POSTSCRIPT / November 23, 2008 / Sunday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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ChaCha debate mere waste of time, saliva

UNFORESEEN: That episode at 35,000 feet above the Pacific that required the presidential flight to be diverted so First Gentleman Jose Miguel Arroyo could be flown to the nearest hospital, which happened to be in Osaka, is a reminder that he should slow down.

His doctors at St. Luke’s must have given him clearance to take the arduous flight to Lima, Peru, via Los Angeles. But there are things that the human mind, aided by machines, cannot foresee.

We pray for FG’s speedy, and complete, recovery.

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CABALEN JOKE: Heard this one from Jess Paredes across the cabalen lunch table at Myther’s last Thursday:

“The Capampangans have spoken. In the 2007 elections, they made it clear they were not pang-Lilia, but Panlilio.” 

Among other things,” I added, but nobody heard.

(Explaining a joke takes away the fun. For those who do not get it or do not know the references, sorry na lang.)

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REDUNDANT NONSENSE: We are wasting saliva and media space-time feeding this endless debate over Charter Change.

To protect the unwary public from this deluge of redundant nonsense, media should stop printing or broadcasting anything SAID, and report only what had been DONE, on the subject by politicians and publicity-seekers.

Charter Change has been discussed to death. Nothing substantial is being added. Only rumors and speculations are fueling the agitated talk going around in circles.

Actually, all this noise about ChaCha and Term Extension is being fanned by Malacanang mindbenders to prevent the unwanted notion from setting in that Gloria Arroyo is a lameduck president.

Mark this: GMA cannot and will not stay beyond her term. When 2010 rolls in, you will see her stepping down and find — maybe to your relief — that no constitutional amendment for a term extension would have been put in place.

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WRONG VAT: Tax collection must be dismal. The Bureau of Internal Revenue insists on imposing without firm legal basis the 12-percent value-added tax even on the per diems and allowances of directors who are not officers of corporations.

Aside from its being double taxation (imposed on the same income that is already taxed), this VAT exaction is based only on Revenue Memorandum Circular No. 34-2008 that reads like a strained interpretation of the National Internal Revenue Code.

When then BIR Commissioner Lilian B. Hefti issued RMC 34 on April 15, 2008, she merely said summarily, without any attempt at legal justification, that directors “fall under the category of sellers of services under Title IV of the Code.”

No wonder, the business community, particularly the Institute of Corporate Directors headed by former Finance Secretary Jesus P. Estanislao, is protesting.

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HARASSED DIRECTORS: Title IV of the Code being cited, specifically its Sec. 105, says that “any person who, in the course of trade or business … renders services … shall be subject to the value added tax.…”

Sec. 105 clarifies that “(t)he phrase ‘in the course of trade or business’ means the regular conduct of a commercial or an economic activity.…”

It is plain that this economic activity described in Sec. 105 cannot conceivably include the board work of a director who is not an officer of the corporation and therefore must not be subject to VAT.

The service rendered by directors is not made “in the course of business or trade.” They are elected by the stockholders to represent them in the policy formulation of the corporation. Their rights, duties and obligations are mandated by the Corporation Law.

They do not “sell their services” to the company and are not compensated based on their business or professional acumen.

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NOT VATABLE: Persons subject to VAT are required to issue invoices for their services. They also issue official receipts once paid. But directors do not do that, because they have no compensation contracts with the company.

Per diems are given to them by reason of their election to office and merely for their attendance in meetings, not on a quantum merit basis like those rendering “VATable” services. 

Besides, there is no “regularity” in the activities of directors, who remain in office only for their assigned term, usually one year. Directors on the same board receive uniform compensation, not on the basis of individual merit.

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NO VALUE ADDED: The Supreme Court said in “Commissioner of Internal Revenue vs American Express” (June 29, 2005) that the VAT is a “tax on consumption expressed as a percentage of the value added to the goods or services purchased by the producer or taxpayer.”

Directors do not add a peso value to any product or service of the corporation. It is difficult, if not impossible, to determine any additional value created by a director by participating in a meeting.

“Commissioner of Internal Revenue vs Seagate Technology” (Feb. 11, 2005) held that under the VAT system, a “taxpayer can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.”

A director cannot claim any input taxes against which he can offset an output tax. There is no supply or sale chain and VAT does not come into play in the director-corporation relationship.

Under RMC 34, directors do not have the option given them by law “to either (1) carry over any excess input VAT to the succeeding quarters for application against … future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate covering the amount of such input VAT.”

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(First published in the Philippine STAR of November 23, 2008)

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