The Philippine Stock Exchange (PSE), the Bankers Association of the Philippines (BAP), and other groups filed a petition before the Supreme Court questioning the BIR’s issuance of RR 1-2014 and RMC 5-2014.
Last Sept. 9, the Supreme Court issued a temporary restraining order against enforcing new regulations that would require the stock exchange, brokers, banks and other companies to disclose their shareholders or investors who receive income payments and dividends.
Why would the regulation stretch the patience of these important sectors of the economy to the limit?
The banks are among the withholding agents significantly affected by these new requirements, particularly in the case of depositors whose interest income are subject to final withholding taxes. With the new regulations, banks are required to specify in their alphalists all depositors receiving interest income with the corresponding final taxes withheld. However, the disclosure of interest income and taxes withheld per depositor has the effect of disclosing the amount of deposits of each depositor, which can be worked back from the amount of interest earned.
Thus, this new requirement might be contradictory to the Bank Secrecy Law. The Bank Secrecy Law states that all deposits of whatever nature with banking institutions -- including investment in bonds issued by the government -- are absolutely confidential in nature and may not be examined, inquired after, or looked into by any person, government official, bureau, or office except upon written permission of the depositor, or upon order of a competent court in cases of impeachment, bribery, or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.
The industry groups also noted in their petition that the issuances might be violating Republic Act No. (RA) 10173, or the Data Privacy Act. This might not be the case, though, since the act provides that the processing of personal information shall be permitted if the processing is necessary for compliance with a legal obligation to which the personal information controller is subject. Thus, if the BIR requires the disclosure of the dividends received by each investor in the alphalist, then it would be a legal obligation already and processing of such personal information would not be a crime.
However, the regulations might have a negative effect on the country’s investment growth. By requiring that the alphalist reflect each individual investor receiving dividend income, the investor’s privacy is neglected.
Aside from specifying the payees, RMC 5-2014 also requires that the tax identification number (TIN) indicated in the alphalist be valid and correspondingly issued by the BIR to the employees or payees. Hence, the use of dummy TIN(s) such as “000 -- 000 -- 000 -- 000” is not allowed.
This means that foreign investors would now be required to apply for TIN with the BIR in order for their withholding agents to comply with the new BIR regulation. Though applying for a one-time TIN is not a complex task, foreign investors might choose to pull out their investments and place them instead in countries with more investor-friendly policies.
Another major issue is the prohibition of the use of “PCD Nominees” in the alphalist. PCD Nominee Corp. (PCNC) is an entity established to improve operations in securities transactions and to provide a fast, safe, and highly efficient system for securities settlement in the Philippines. Persons who opt to trade using the PCD do not receive stock certificates as proof of ownership since trading is completely paperless and certificates are registered in the name of PCNC.
PCNC serves as one of the largest shareholders -- if not the largest -- in many Philippine corporations. Thus, it would be hard for businesses whose major shareholder is PCNC to list all the lodging stockholders to which the dividend payments are due considering that there may be thousands of stockholders who compose the PCNC shareholdings in one company.
The BIR is well advised to view itself as part of the government’s economic team. While raising revenues from taxation is a very important function, taxation itself is an important factor driving the economy. Regulations issued by the bureau have the capacity to break or make a nation. Such issuances may discourage tax evaders, but they may also weigh down good companies. Policies that are too strict, difficult to implement, and even harder to comply with are only am unnecessary burden to everyone.
The report on Global Competitiveness for 2010-2011 showed inefficient government bureaucracy as one of the most problematic factors hindering business growth or further investments in our country. Likewise, in the recent Global Competitiveness Report for 2014-2015 released just this month, the burden of government regulation is one of our country’s weaknesses.
Thus, perhaps the BIR should focus its efforts on releasing efficient and effective taxation policies to help our country move forward on the road of continual progress and competitiveness.
Donna Flor V. Lipat is a senior at the Cebu branch of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
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