Killing the goose that lays the golden egg

(Part One)

Metro Manila has regained its spot as the second most preferred outsourcing destination in the world while Cebu has improved its position to number 11, according to Tholons’ 2018 Services Globalization Index.

Bangalore is number one, followed by Metro Manila and Mumbai, according to a recent report by Cebu newspaper The Freeman.

Last year, Metro Manila was fourth while Cebu dropped from 8th to 12th. But what is a bigger cause of celebration is the fact that based on the same survey of top super cities, the Philippines, which dropped to third in the 2017 survey next to India and China, is now back to number two. China has exited the index this year after having been disqualified, Tholons said.

The Philippines continues to be a preferred outsourcing destination due to its people’s skills, technology, and cost of doing business but soon, whatever cost advantage our country has over the others may be wiped out.

Information Technology and Business Process Association of the Philippines (IBPAP) president Rey Untal revealed in an interview with this writer the results of a survey conducted by Everest Group that while India is currently 10-15 percent cheaper compared to us, removing the tax incentives enjoyed by ecozone locators as contained in the Trabaho bill will increase the cost differential to 20 percent.

Under the recently approved House version of the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill, the current 30 percent corporate income tax (CIT) rate will be reduced to by two percentage points every two years beginning 2021 until it reaches 20 percent in 2029.

To compensate for the projected revenue loss, the bill seeks to broaden the tax base by, among other ways, revising the incentive scheme being enjoyed by ecozone locators, including those engaged in IT and business process outsourcing.

Currently, after enjoying an income tax holiday (ITH) of as much as six years, these businesses pay a five percent gross income tax (GIT) in lieu of all taxes in perpetuity.

Under the House version, after enjoying the ITH, those who will be included in the Strategic Investment Priority Plan will have to pay a total of 18 percent corporate income tax on the net income.

Those currently enjoying the five percent GIT will have at least two years to transition. IBPAP wants existing ITHs to run out and then have a 10-year sunset period.

Untal estimates that about 65 percent of their membership are locators in PEZA ecozones.

According to the same Everest study, with a shift from a five percent GIT, instead of growing by 100,000 jobs yearly, moving forward, the industry’s growth could be reduced by 40 percent, or only 60,000 jobs every year. Lost cause

The fate of Iloilo’s current electric utility appears to be sealed.

With the House of Representatives refusing recently to renew the congressional franchise of the 95-year-old Panay Electric Co. (PECO) and instead approving a bill granting More Minerals Corp. a franchise to distribute electricity in Iloilo City, it is now up for the Senate to decide PECO’s fate.

The House committee on legislative franchise chaired by Palawan Rep. Franz Alvarez decided not to endorse the renewal of PECO’s franchise which expires at the end of the year.

The Senate committee on public hearings, led by Sen. Grace Poe, will begin on Monday deliberations on PECO’s application for a new 25-year legislative franchise.

But as early as May, Poe already warned when she was in Iloilo for TRAIN-related public hearings that PECO’s franchise may not be renewed by the Senate after receiving various complaints regarding poor service of PECO, overbilling and old facilities.

The Iloilo City Council had passed a resolution urging the national government to deny PECO’s franchise renewal application. The Energy Regulatory Commission (ERC) has as early as 2014 ordered PECO to refund its customers P631 million for overbilling. Monthly bills rose by as much as 1,000 percent which PECO said was due to a new metering system that recomputed and rebilled its customers for previously uncollected and unbilled consumption. Lessons learned

As early as 2002, the Supreme Court in the landmark case of Chavez vs. PEA-Amari, which declared as void ab initio the amended joint venture agreement between the then Public Estates Authority and Amari Coastal Bay Development Corp., has ruled that reclaimed lands are alienable lands of the public domain which cannot be sold to private corporations without violating the Constitution.

But it seems that this lesson has not sunk in as far as some sectors in government are concerned.

A report by STAR’s Edu Punay earlier pointed to former Mandaue City mayor and now Cebu 6th District Rep. Jonas Cortes as being behind the alleged underpriced sale of 3.5 hectares of reclaimed prime property to private firm Ecodemcor in 2015 for P1.79 million or P50 per square meter. The property is now estimated to be valued at P12,000 per sqm

The STAR reported that three former councilors filed a joint affidavit with the Office of the Ombudsman where they claimed that they were misled by Cortes into approving a resolution approving the sale, not knowing that there was no previous appraisal made nor that the property has been classified as alienable and disposable.

Just last week, the Mandaue City Legal Office recommended the sale’s nullification, saying it is void for being against public policy.

It appears that in August 2015, Ecodemcor informed then Mayor Cortes that it will exercise its right of first preference under a promise to sell at a price of P50 per sqm. Cortes then forwarded the company’s offer to the Sangguniang Panlalawigan without first determining if the land has been classified as alienable and disposable and without consulting the city auditor or city assessor for appraisal of the said land. After less than a month, the Council recommended the sale after which the mayor signed the deed of sale. For comments, e-mail at mareyes@philstarmedia.com

(To be continued)