Wednesday, June 25, 2014

The need for participatory democracy at ground zero

THE president of the Philippine Alliance of X-Seminarians (PAX), Ricardo “Ricky” Ribo, is a Quezon City-based lawyer (recently seen on TV in his capacity as counselor for actor Zoren Legaspi’s case with the Bureau of Internal Revenue) who hails from Jaro, Leyte. He tells me a story about Oliver Cam, the president of the Leyte chapter of PAX called Paisanos whose members once attended the Sacred Heart Seminary of Palo, Leyte. Cam now sits in the rehabilitation committee of the Tacloban City government, and the story about him and his mates was officially relayed to Ribo in an April 2014 letter by PAX’s Tacloban facilitator, Tony Cruzada, who wrote, “Our PAX unit in Tacloban is now fully engaged in livelihood recovery in the San Jose area” (this was in reference to the Tacloban area most devastated by Typhoon Yolanda on the fateful morning of November 8, 2013). The letter goes on to write that the focus of the program is “restoring household livelihood to the pre-Yolanda level.”

Atty. Ricardo "Ricky" Ribo (center in white t-shirt) at the Sto. Niño de Leyte Shrine collection of relief goods for Leyte.
San Jose, Tacloban City, after the Typhoon Yolanda devastation. Photo borrowed from

     The rehabilitation strategy of the Tacloban group of Cam and Cruzada has been to work on capital build-up via people’s livelihood themselves. Livelihood, that is, in whatever form, although it had earlier been identified that the most common sources of income in the area included sari-sari stores, the retailing of fish and/or vegetables, meat or cooked-food vending, public transport pedicabs, sewing shops, barber shops/beauty salons, and small scrapyards.
     “The intervention that we wish to make is for seed money to be made available to a livelihood operator to ease and speed up his/her capital build-up,” Cruzada—whose brother, also an ex-seminarian, died from injuries caused by the devastation—explained. “The cooperator commits to a definite capital build-up target and to return the seed money on a weekly basis. The seed fund, therefore, will continuously flow to new batches of cooperators. The capital requirements of the greater number (of the villagers) ranges from P2,000 to P6,000. A smaller number would (have to) be limited to (outlays between) P7,000 and P15,000.”
     Cam and Cruzada’s group did not need to source the initial seed money from outside of PAX. Instead, they grew their fund internally through savings from the group’s purchase of unmilled rice (palay) already available in neighbouring towns and provinces. The palay were purchased in bulk, milled, delivered back to the community, and then sold through accredited sari-sari stores that also profited from commissions. The net savings and profit from this progression were then channeled to the seed fund.
     According to Ribo, this was just one among the many or few ways the people of devastated Leyte devised to rehabilitate their economy on their own, in the face of the shortness or failure of government economic rehabilitation efforts. . . .

ALTHOUGH Ribo and his national group had been one of the first relief responders to the post-Yolanda scene, operating with modest resources and collections from their headquarters in Sto. Niño de Leyte Shrine (a self-effacing chapel-cum-hideout along Commonwealth Avenue in Quezon City humbled by the maddeningly tall and blue Iglesia ni Cristo church beside it), Ribo himself was able to visit Leyte only in February and then in early June of this year. In contrast, Efren Delima, another PAX member who is an accounting consultant and intermittent project evaluator for the party-list-system party Aksyon Magsasaka-Partido ng Tinig ng Masa (AKMA-PTM), had traveled to Leyte several times since November 2013 as one of the men in charge of the PAX relief distribution at ground zero.

Accounting consultant and NGO worker Efren Delima
     Both Delima and Ribo posit their views of post-Yolanda reality as having gone beyond criticizing either the national government’s or the local governments’ handling of rehabilitation efforts, and having moved on towards a desire to offer their testimonies (for whatever they’re worth to whichever party) on what’s really happening at present on the ground and to come up with plans to confront these realities.
     Delima articulates his assessment this way: in many rehabilitation efforts, there is no coordination. There is no coordination, precisely because of the breakdown of a necessary bottom-up system that has been replaced by our culture’s long-traditional and long-proved-wrong sorry top-down approach. But it’s really not that simple, he says. Delima and Ribo both saw a vicious cycle continuously at play that they say has become both annoying and frustrating:
     Where the top acknowledges the necessity of hearing the knowledge of the bottom, it expects the usual bottom to function instead of recognizing the fact that the bottom has evolved or has in fact always been dynamic. In post-Yolanda Leyte, many small government units ceased to exist, sometimes refusing or seeing no reason to exist any longer other than for the purpose of accepting donations and selectively distributing them. Most efforts from the top have failed to recognize the fact that most in this bottom need reorganization, devoid of political affiliation, preferably people- or wholly community-based as against representative-based. On the other hand, where the bottom sees nobody from the top initiating the reorganization, it submits to its now ever-present “to each his own” or “everyone for himself” state (because government has ceased to exist) instead of owning up the opportunity to establish a new organization of the people and by the people.
     The much-touted Malacañang-appointed “Yolanda rehab czar” of the national government task force for Leyte-Samar, Panfilo Lacson, once admitted to the media that the money for the area has not wholly been released yet in the absence of a finished master plan. He also mentioned two departments that didn’t want to have anything to do with the program or the political area. He failed to mention that this sort of disinterest was also driven by the psychology wherein the top kept on waiting for the bottom to provide inputs for a comprehensive plan, while some from the top came up with top-down plans that the bottom refused to heed (the declared no-build zone and the transfer of residents to a safe zone, for one, a plan now recognized as nothing more than a great sound bite for television appearances for the simple reason that it is unenforceable).
     The Ecumenical Voice for Peace and Human Rights (EcuVoice) has already urged the United Nations Human Rights Council to investigate the Philippine government’s “slow, inefficient, and inadequate” response to the devastation. “Up until now,” the group's Irma Balaba told the Philippine Daily Inquirer, “the government does not have an alternative plan for the displaced communities that would ensure their long-term alternative livelihood, safe relocation areas, free housing and access to social services.”
     Ribo attests to this apparent non-release of rehab funds, having been witness to said absence of a comprehensive effort for the entire area, save those visible efforts for select spots. Delima, meanwhile, explains that where there is no master plan, there can definitely be no NEDA release, since NEDA only relies on the Procurement Law for the processing of funds. Both men insist that as of February there was no release of rehab funds, except to no more than 10% of each municipality. By June, they both insist, the efforts have remained select.
     Delima says what were released were the calamity funds for the provincial LGUs (local government units). Presently, there is yet a half year or more to wait for the next batch of calamity funds from the 2015 budget to come pouring in, should there be such an allocation. Many in Leyte’s LGUs, he says, complain that the calamity funds from the 2014 budget were already depleted by June. The immediate calamity funds from the 2013 budget, many local governments complained, appeared to have already been depleted as early as late January of 2014, Delima says. And this year’s November typhoon season is already looming on the horizon.
     But Delima agrees that government calamity funds are not enough and won’t ever be enough. The reason, both men say, why the focus should be in rehabilitating the economy first instead of in restoring government infrastructures, ideally simultaneously with equal emphasis on both. Schools, however, they say, are an understandable priority since they also stimulate the economy of urban areas and town centers. In short, what stimulates the people to move around within, with the promise of economic gain via their own little ways, has to constitute the rehab plan itself, not the top-down visions of a grandiose and monumental sound bite that can only go nowhere.
     Both men cite this instance: The immediate economic need is food; but, instead of coming up with ways of importing (from other provinces) and then retailing food, the government comes up with long-term plans for agriculture that end up with vegetables meant to be harvested in cycles harvested in toto, or with seeds meant for planting consumed as immediate food. In contrast, the more immediate economics of gambling has proliferated like crazy, with cockfighting cockpits offering an almost-daily circulation of money. Ground zero has become the cowboy movie version of Las Vegas, spurred forward by Las Vegas-esque economics.
     If there is something even Keynesians could learn from Milton Friedman’s shock therapy, it is that a people-deriving economy can sprout from an absence of physical “infrastructures”. What Keynesians can offer, in turn, is just a little bit of seed money for capital that can hasten trade in the communities and get money to move around, not seed money for big corporations to put up their projects, whatever they are, all over town. A pat on the back of the ordinary banana-cue vendor standing in front of his wok, instead of just the back of the friendly mining company executive eager to resume his community-contested venture in an island in southern Samar. Otherwise, we might as well divide the ruling Liberal Party into a Social Liberal Party intent on helping the grassroots and a Neoliberal Party intent on helping the opposite of the grassroots.

A PRIEST, Fr. Joeboy Buñales, of St. Francis of Assisi parish in barangay Jugaban, Carigara, Leyte, has thrown his savings on 1,000 pedicabs on loan to spread capital build-up around his town.

Fr. Joeboy Buñales of St. Francis of Assisi parish in Carigara, Leyte
     Such acts are much needed these days in Leyte, given that the smallest LGUs have literally been rendered revenue-less. The public marketplaces, now free-for-all areas for the enterprising, can do nothing but waive selling-spot fees. Meanwhile, residents who want to take care of their property tax are met with an absence of receipts.
     If only government had put its focus on stimulating and/or facilitating the influx of trade here, things might have recovered quicker. Again, we can take a lesson from some of our enterprising Mindanaoene brothers, who have found it worth their time to haul in fake Marlboros from Indonesia which they can affordably sell here at P30 a pack. If only government had put its focus on community organization instead of political party organizations, the atmosphere might have recovered quicker. Again, we can take a lesson from the criminal minds who have found organizing to be lucrative for group robberies, the impact of which can be seen in the transport operators’ re-scheduling of their last trips from 12 midnight to 4 pm.
     The much-ballyhooed restoration of electricity service is appreciated, of course, except for the ballyhoo. Though blackouts remain rampant and those who don’t have access to electricians’ fees continue to make do with makeshift secret connections, Friedmanian shock therapy, as well as history as a whole, would attest to the fact that humans will adapt to the reality of a situation and create an economy from inside that reality. In short, while electricity supply and service do have an immediate impact on a community’s re-emerging economy, a sheer focus on that service devoid of a seed money stimulus for the same economy puts more emphasis on the aider to the economy (electric power) than on the yet-to-exist-again economy itself needing capital help first in order to start the ball rolling. It doesn’t matter that the DPWH rehabilitation of its roads and bridges is slow-moving, as long as there is an already-strong trade there will be roads and bridges other than what the DPWH would expensively build for you and me and the contractor and the contractor’s politician friend.
     Also, a Fr. Buñales privy to what the people need would not supply chainsaws to a town that doesn’t know how to operate chainsaws, much less chainsaws from China that lose their blades after work on a couple of felled trees, says Ribo. Besides, in communities used to seeing every now and then drunk men disemboweling each other in a bolo-knife fight, a proliferation of useless chainsaws is the last thing you’d want to see in an oncoming future, Delima argues, not to mention the danger of seeing rampant small-scale illegal logging when the trees get tall enough again.
     Delima and Ribo say there was also no single effort from politicians, local and national, to rehabilitate the San Jose fisherman’s access to the sea, not even to meet with military officials on what to do with the bullets and grenades from the San Jose armory that were washed out to sea, bullets and grenades now there resting on the seafloor along with the pedicabs and wrought-iron beds aiming to be structures for a future underwater village of barnacles welcoming human scavengers as its tourists.
     No meeting over what to do with either the thousands of coconut lumber wallowing in the uplands, Ribo tells us, or those on someone’s coconut farm, which latter stagnation has driven away the tenants of that someone’s land in search of other sources of income (drove them away along with the Comprehensive Agrarian Reform Program certification that was dangled over the land and promised to the tenants).

THE failure to stimulate/support with seed capital the influx of trade supplies as well as outflow of potential products like coconut lumber has raised the price of meat, many of which have always come from the Davao region. Today, trucks come into the city and the towns with these meat supplies and go back to Davao without a “back load.” Naturally, the supplier would have to double the price of his meat due to the cost of this route for his economy of scale. Before Yolanda, the trucks would carry back-loads of copra, mussels, etc. Now they go back to the Compostela Valley with entirely empty vans and crates.
     With the failure to get a hold of the bottom-up requisite for a high satisfaction rate, government can only content itself with slow rehab projects and health projects slowed down by the people not “owning,” to use Delima’s preferred word, those projects. Even Guiuan, Eastern Samar, which displayed a readiness for typhoons when it built five evacuation centers for this town in the southeastern peninsular tip of Samar, evacuation centers that undoubtedly saved a lot of lives, the people—according to ex-seminarian Rolly Siguan—now capital-less, un-facilitated, and un-stimulated, also slowed down both physically and mentally. The same thing happened in Delima’s hometown, Capoocan, Leyte. Apart from the high-profile presence of Dinky Soliman's DSWD in the towns, a sporadic presence that nevertheless aided in nurturing a temporary culture of dependence, the Department of Agriculture-certified corn seedlings did not stimulate agriculture but only hunger for immediate consumption of corn millet made from the seeds. The politics behind the uneven distribution of these government dole outs further contributed to the communal depression.
     Another ex-seminarian, Osmundo Orlanes, who hails from Calbiga, Samar, says that municipal governments and governance have been tainted by political propaganda thrusts. He considers the Yolanda disaster as the ultimate demonstration of how elite politics operates in this country, where you see wealthy political families treating the situations in the landscape as playground for their little student-council contests where they can display their political party colors and logos and do their usual photo-op distributions and baby-raising as well as tirades, ignorant of the fact that the people are already disgusted by the shameless circus they are seeing.
     He looks at the way the elite political families treat each other even as they imprison each other in elite "custodial centers" or with fancy hospital or house arrests, while victims of a disaster who have no place in the roster of Tatler magazine-featured circles can make do with living in windowless plywood-walled square bunkhouses that could keep a morning pan de sal warm through to the afternoon.

A Facebook meme uploaded/posted by Facebook user "Steel Rain" at The bunkhouse featured in this Internet meme photo is actually of a design redone from a previous windowless design that was criticized in the media when photos of built houses with that previous design started coming out.
     Delima says this insensitivity to or ignorance of what the people want and need, a trademark of our representative democracy through the decades, explains the government’s lack of knowledge of the perennial immediate need-based situation that has yet to transition into a future need-based one. Thus the government’s surprise when it witnesses DA-certified rice meant for planting making its way to the mortar and pestles. As we mentioned above, DA-certified seeds are stolen for immediate food consumption, and the government can only police future supplies or otherwise halt or delay all deliveries.
     Delima says the office of the Leyte governor would deny it, but politics played a part in even the prioritization of areas for the government’s restoration of electricity and water supply. In fact, jokes have proliferated about why the planned relocation (from the Palo, Leyte beach area) of government regional and provincial offices to various municipalities is facing resistance—there is supposedly ruling-party fear of development in areas not within the party’s control.

DELIMA tells me the story about a livelihood support project in Capoocan for the cottage industry of anahaw and buri (corypha) handicrafts and wares that the people have long “owned.” The government later came up with a parallel project when it introduced a similar industry using nito vines (lygodium circinatum), possibly with the good intention of expanding. But, this time, it incorporated the industry into a cooperative system. Unfortunately, the cooperative system didn’t sit well with the people’s math, and the industry was soon considered by the townsfolk as the infamous sister to the much-preferred original anahaw/buri industry where the people remained as the respective owners of their own work and profit accounting. A similar industry was introduced in the province's municipality of Tanauan which did not impose a cooperative system, which democratic decision gained a positive reception that further resulted in progress for the venture.
     Delima, in his previous work with an NGO subcontracted by the government to implement an EU-funded project, says the feeling of “ownership” carried by a people towards any venture, no matter where the idea derives from, is crucial to those ventures and their success. A top-down approach that does not collect the people’s embrace of the aid will have to be labelled as nothing more than an elitist (condescending, if you will) imposition.

EVIDENTLY, Yolanda has become a case study for all sorts of plans and systems, both the corrupt and the idealistic, both the merely-obliged and the enthusiastic. It is up to us now to choose whether we shall heed the learning we have gained from it as a hellish experience or live through another Yolanda and post-Yolanda stint that would then repeat for us what seems to remain as a very elusive point. [JSV]

Tuesday, June 17, 2014

Of Someone Saying There's A Hole In BIR Commissioner Kim Henares' Bread

photo borrowed from

AT THE START of President Benigno Aquino III’s term, it was made clear through not a few media reports that the Aquino administration, supposedly social liberal and therefore likely intent on a flurry of social spending, would be serious about its tax collection and, through several charges soon filed in the courts (including a later famous lien against a world-renowned boxer-congressman), would be just as serious about its campaign against tax evasion, willful and not.
     Newly-appointed to the Bureau of Internal Revenue helm, Commissioner Kim Henares was portrayed in the media as that no-nonsense lady collector with both a hardened legal view and a Mona Lisa smile, concerned about equality in implementing the (equitable) tax laws of the land. Her image got so familiar that workers looking at their pay slips every fifteenth and thirtieth of the month would refer to her as “Sakim (Tagalog for greedy) Henares”, while professionals (most recently doctors) who were asked through a TV and newspaper campaign to file the right amount of taxes due society called her “Kim Henarrassment”. Meanwhile, those who understood the government’s wisdom about equality applauded her, according her almost-personal campaign the same height of appreciation they once gave the President’s “no to the elite’s wang-wangs on our roads” campaign. Social liberal, too, the BIR’s stance under the Aquino government has seemed, which Aquino stance also showed in the government’s earlier and ongoing series of investigations on fund embezzlement and/or inappropriate appropriations involving past or opposition government personalities.
     Social liberal and for equality? Perhaps.
     Well, not so fast, says a BIR examiner who recently filed a case with the Ombudsman against Henares and her deputy. In fact, the examiner says Henares’ and the government’s media image promoting equality in taxation has proved to be bogus from the git-go. He should know, he says, he’s looked the bogus tiger in the eye. The current government has been as selective in its hardened BIR stance, he says, in the same way it has been perceived as selective when it displayed a soft bearing towards the multi-million peso bonuses for SSS executives that irked SSS members dissatisfied with SSS service or when it defended the valid role of congress people in the allocation of executive DAP funds (as if, for a long hour there, it forgot social liberalism’s disdain for pork barrel politics).
     On May 5 of this year, Representative Magtanggol Gunigundo I (Lakas Kampi CMD-Valenzuela City) made a privilege speech treating of the examiner’s data. According to the examiner, the congressman’s speech “emphasized fair and reasonable enforcement and implementation of revenue laws” and stated that “taxation is in good exercise when it is equitable; i.e., if burden falls on those better able to pay and not on the poor.” The congressional record on this speech further shows that the congressman censured the present leadership of Commissioner Kim Henares for promulgating stiff tax rules on marginalized income earners (farmers, small retail store owners, and tricycle operators)—rules which he says fail to take note of MIEs’ tax exemption by the Barangay Micro-Business Enterprises Law—while appearing to have allowed a large taxpayer, Golden Donuts (licensee and sub-franchiser of Dunkin’ Donuts), to get away with non-payment of P1.56 billion in tax arrears for the year 2007 alone.
     In news reports (read this one here, for instance), Henares said she actually ordered a re-investigation that proved the examiner’s findings to be bloated. The examiner, Othello Dalanon (whose friend E- asked me to allow an interview with the man and accommodate a longer treatment of the case on the blogosphere), maintains that the re-assessment that Henares ordered actually still came up with a fat unpaid amount, the very same P1.56 billion he mentions as the amount that the social liberal government of President Aquino (and its social spending needs), and the people, have been grossly robbed of.
     Dalanon’s beef with Henares’ inaction towards the doughnut company, which was actually the beef the Lakas Kampi CMD representative from Valenzuela was citing in his privilege speech, is actually a tax case that goes back to 2007, concerning Golden Donuts, Inc. (GDI), the exclusive Philippine franchisee of the global brand “Dunkin’ Donuts”, which was “slapped with a tax assessment amounting to P1.56 billion, including increments, that arose from irregularities discovered and documented by me,” said the examiner. Dalanon only ran into this because he was assigned to the case in his official capacity as a former BIR examiner. It was only when an alleged inaction on the case by the current leadership became too obvious, way after the same (but more understandable?) inaction by the Arroyo-era leadership in the bureau, that Dalanon saw the need to promptly resign, purportedly to protect his person’s position from whatever action the bureau may now want to inflict on it. It must also be noted that Dalanon, as per his claim, first wrote to the Office of the President and then saw ruling-party members before he decided to show opposition figures like Rep. Gunigundo his data. It was only Gunigundo who showed interest in his case, while Senator Sonny Angara seemed more interested in Dalanon's views about a lowered VAT rate (Dalanon is also a campaigner for a lowered VAT).
     In his report to the government personalities he approached, Dalanon decried the commissioner’s “intentional failure” to either 1) enforce collection of the said assessment “despite the ensuing finality of the same,” or 2) sue the doughnut company for tax evasion (for under-declaring revenues in its tax return). Dalanon then filed a case against Henares and her deputy with the Office of the Ombudsman.
     Here is Dalanon’s story:

According to him, his assessment has remained undisturbed after rigid scrutiny by high-ranking tax experts in the district involved (RDO 41, Mandaluyong) and from various regional levels of the bureau. The assessment has been covered by a Formal Letter of Demand (FLD) and by Final Assessment Notices (FANs), all bearing Demand No. 41-B072-07 and all dated October 29, 2010, issued and approved by the Regional Director of Revenue Region No. 7, Quezon City. According to Dalanon, his assessment findings are merely the resultant of the following manifestations of irregularities:

1.    GDI has two (2) sets of books of accounts. One is the duly-registered hardbound computer-generated books of accounts which were the bases of his assessment. The other is the unregistered “manually-posted from original books of accounts” records which GDI claimed to be the bases of its Trial Balance for Financial Statements and Income Tax Return Purposes.

Dalanon notes that keeping two (2) or more sets of books of accounts is already a fraudulent act or criminal tax violation.

2.    GDI reflected false information in the company’s tax return. The CD and duly-registered books of accounts (hardbound computer-generated), as duly validated by Dalanon, showed a net taxable income amounting to P135.2 million while the Annual Income Tax Return (AITR) reflected a net loss of P44.9 million.

Again, Dalanon notes that reflecting false information on one’s tax return is already a fraudulent act or criminal tax violation.

3.    GDI’s CD and duly-registered books showed higher sales than those reflected in the company’s tax return. Sales per CD and duly-registered books was P1.928 billion while the amount reflected in the AITR was P1.031 billion, or a substantial under-declaration amounting to P897 million.

Dalanon points to the Supreme Court ruling in the case of Paper Industries Corporation of the Philippines vs. Court of Appeals, et al., 250 SCRA 434, which states that “where the books of accounts reflected a sales or receipts higher than that reflected in the return, the books of accounts should prevail. This is so, because the books of accounts are kept by the taxpayer and are prepared under its control and supervision; and they reflected what may be deemed to be admissions against interest.” The representations made by GDI in the duly-registered hardbound computer-generated books of accounts as presented by it to the BIR for audit and examination, says Dalanon, "amounted to admissions against interest which it cannot disown and change at its convenience or pleasure."

Again, Dalanon emphasizes that substantial under-declaration of sales or revenues in a company’s tax return is already a fraudulent act or criminal tax violation.

4.    Other independent relevant documents, such as, but not limited to, Franchise Agreement, Technical Service Agreement, Final Withholding Tax Remittance Returns, and VAT returns, submitted by GDI to the Bureau for audit, further revealed that GDI’s sales topped P2.366 billion while the amount recorded in its duly-registered books was just P1.928 billion; or a substantial unrecorded and undeclared sales amounting to P438 million.

Again, Dalanon emphasizes that the non-recording of sales in the duly-registered books and consequent non-declaration of the same in the AITR already constitute fraudulent acts or criminal tax violations.

     It was these irregularities, and other discrepancies enumerated in his memorandum and audit reports, that culminated in the company’s aforesaid tax deficit, says Dalanon.
     Dalanon claims that he personally reported the case to Commissioner Henares and recommended to her the criminal prosecution for tax evasion of the company under the much-vaunted RATE (Run After Tax Evaders) program of the bureau and the Aquino government. But “despite sufficient mathematical computations duly supported by pieces of physical evidence to demonstrate the omissions,” he says Henares “intentionally did not pursue a tax evasion case against the company,” because the said company’s stockholder-secretary, Ms. Marixi Prieto, who also happens to be the president of the Philippine Daily Inquirer (PDI), supposedly talked to Henares and BIR Regional Director Nestor Valeroso on different occasions, both of whom then extended leniency to the taxpayer in view of Ms. Prieto’s closeness to President Benigno Aquino III, this ostensibly according to Deputy Commissioner Estela Sales. [Prieto is also the mother of the wife of Benguet Corporation president and CEO Philip Romualdez, who is son to the former Ambassador to the US, China and Saudi Arabia and brother of Imelda Marcos, Benjamin "Kokoy" Romualdez; Philip is also brother to Rep. Ferdinand Martin Romualdez].
     In a broadcast interview with Henares by GMA 7′s news reporter Susan Enriquez on February 28, 2014, Henares publicly declared Dalanon’s assessment as faulty and told Enriquez that she had ordered two re-investigations that found this to be true (she claimed that the re-investigations arrived at identical results, and both had the same conclusion: Dalanon’s assessment was inaccurate). Dalanon, however, says he was not given the chance to rebut the commissioner’s testimony.
     Fortunately for him, the March 4, 2014 Manila Times column of Emeterio Sd. Perez titled “Why is Henares not pursuing a tax evasion case vs. donut seller? did “take up the cudgel for Othello Dalanon.” The column opines that Henares was entirely wrong” in publicly declaring Dalanon’s assessment incorrect, “instead of waiting for GDI to question Dalanon’s findings before the Court of Tax Appeals.”
     “'Pinaimbestigahan natin ng ilang beses, at sa mga imbestigasyon na yan, lumalabas na hindi naman tama yung assessment ni Mr. Othello [Dalanon]', Henares said.” – this was from the report written by Elizabeth Marcelo/JDS, GMA News
     Well, Dalanon himself has questions to ask:
     Why was his assessment not given a chance by the commissioner to stand in a judicial scrutiny before it was publicly announced as flawed?
     If his assessment was wrong, what was the correct assessment for Henares? Why did she not clearly disclose the same in public? Where are the reports of those re-investigations that showed identical results? And how much was collected for the government’s coffer? Less than P4 million?—he further asks.
     Is the commissioner’s act not an expression of “tendering” for GDI, a potential tax evader company?
     Dalanon wanted to know the answers then, he still would like to know the answers now.
     And while the BIR promulgates its tax rules on marginalized income earners (MIEs) and has been quite active in “hastily” prosecuting other alleged tax cheats (the case against Zoren Legaspi, for instance), she seems to fear or appears to be coddling Dunkin’ Donuts’ local seller, Dalanon says.

Dalanon’s assessment against Golden Donuts, Inc. obtained finality.
     Commissioner Henares’s statement claiming that the authority to decide and declare finality of a certain assessment is a function vested by law upon the Commissioner of Internal Revenue is wrong, Dalanon says. Though not a lawyer, he says he knows that only the law can determine the finality of an assessment.
     He cites Section 228 of the 1997 National Internal Revenue Code (1997 NIRC), as amended, in relation to Revenue Regulations (RR) No. 12-99 as amended by RR No. 18-2013 and as clarified under Revenue Memorandum Circular No. 11-2014, which provides that assessment becomes final, executory and demandable in the following instances:

1.    If taxpayer failed to file a valid protest against the Formal Letter of Demand (FLD) and Final Assessment Notice (FAN) within thirty (30) days from date of receipt of the FLD/FAN.

The taxpayer may file a protest against the FLD/FAN through a request for reconsideration or re-investigation. He must state the facts, the applicable laws, rules and regulations or jurisprudence on which his protest is based; otherwise, the protest shall be considered void and without force and effect. If taxpayer failed to file a valid protest, assessment shall become final, executory and demandable.

On November 30, 2010, GDI filed its letter of protest vs. the FLD/FAN. However, Dalanon says it did not state the facts, the applicable laws, rules and regulations or jurisprudence on which its protest was based. The protest merely stated “adopt in toto the arguments, explanation and supporting documents as set forth in our letter protest to the PAN (Preliminary Assessment Notice) dated October 14, 2010.It also failed to specifically state whether the protest was a plea for reconsideration or re-investigation. It merely requested the cancellation and withdrawal of the assessment on the grounds that the same had no factual and legal bases.

Dalanon says that the Court of Tax Appeals, in the case of Security Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 6564, November 28, 2006), emphasized that “a protest to the preliminary assessment notice is not the same as the protest required to be filed as an answer to the final assessment notice. In fact, a preliminary assessment notice may or may not even be protested to by the taxpayer, and the fact of non-protest shall not in any way make the preliminary assessment notice final and un-appealable. What is clear from Section 319-A of the Tax Code of 1977, as amended, is that failure on the part of the taxpayer to protest or reply to a preliminary assessment notice paves the way for the issuance of a final assessment notice. However, evident under the said Section is that failure on the part of the taxpayer to file a valid administrative protest through a request for reconsideration or reinvestigation on the final assessment notice, shall result in the finality of the said FAN.” Underscoring supplied by Dalanon.

Again, what the law demands is a valid protest against the final assessment notice; otherwise, the assessment becomes final, executory and demandable.

2.    If the taxpayer failed to submit all relevant documents in support of his protest within sixty (60) days from date of filing of his letter of protest.

As mentioned above, it was on November 30, 2010 when GDI filed its letter of protest against the FLD/FAN. The 60-day period within which it could submit all relevant documents in support of its protest ended on January 29, 2011. It submitted the documents only on March 24, 2011. When it submitted the required documents in support of its protest, 114 days after the date of the filing of its protest had elapsed, not to mention the fact that said documents contained the same information as that already contained in its letter dated November 27, 2009 which were already taken up in the Adjusted Final Audit Findings sent to GDI covered by the Post-Reporting Notice dated July 19, 2010 which became the bases of the PAN and FLD/FANs.

     Furthermore, Dalanon says that notwithstanding the ensuing finality of his assessment, Commissioner Henares “intentionally failed” to enforce collection, and instead ordered two re-investigations.
     “…nang aming tanungin si Henares x x x nagreklamo daw kasi ang kinatawan ng GDI na mali ang assessment sa kanila ni Dalanon kaya pinareview niya ito ng dalawang beses. Ang resulta, mali nga raw ang ginawang assessment ni Dalanon” – that’s Susan Enriquez reporting for GMA News.
     Again, as per report of Elizabeth Marcelo/JDS, GMA News: “Pinaimbestigahan natin ng ilang beses, at sa mga imbestigasyon na yan, lumalabas na hindi naman tama yung assessment ni Mr. Othello [Dalanon], Henares said.”
     “Is there a law that authorizes the commissioner to order two re-investigations of a due and demandable assessment?—Dalanon asks.
     Clearly, he says, “while the law grants the taxpayer the opportunity to protest the FLD/FAN, such must be a valid protest, otherwise the assessment becomes final, executory and demandable, and the right of the government to collect the deficiency tax becomes absolute and, thus, precludes the taxpayer from questioning the correctness of the assessment and from raising any justification or defense that would pave the way for a re-investigation.”

Again, here are the arguments:
     To Dalanon this is Issue One—GDI’s CD and duly-registered books of accounts (hardbound computer-generated) showed sales amounting to P1.928 billion, while its AITR showed only P1.031 billion, or a substantial under-declaration amounting to P897 million.
     GDI’s contentions go thus—the CD and duly-registered books of accounts (hardbound computer-generated) contained more than 2,500 errors posted in 84 accounts and, thus, should not be the bases for Dalanon’s assessment. Furthermore, we have “manually-posted from original books of accounts” records which were the bases of our Trial Balance for Financial Statements and Income Tax Return Purposes.
     Dalanon’s points include the following:

1.    “GDI’s CD and duly-registered books of accounts (hardbound computer-generated) already contained GDI’s external auditors’ adjustments. It means that said financial records were already audited by GDI’s external auditors.”

2.    “The differences or discrepancies between the sales accounts reflected in the CD and duly-registered books of accounts on one hand and the AITR on the other were not reflected by GDI’s external auditors as adjusting or correcting entries in the said financial records.”

3.    “With the more than 2,500 errors posted in 84 accounts contained in the said financial records as GDI claimed, it is unfeasible and amazing that GDI—which belongs to the high-profile business in the Philippine industry, with its highly competent accounting and auditing workforce, and with the supervisors, the tax managers, the external auditors, and the reputable independent public auditors that GDI hired to conduct quarterly reviews of its financial records—would not notice such remarkable and significant errors.”

4.    “The 84 accounts reflected in financial records that allegedly contained errors are all nominal accounts (i.e., income and expense accounts). GDI did not claim that the real accounts (i.e., balance sheet) reflected in the said financial records contained errors. Thus, let us determine sales based on a real account that is associated with sales account.

“VAT Payable is a real account that is associated with sales account. Using this account, sales can be determined as follows:

VAT Payable account total credit per duly-registered books
P      227,263,254.33
Divide by VAT rate
Sales per duly-registered books with VAT components
Add: Sales per General Journal without VAT components
Sales based on VAT Payable account
P   1,928,371,778.78

“It may be noted that even if sales is computed based on VAT Payable account, it would result in the amount of P1.928 billion. This proves that sales reflected per CD and duly-registered books do not contain errors, contrary to GDI’s claim.”

5.    “According to the Supreme Court, the books of accounts prevail over the return when they reflect higher sales, because they are kept and prepared under control and supervision by the taxpayer and, thus, are admissions against interest.

Then here’s Issue Two—GDI’s sales topped P2.366 billion based on other independent relevant documents; but the amount recorded in the CD and duly-registered books was only P1.928 billion, or a substantial unrecorded and undeclared sales amounting to P438 million.
     Here are the facts supplied by Dalanon—GDI is the exclusive Philippine franchisee of Dunkin’ Donuts of America, Inc. (DDA). As such, it grants sub-franchise rights to various domestic entities nationwide. It has 642 outlets (shops) all over the country, 54 of which are directly-owned by GDI, with the remaining 588 owned by the 35 sub-franchisees under GDI’s supervision. GDI maintains a shop: central warehouse (commissary) from where all its sub-franchisees purchase on a COD basis all products, ingredients, supplies, commodity, and merchandise for their stores.
     According to Dalanon, the Franchise Agreement between GDI and DDA states, among other things, that the former shall remit to the latter a franchise fee equivalent to 1% of all sales of each shop, whether directly operated by GDI or sub-licensed to others. GDI shall be responsible for the remittance of all fees due DDA. Well, for year 2007, the franchise fee per GDI’s CD and duly-registered books (hardbound computer-generated) was P23.668 million. Said amount was claimed by GDI as its own expense.
     On the basis of these information, Dalanon computed the unrecorded and undeclared sales amounting to P438 million as follows:

Franchise fee per CD, duly-registered books and FS
P      23,668,908.00
Divide by franchise fee rate
GDI’s grossed-up sales (or should be GDI’s total sales)
Less: Sales per CD and duly-registered books
Unrecorded and undeclared sales
P    438,120,401.32

     Now, take note, Dalanon says, that the method of validation he used in determining GDI’s sales was already upheld by the Court of Tax Appeals in the case of Asia Coal Corporation v. Commissioner of Internal Revenue, CTA Case No. 6803, February 13, 2008, when it stated: “the commissioner may utilize any kind of documents x x x to determine the correct sales...”
     Dalanon says he presented several mathematical computations duly supported by documentary evidence to corroborate the above computed, unrecorded, and undeclared sales.
     But here are GDI’s contentions—the Franchise Fee amounting to P23,668,908.00 is equivalent to 1% of our “system-wide sales” which refers to sales generated by our directly-owned outlets and those of our sub-franchisees’, excluding central warehouse’s sales. Also, our central warehouse’s (commissary’s) sales of products to the sub-franchisees are not covered by the 1% franchise fee.
     But let us first determine the shops which GDI directly and indirectly operates, Dalanon says.
     As mentioned above, GDI has 642 outlets all over the country, 54 of which are directly-owned by the company, with the remaining 588 owned by the 35 sub-franchisees under GDI’s supervision. Again, GDI maintains a shop: a central warehouse or commissary from where all its sub-franchisees purchase all their products.
     So, GDI’s directly-owned shops would include: (1) the central warehouse or commissary; and (2) the 54 directly-owned outlets. Its indirectly-owned shops are the 588 outlets owned by the 35 sub-franchisees which are merely under GDI’s supervision.
     Now to Dalanon’s stand:

1.    “The franchise fee amounting to P23.668 million is equivalent to 1% of GDI’s sales alone, such as sales generated by the central warehouse and the 54 directly-owned outlets.”

2.    “There is no specific condition in the License Agreement between GDI and DDA that says sales of central warehouse to the sub-franchisees are not covered by the 1% franchise fee.”

3.    “Is not GDI’s central warehouse a shop which it also operates? Are not the purchases by the sub-franchisees from the central warehouse also sales of GDI?”

4.    “Why did GDI claim the entire amount of P23.668 million as its own expense? The fact that it claimed the entire amount as its expense indicates that the same is equivalent to 1% of GDI’s sales alone.”

5.    “Why did GDI claim the whole amount of P2,840,123.69 representing VAT (Input Tax) on Franchise Fee as tax credit against Output Tax? The fact that GDI claimed said amount as tax credit against its output tax indicates that the franchise fee amounting to P23.668 million pertains to 1% of GDI’s sales alone.”

6.    “GDI is only responsible for the remittance of the franchise fee supposed to be remitted by its sub-franchisees to DDA. Instead of the sub-franchisees remitting directly to DDA, the amount is coursed through GDI and would not, in all aspect, form part of GDI’s expense.”

     Again, according to Dalanon, there are several mathematical computations duly supported by pieces of documentary evidence that would prove his findings.
     “So, where did I err when my audit findings were based on facts taken from financial records which GDI itself submitted and presented to the bureau for audit and examination? Furthermore, I clearly cited the applicable laws, rules and regulations or jurisprudence on which my findings were based,” Dalanon asks.
     He adds: “Why is BIR Commissioner Kim S. Jacinto-Henares, whom I expected to support my audit findings, which remained undisturbed after stiff scrutiny by high-ranking tax experts of the bureau, lawyering for GDI? Is this the straight path policy, the “daang matuwid,” of the Commissioner?”
     To Dalanon, the 2007 deficiency tax assessment against GDI amounting to P1,564,426,808.08 is final, executory, and demandable and already legally belongs to the Filipino people.
     On March 17, 2014, Othello Dalanon filed a formal complaint before the Office of the Ombudsman against Commissioner Henares and Deputy Commissioner Sales for grave misconduct, gross neglect of duty, and violation of Section 3(e) and (f) of Republic Act No. 3019, Section 269 paragraphs “e” and “h” of the National Internal Revenue Code, and other special laws.
     On the same date, he sent a letter of appeal to His Excellency President Benigno Simeon C. Aquino III, requesting the President’s office to enjoin their subordinates in the BIR to collect the subject of his (Dalanon’s) deficiency tax assessment as it already legally belongs to the Filipino people.
     Dalanon, an ex-seminarian, has also been reverently appealing to the Filipino people’s devotion to God and country to help bring that request to the President’s attention, which might then result in his directing BIR Commissioner Kim S. Jacinto-Henares to enforce the collection of the subject arrears. . . . [JSV]

(This blog column would welcome the Commissioner’s [or GDI's] side of the story.)


POSTSCRIPT I: Here are additional figures –

Details of sales per CD and duly-registered books (hardbound computer-generated)—

Central Warehouse
P       4,617,829.34
P                    0.00
P       4,617,829.34
Hot chocolates
Soft drinks
Coffee beans
Drinks mixes
Flour mixes
Hot chocolate mix
Packaging materials
Punch mixes
P    521,679,933.74
P 1,407,090,464.94



After reading the above blog, ePIRMA committee member Dexter Briñas Amoroso messaged me to write the following:

"Ka Jojo, Mr Dalanon's case against Kim Henares and Golden Donuts is similar to the late Atty. Mar Gen's case. Remember the issue against Gloria Macapagal-Arroyo I told you before involving the owner of MegaWorld, Mr. Andrew Tan? That info actually came from Atty. Mar Gen. Ang natatandaan kong sinabi niya, ni Atty. Mar Gen, campaign financier ni Noynoy si Mr. Tan kaya hindi sinuportahan ng Noynoy administration ang kaso niya against GMA dahil sasabit daw si Mr. Tan. Hawak daw ni Atty. Mar Gen noon ang evidence (documents) na magpapatunay sa case niya against GMA and Tan, pero hindi na pinansin nung makita ang pangalan ni Tan.

"Si Atty. Mar Gen (Atty. Luis Mario General) was a former Napolcom Commissioner and Regional Director ng LTO sa Bicol.

"It was when I asked Atty. Mar Gen about campaign contributors that he messaged me about this confidential information. Below is the screen shot of that message where Atty. Mar Gen made the statement. Note that he writes 'Please do not share this info to anyone' and I promised to him not to share the info.

"But if this story is not put out there, nobody will know, and we who had access to that bit of information (albeit not the documents) would be party to the hiding. Wouldn't that put us in the same position as the Aquino government?

"I hope the family of Atty. Mar Gen would understand if they happen to read this comment of mine under your blog, if you'd care to place it as an addendum or postscript (since Blogger does not allow image upload in its comment box).

"Much thanks and keep it up, Dexter"