BATU, Indonesia. Photo by Jes Aznar

Saturday, August 28, 2010

My interview with the country's internal revenue chief

BIR Commissioner, Kim Henares: LOVE (of country) and TAXES | The Philippine Star Other STAR Sections Starweek Magazine

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MANILA, Philippines - Kim Jacinto-Henares has assigned herself a daunting task.

She wants, with an infectious idealism pushing her, to correct 106 years of wrong practices in and wrong impressions of the Bureau of Internal Revenue (BIR), the government’s main revenue agency.

“You have to correct 106 years of wrong impression. If I’m able to do that in three months, then I would say I’m pretty successful,” Henares tells STARweek.

Henares is the new chief of the BIR, perceived as one of the most corrupt agencies of government. An accountant and a lawyer, the US-educated Henares acknowledges that her task is enormous and challenging.

“I’m very realistic. I know that before I see an uptick, we will see a downtick. It’s hard. It’s like rearing a child. You have to show people that you are serious,” she says in a soft but clear voice, her graciousness belying the steel that undergirds her convictions.

Henares knows how difficult it can be because she is not new to the BIR, having stayed in the revenue service from August 2003 to November 2005. During such period, she held the position of Deputy Commissioner of the Special Concerns Group and office-in-charge of the Large Taxpayers Service.

She finished her Bachelor of Science in Commerce major in Accounting degree at the De La Salle University and was admitted as a Certified Public Accountant (CPA) in 1981. She is also a lawyer, graduating Second Honor Medal from the Ateneo de Manila University.

Her education also includes a Master of Laws degree major in International and Comparative Law from Georgetown University in Washington DC.

Prior to the BIR, Henares worked as a tax lawyer at SGV & Co., was a partner at the Yap Jacinto Jacob Law Office, vice-president for corporate and legal affairs of ING Bank, governor of the Board of Investments and Senior Private Sector Development Specialist for the World Bank Group.

It is her previous experience in the agency that convinced Henares that she could contribute to the government.

“My experience in the BIR was a very nice experience. It was a very fulfilling experience. This previous experience encouraged me to come back. The impression that the BIR people left me were good impressions,” she says.

More importantly, she says that her objective and the objective of her superiors – President Benigno Aquino III and Finance Secretary Cesar Purisima – are the same.

“Whenever I go into a job, the most important thing is that the objectives of my superior and mine are the same,” she explains.

This objective – the focus of all their actions for the next six years – is to collect the revenues that rightfully belong to the government so that it would be able to provide the required services to the people. Every peso, she says, would go to state coffers where it belongs.

“I’m also idealistic. My feeling is that I can contribute. If not for love of country, I wouldn’t be here,” she admits.

Henares is racing against time to put the proper systems in place, but she believes that six years is enough time to do it.

“The single biggest problem of the BIR is that we are so intelligent. If people feel they can get away with it, they do so. But there is also an upside to that. If they feel they can’t get away with it, they won’t. So it’s really convincing people that they cannot get away with it this time – and forever more,” she says.

As such, her general plans for the BIR are to implement existing tax laws strictly, to implement internal reforms and to put in place a new data and filing system for the entire BIR.

She is also giving erring taxpayers a sort of amnesty or a chance to settle their obligations before she brings the full force of her office on them.

“For those who have not filed the correct return, they can still file,” Henares says.

The agency is now drafting a resolution that would detail the terms of the program, which includes abating surcharges or penalties.

In terms of putting up a new system, Henares says she hopes to see this in place in the next two years.

“What I want is for the whole process to be an integrated system such as when the taxpayer gives us a tax return, it would be as close to an electronic data form as possible. As much as possible, data would be lodged by the taxpayers themselves in electronic data form so that we would not have to spend too much time and effort in converting it into electronic data form. So in that instance, we can easily match it,” she explains.

The BIR will also be working with other sectors for data sharing. These include the Bureau of Customs, the National Statistics Office and the various local government units.

There are limitations to the BIR’s access to information because of the Bank Secrecy Law, but Henares hopes that someday, in a better Philippines, the agency would also have enough access to personal records such as that of the Anti-Money Laundering Council.

All these plans notwithstanding, Henares believes the path of reforms is not easy, with the Philippines mired in patronage politics or the padrino system.

Not even two months into her new job, Henares says it is as hard as she imagined.

“I imagined it to be hard work. I put a lot of pressure on myself also so I want to put the reforms in place in a much shorter timetable,” she says, also admitting that she does not intend to “cling to this job,” maybe not even staying on for the whole six years of the Aquino administration if she can finish what she set out to do before 2016.

With her new job, Henares now has to wake up earlier than usual.

“I have to wake up a lot earlier because I have to be here (at the BIR head office in Quezon City) at 8 a.m. Sometimes, I have to be at a (television or radio) studio at 7 a.m.,” she shares.

Nevertheless, Henares, who celebrated her 50th birthday recently, tries to leave Sundays for hearth and home, with husband businessman Dan Henares. “I try as much as possible to leave Sundays free and to make sure that Sundays are devoted to family.”

She and her husband, a car and motorcycle enthusiast, enjoy driving around the country or going out of town.

“He likes cars so we drive around in a convertible,” she reveals.

Henares is such a low-profile person that not many people know that she is Chinese-Filipino, or that she likes to do stuff that, in her own words, are “not very feminine.”

“I like doing house work but of a different kind – carpentry, plumbing, painting. Before, when I was studying in the US, I was thinking of buying an old house and repairing it. It’s not feminine stuff but that’s me. People say Leos are very mechanical,” she says. In fact, she and her husband, whom she’s known for 25 years, like to tinker with cars and motorcycles.

What she still has to get used to is having bodyguards following her around, even to the grocery. President Aquino has assigned members of the Presidential Security Group to keep a tight watch on her.

Henares, nevertheless, does not mind this adjustment because she wants to be able to contribute to the country’s development.

“I believe that it’s a make or break time for the Philippines. It’s either we make it or we break it. We should take this opportunity and we should give it our 101 percent. All of us should help. That’s the reason I took the job.”

Friday, August 13, 2010

The problem with the National Food Authority....(a project for

Poor Economics, Corruption in Rice Procurement Continue to Waste People’s Money

By Iris Cecilia C. Gonzales

During his first State of the Nation Address last month, President Benigno Aquino III spent almost five minutes talking about the National Food Authority (NFA), the state-owned grains agency.

How, Aquino wondered, could the NFA have incurred billions in debts and in effect wasted taxpayers’ money?

Furthermore, Aquino asked why the NFA had to import so much rice or way beyond the country’s needs?

The answer is not so simple. The problem stems from poor economics and corruption in the system.

New Finance Secretary Cesar Purisima, in an interview with the Philippine Public Transparency Reporting Project, recognizes this and believes that such practices should not continue because it will only bleed state coffers dry.

“There is a problem with the policy (surrounding NFA). There’s no reason why we should allow that to continue happening,” Purisima said.

To understand the problem, one needs to look into the mandate and the structure of NFA, the government agency tasked to ensure the food security of the country and the stability of supply and price of the staple grain-rice or palay.

In terms of food security, NFA needs to be able to respond within 48 hours to meet rice requirements in the event of a natural calamity or emergency that impacts rice growing or distribution.

It should also be able to restore or maintain supply at prices immediately prior to the calamity or emergency within two weeks.

In the area(s) affected, the NFA should be able to keep retail prices at reasonable levels for consumers as well as farm-gate prices to enable farmers get a reasonable return on their crop.

Because of these two mandates of the agency, it has been incurring billions of debts. It also leaves it open to abuse or corruption.

The NFA started as the National Grains Authority, created through President Decree No. 4 dated September 26, 1972 with the mission of promoting the integrated growth and development of the grains industry covering rice, corn, feed grains and other grains.

In 1981, the government reconstituted the NGA into what is now the NFA, in effect widening the agency’s social responsibilities and commodity coverage to include food. Presidential Decree (PD) No. 1770 was issued which reconstituted the NGA into what is now the NFA.

Food security

Today, NFA performs the functions of ensuring food security of the country and the stability of supply and price of the staple grain-rice through various activities and strategies, which include procurement of rice paddy from individual farmers, buffer stocking, dispersal of paddy and milled rice to strategic locations and distribution of the staple grain to various marketing outlets at appropriate times of the year.

These initiatives are meant to stabilize prices of rice in the local market and ensure steady supply during times of calamity or emergencies. However, to be able to keep doing this, the NFA has had to keep selling rice at reasonable prices even if it was bought at a high price.

Essentially, because of the problem of rice in the world market, NFA ends up buying high and selling low to make it affordable to Filipinos. In 2009, for instance, the government shelled out a whopping PhP 40.8 billion (USD 907 million) to import 1.5 million metric tons of rice from Vietnam, according to the 2009 annual report of the NFA.

So while consumers get affordable rice, it comes at a very high cost for the government. It pushes the country’s fiscal position to a tipping point, according to Purisima.

It is this heavy importation of rice by NFA that Aquino highlighted during his speech. He claimed it was a crime for the Arroyo government to buy 900,000 metric tons of rice in 2004 even though just 117,000 metric tons were needed.

 He alleged this was repeated in 2007 when 1.827 million metric tons of rice were imported to fill up a supply gap of just 589,000 tons.

 "Hindi ba krimen ito?" (Isn't this a crime?) Aquino asked.

Aside from receiving money from the government to import rice, the NFA also relies heavily on state coffers for guarantee for its loans as well as tax subsidies.

In 2009, according its annual report, NFA secured PhP 20 billion (USD 444.4 million) in guarantee from the national government for its short-term loans. This guarantee allowed the grains’ agency to secure additional credit lines from various banks.

These loans are necessary for the agency to continue fulfilling its mandate to buy rice high and sell low. In 2008, for instance, when there was a shortage of rice in the market, the NFA was selling rice at PhP 18.25 (less than a dollar) per kilo when the cost of rice was already at PhP 32 to PhP 35 per kilo.

At present, NFA is selling rice at PhP 25 per kilo which is still well below the real cost of rice which is PhP 32 to PhP 35 per kilo.

Outstanding obligations ;

As of end-May 2010, NFA has total outstanding obligations of PhP 171 billion (USD 3.8 billion), comprising of short-term and long-term loans as well as the debt papers it issued to refinance existing debts and to fund operations.

Last year, the NFA successfully raised PhP 9 billion (USD 200 million) from the sale of 10-year bonds --proceeds of which would be used for its refinancing requirements and operations for 2010.

Aside from this, NFA also availed of PhP 17.703 billion (USD 393.4 million) in tax subsidy for its importation of rice and corn. The subsidy comes in the form of the so-called Tax Expenditure Fund (TEF), which is essentially non-cash.

The TEF is a subsidy released by the Department of Budget and Management (DBM) to government-owned and controlled corporations and state-run companies such as the NFA mainly to settle customs duties and other taxes arising from the importation of goods.

While there is no actual cash involved here, it still does mean revenue losses for the government. If state-owned agencies were able to pay in cash for their duties, the national government would have earned more.

The huge amount of money that NFA gets from the national government illustrates the poor economics of NFA.

Prone to corruption

Finance Undersecretary for Privatization John Philip Sevilla said that the mandates of some government-owned and controlled corporations including the NFA are really problematic.

“Some state-owned agencies such as the NFA are created in such a way that they are effectively bound to lose money,” Sevilla lamented.

The poor structure and system have also made the NFA prone to corruption.

Critics of the government’s rice procurement program have been vocal about the need to overhaul NFA’s operations. Just last March, then opposition Rep. Teofisto Guingona III of Bukidnon claimed that so-called “crocodiles” or corrupt government officials are raking in millions of dollars in commissions on rice importations.

Guingona, now a newly-elected senator, questioned why the government had to increase rice imports even before experts could ascertain the extent of damage to farming caused by the El Niño dry spell.

He was referring to the 2.45 million metric tons of rice that NFA had planned to import for this year.

The lawmaker claimed that corruption happens when government officials rake in money from commissions given by rice sellers.

Rice traders interviewed for this article declined to be identified because of the sensitivity of the matter confirmed this.

For example, said one rice trader, if a foreign rice supplier sells rice to the Philippines, they can connive with NFA officials by shipping, say, lower quality rice or different from what was declared on paper.

On paper, the supplier can declare that it has exported 1 million metric tons of rice that includes broken grain of 10 percent. In rice shipments, broken grain is usually included but is considered of inferior quality compared to the whole grain.

In reality, however, the shipment of 1 million metric tons may include broken grain of up to 40 per cent.

The seller will then give officials of the NFA “commissions” for the “savings” earned from such an arrangement, the rice trader told PPTRP.

Corruption is allegedly so rampant and innate in the system that even officials of the Bureau of Customs – who are supposed to inspect the goods – agree to the arrangement for a share in the commission.

“There is a huge budget for importation so they (NFA officials) take advantage of this,” said the rice trader.

Transparency in NFA

In an interview with this writer, NFA spokesperson Rex Estoperez denied the allegations and stressed that procedures on rice procurement have always been fair and done in the most transparent manner.

“We go through the process,” he said.

He said that the Philippines continues to import because it does not want a repeat of the rice crisis in 2008.

“We need to import more because we don’t want a repeat of 2008. Why do we need more, because it is better to have more. Our preparation is always forward-looking,” he said.

He also said that any decision to import -- when to import and how much to import -- is done by the Interagency Committee on Cereals. Aside from the NFA, members of this committee are the Department of Agriculture, the National Irrigation Administration, the Department of Trade and Industry (DTI) and the National Economic and Development Authority (NEDA).

The Department of Science and Technology-Philippine Atmospheric, Geophysical Astronomical Services Administration (DOST-PAGASA) is also a member of this committee because of the need to assess the weather conditions.

“The decision to import is based on statistical data and surveys provided by the Bureau of agricultural Statistics (BAS) related to palay production for the year, the projected beginning rice inventory for the following year, and daily and historical annual rice consumption requirement,” Estoperez said.

He said that for the 2010 rice importation, the damage on the country’s palay production by the successive typhoons during the 2009 main harvest and the projected El Niño effect on agricultural crops this year were given consideration. The role of the NFA is solely to facilitate the importation.

Furthermore, Estoperez maintained the agency abides by the provisions of Republic Act 9184 or the Government Procurement Act.

“In keeping with RA 9184 provisions, the volumes of rice to be imported are being published ahead of time along with the scheduled pre-bidding and bidding proper,” he said, adding that the group also invites observers to the bidding.

These observers include representatives from the Commission on Audit, the Procurement Transparency Board that includes members from the Catholic Bishops’ Conference of the Philippines (CBCP), the civil society, farmers and non-government organizations.

“The media also covers the scheduled pre-bidding and bidding proper,” he said.

Nonetheless, the fact remains that because of excessive importation, the Philippines is “swimming in rice” and that some are currently rotting in warehouses, according to current NFA administration Angelito Banayo.

The Commission on Audit (COA), in its 2009 audit report on the NFA, has recommended a major re-examination of NFA’s operations.

“We recommended that management re-examine the practice in the light of the issue of conversion which diverts NFA rice to be sold as commercial rice. It gives opportunities for rice traders to purchase large volume of low priced NFA rice and to sell them later as commercial rice at a much higher price,” the COA said.

With all these problems in importation and NFA’s money-losing operations, the government concedes that a long-term solution to the problem is necessary.

NFA’s Estoperez said it is high time for Congress to overhaul the NFA and revisit its mandate.

“We have to amend. Our mandate is buy high and sell low. Ideally, we should just be for buffer stocking and as a regulator of traders. We shouldn’t be importing anymore. We will import but only for buffer stocking,” he said.

As such, he said, the long-term solution is to revisit, revise and amend the mandate of the NFA.

“Let’s leave it to the private sector to import,” Estoperez said.

In a separate interview, Finance Undersecretary Jeremias Paul Jr., who is tasked to oversee the operations of state-owned agencies such as the NFA said the agency’s functions should be separated.

“The regulatory and proprietary functions should be separated,” Paul said. He added that importation should be left to the private sector.

While this could raise the prices of rice in the market, Paul said this wouldn’t necessarily be the case because when there is competition, prices would go down.

Nonetheless, he said the government should opt to have a “targeted cash transfer system for the poor” to subsidize their costs in buying rice. This would be similar to the conditional cash transfer system put in place by the Department of Social Welfare and Development (DSWD).

Amendments to the NFA charter however remain pending in Congress to this day.

Overhauling NFA

Government sources said lawmakers, especially populist ones, are afraid to touch on the issue of the NFA because rice is a “political issue with social costs.”

The pending bills aim to strengthen the NFA by transforming it into two separate entities: the National Food Corporation (NFC) and the Food Development and Regulatory Administration (FDRA).

According to the proposals submitted to the Committees on Government Reorganization, on Government Enterprises and Privatization and on Agriculture and Food, “the NFC shall be primarily responsible for managing the government rice buffer stock, while the FDRA shall discharge the regulatory and research and development functions in relation to national food security objectives.”

Quirino Rep. Junie Cua who authored one of the pending measures said that the NFA is experiencing financial difficulties which necessitate its restructuring to make it more viable.

The lawmaker also stressed the need to rationalize the function of the NFA as it is undertaking activities which are better performed by other government bodies citing as an example the agency’s activity of selling rice at prices below market level.

Finance department’s Paul said the government is stepping up measures to overhaul NFA but needs the help of Congress for the charter amendments.

And Budget Secretary Florencio Abad said there is now an interagency committee which includes members from the Department of Agriculture, Department of Budget and Management and the Department of Finance that is now studying how best to overhaul the NFA.

Initial proposals, Abad said, include separating the different functions of the NFA and limiting these to warehousing and regulatory functions.

This would enable the government to reduce the budget given to NFA.

The role to import would then be left with the private sector but this would be regulated by the NFA. All these plans are now being thoroughly studied by the interagency committee. Abad said that what can be done is to re-channel the subsidy provided by the NFA to the public.

“What we want is a more targeted subsidy because right now, under the present set-up, it’s a general subsidy. We want to direct these subsidies to indigents. Right now, only 27 per cent of the poor benefit from the present set-up,” Abad said. He said the plan is to give rice subsidies under the government Conditional Cash Transfer Program directly to the poor.

This way, the NFA no longer has to sell rice in the domestic market at prices lower than the cost of importing it.

“Definitely because of the tight fiscal position of the government, we cannot allow the present situation to continue,” Abad said.

The Aquino administration has inherited a budget gap of PhP 196.7 billion (USD 4.3 billion) in the first six months of the year, 28.2 percent more than the PhP 153.4 billion (USD 3.4 billion) budget deficit recorded in the same period last year. The six-month figure is PhP 51.6 billion (USD 1.1 billion) higher than the programmed ceiling of PhP 145.2 billion (USD 3.2 billion) for the period.

In the meantime, as the government continues to subsidize the money-losing operations of the NFA, the grains agency would continue to put pressure on the country’s already fragile fiscal position. Philippine Public Transparency Reporting Project