Bureau of Internal Revenue

Getting the Philippine house in order

Now that all sides of politics have been tarnished with the same PDAF scam brush, it is time to lay the foundation for a new political order.

Another week, another scandal. The controversy that originally involved but a handful of senators and congressmen over the rorting of their Priority Development Assistance Funds, otherwise known as pork barrel, has now engulfed 180 of the 264 members of the house of representatives and twelve of the 23 senators that served in the 14th Congress from 2007-09.

The Commission on Audit’s (COA) findings are that of the Php 8 billion worth of PDAF allotments covered by its report, Php 6.156 billion was released to dubious non-government organisations, and that Php 2.157 billion was cornered by Janet Lim-Napoles’s ten allegedly fake NGOs.

This means that 77 per cent of the audited PDAF allotments in those three years associated with two thirds or 192 of the 287 members of the 14th Congress have been identified as anomalous by the COA. It involves congressmen and senators of all political stripes, including members of the ruling Liberal Party.

This can no longer be considered a set of isolated occurrences involving a small minority. It is a systemic problem that needs to be addressed with systemic and structural reform. The full investigation and resolution of this case could easily take the next three years and beyond. We cannot wait that long to methodically deal with the weaknesses of our political system. The very edifice representing our political order has been infested by termites and is at risk of crumbling to the ground unless serious measures are taken to fix it.

Diagnosing the problem

The first step in renovating our state towards a new political order requires us to diagnose what the source of the problem is. Most people reading about the PDAF scam would probably come to the conclusion that pork barrel is the root cause of the problem without considering why PDAF became necessary in the first place – for the Palace to secure votes for its legislative agenda, particularly the budget.

In defence of the practice some solons claim that it is a way of equitably distributing infrastructure and other forms of development spending across the Philippines, and that abuses can be stopped through reforms in the way the funds are allocated and spent. The Palace has trained its sights on the approval of NGOs as the key to ridding PDAF of anomalies.

The problem with these views is that they do not go to the heart of the issue, which is why solons need to rort the system in the first place. Given the high cost of running an election campaign, the only way for them to recover their campaign expenses and to seek re-election is by accessing public funds.

PDAF is simply a means to an end. Doing away with PDAF will simply mean that other shadier forms of raising money will arise. Other options include narcopolitics, gunrunning and smuggling. To get the Philippine house in order means providing an alternative means of financing political parties so their candidates have a way of preserving their integrity once elected.

Laying a new foundation

We have seen how relying on the ruling elite’s sense of noblesse oblige has turned out. Asking our politicians to refrain from pork barrel much less rorting it is like asking prostitutes to abstain from sexual intercourse to prevent the spread of AIDS. It simply won’t work.

Providing extra checks and balances is like providing contraceptives to sex workers. It helps to a certain extent, as a risk mitigation procedure. Removing the need for that sex worker to enter the flesh trade in the first place would be more effective. Extending the analogy to our legislators that would mean lowering the private costs of electoral contests.

In a previous post, I identified three pillars to support a new political order in the country. They are:

1. State subsidy of political parties

2. Adequate compensation and allowances for elected officials

3. Meritocratic selection of candidates as a condition for public funding of parties

These three pillars would be built on the foundation of greater transparency and accountability. Strengthening the powers and capabilities of the Commission on Audit, Commission on Elections, Ombudsman, National Bureau of Investigation and Bureau of Internal Revenue to engage in forensic accounting and electronic surveillance in investigating corrupt activities of public officials is required.

This new foundation would include having a whistleblower protection program and freedom of information act. Any candidate found to have abused his or her allowances would have to be cast out of the system of campaign finance. Political parties would have to expel or dis-endorse them at the next election for that party to have access to public campaign finance.

If we wanted to take things a step further, we could even enact a charter of budget honesty and sustainability. This would require political parties to submit their policies to the Congressional Budget Office, which would cost them prior to elections and release their findings. This is so that parties that promise the sun, moon and stars would be forced to come clean regarding their policies and show how they would pay for them through new taxes or savings.

We have already seen how that a considerable proportion of PDAF spending is being wasted. If we spent that much money on laying the new foundation and three pillars of a new political order, we would have a safer, sound structure on which to renovate our political system.

The time to do this is before the 2016 elections. We need at least two years’ lead time to allow the new foundation to settle and for the pillars to be erected. If we wait too long or get fixated on catching the criminals of yesterday, we will simply allow new criminals to breed in their place. We cannot let this infestation of termites eat us out of house and home.

The Philippines needs a new political order, and the time for it is NOW!

 

Long overdue: Bureau of Customs abolition

So, this morning’s banner story in the Philippine Daily Inquirer reads: Bureau of Customs abolition planned.

Who’s planning it? Malacañang. Who is proposing it? Embattled Customs Commissioner Ruffy Biazon. That’s right, the head of the agency itself who has been under the pump for failing to curb the rampant smuggling activities that are allegedly continuing despite the president’s mantra of Daang Matuwid.

In a face-to-face conference with editors of the PDI, Biazon offered up the possibility of overhauling the agency from the top-down, by replacing it with a new professionally led one. He says resistance to his reform measures from the frontline staff at the bureau has led him to take this view. In public policy parlance, we call this phenomenon the tail wagging the dog or “street-level bureaucrats” distorting the policy decisions made at the top. Here is a quote from the report:

Biazon cited the example of Peru, which, to defeat corruption and smuggling, abolished its custom department, put up a new one, adopted strict qualifications for hiring, and paid higher salaries to the new officers and employees running the new agency. In the case of the Philippines, Biazon said, corruption is deeply entrenched in the customs bureau’s culture and system so firing a few people or catching some smugglers will not solve the problem. [emphasis mine]

Well, well, well, I am happy to see that something I had recommended back in July 2011 in a piece called, the National Development Project, is finally being given some serious consideration although my proposal included not just the Bureau of Customs, but the Bureau of Internal Revenue and all other revenue generating agencies. Despite their best intentions, it has taken the palace nearly two years to catch-up to the policy conclusion I had already made regarding its anti-corruption campaign in the bureau.

Pursuing good governance doesn’t come cheap. I recognised this fact. But the administration of PNoy felt that it needed to wage a moral crusade first to separate “light from darkness”. My proposals at least acknowledge that if we are to address the cost impact of Daang Matuwid, we have to raise additional revenues. And to do that we need to ensure that our revenue generating agencies are professionally run. With respect to the proposal itself, here is a brief quote from my previous post:

Corporatization is the way by which the government has been able to pay its agents salaries commensurate to, if not exceeding that of, their private counterparts. Singapore achieved this for its entire bureaucracy, but it is the sole Confucian state to do so. The others achieved it through a combination of salaries, allowances and benefits.

The newly minted GOCC (Government Owned or Controlled Corporations) law now provides greater safeguards against abuse done by non-performing companies. It will govern the corporatization of the BIR and BoC. In exchange for the higher compensation, transition into the new agencies must be based on merit and not guaranteed for old bureau officials.

The boards of the new revenue agencies should be allowed to appoint people from among the ‘best and brightest’. Tougher qualifying exams, educational attainments, and past performance should all be part of the selection process. Where posts cannot be filled with existing staff, recruiting externally should be the resort.

Biazon supports the idea of the new corporate entity to takeover the Bureau of Customs to retain 3 per cent of the total revenue it produces to allow it to pay its staff according to their performance. This again was something I had broached before with regard to prosecutors of corruption cases.

It was my view that these state prosecutors were not paid well enough to exert best efforts in retrieving ill gotten wealth, and as a result, certain cases have been left languishing for decades, or worse, settled for a pittance through plea bargain arrangements. Here is what I said on the matter:

The Ombudsman and the Office of the Solicitor General (essential generals in the fight) which are given the task of prosecuting graft cases before the Sandiganbayan and Supreme Court respectively need to have more than a kind of altruistic motivation for performing their duties. They need to have protection and financial security.

Paying them higher salaries alone might not be enough to motivate them to exert maximum effort even in very winnable cases. Some sort of sharing in the spoils which would go both to their office and to chief prosecutors and their staff needs to be put on the table.

I know that some will argue that this is the people’s money and that any recovered ill-gotten or plundered wealth needs to be returned 100% to the coffers to fund social programs. This assumes that we are working with incorruptible Confucian super bureaucrats. That is not the case here. We need to live in the real world, not in some ideal fantasy land.

Apart from these two suggestions, I also proposed outsourcing the main functions of the Commission on Audit to private accounting firms, which is the practice in Australia. If we are to truly tread the good governance path, the government has to start taking seriously these recommendations. At least with respect to customs collection, they may finally be doing so.

Finance Secretary Purisima: there is an effort to discredit me

Philippine Finance Secretary Cesar Purisima tweeted that there is an effort to discredit him. The secretary submitted his statement of assets and liabilities, which included his income tax returns, and mandatory clearances from the Bureau of Internal revenue. This is required under Philippine law.

“I understand that a malicious party has zeroed in on the increase in my assets from 2006 to 2009, and is asking why the increase is bigger than the income declared in my income tax return,” @cvp1960 tweeted.

“The simple answer is,” Secretary Purisima wrote, “Passive income such as interest which is not included in the income tax return. In fact, this is the very reason why the BIR issued RR-2-2011 so as to capture passive income, but had it suspended because of complaints from many parties.”

RR-2-2011 is the Annual Information Return, which was supposed to be required of individuals with income exceeding 500,000 pesos.

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BIR files Tax evasion charges against Garcia, Ligot and Yambao

The Bureau of Internal Revenue has filed tax evasion charges against the spouses of General Carlos Garcia and Clarita Garcia, as well as Jacinto Ligot and wife Erlinda Yambao-Ligot, and Edgardo Yambao tweeted/a> Palace Deputy spokesperson Abi Valte.

Bureau of Internal Revenue Commissioner Kim Henares revealed the move comes in light of the Senate Blue Ribbon Committee probe on alleged corruption in the Armed Forces of the Philippines. Hundreds of millions in tax deficiencies are being sought from the accused.

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