer by a tobacco maker may be difficult for the Philippine government to refuse as it struggles to raise funds.

Caesar Dulay, head of the tax agency responsible for 80 percent of revenue, said he is keen on accepting a 25 billion-peso ($500 million) compromise offer from Mighty Corp. to settle three complaints for alleged unpaid taxes worth 38 billion pesos. While it is the Finance Department which will decide on the offer, that amount is too hard to resist, he said in an interview on Thursday.

Click to read about Japan Tobacco in talks to acquire the manufacturing and distribution assets of Mighty

Revenue rose 8.9 percent in the first half of the year, missing a goal of a 12 percent increase, the tax commissioner said, citing preliminary data that’s not been made public. The tax agency is tasked to raise 1.83 trillion pesos this year, an increase of about 16 percent.

President Rodrigo Duterte, who took office a year ago, needs more revenue to finance an ambitious $180 billion infrastructure plan and a deadly war against drugs that’s killed thousands. The government is also pushing for higher taxes on oil and cars as it aims to cap the budget deficit at 3 percent of gross domestic product.

Low Morale

The tax agency is hiring 10,000 employees of which 70 percent are accountants, the commissioner said. As many as 1,200 people have already been hired as of June and the plan is to get 1,000 more the rest of the year.

“Let’s face it: voluntary compliance is low yielding,” said Dulay, a lawyer who has been friends with Duterte since they were students. “We have to continue enforcement, specifically the filing of cases against tax evaders.”

A plunder complaint filed against him and more than a dozen officials for an alleged anomalous reduction in the tax liability of Del Monte Philippines Inc. is hurting the agency, Dulay said. The commissioner said he had no personal knowledge of Del Monte’s tax assessments.

Del Monte, in a statement this month, said it has been diligently paying its taxes and the levies it paid in 2011 to 2013 were correct. The tax agency had validated Del Monte’s tax payments, Dulay said.

“Collection is affected. The morale is low because the bureau is on the limelight,” Dulay said. “People are afraid to conduct assessment; they want to play it safe. I have a problem.”

The tax agency is also asking lawmakers to exempt the bureau from a law that sets a uniform salary scale for all government workers.

— With assistance by Siegfrid Alegado

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