Understanding EO 877

Executive Order 877, like many of the unfinished business of the Arroyo administration, is fraught with controversy and it just gets worse as the press picks up misunderstood bits and pieces.

Like most bits of Palace orders and legislation, EO 877’s preamble is noble. It moves forward and grows the motor vehicle development program from where it left off from EOs 156 and 226. It seeks to harmonize our regulations with the rest of ASEAN. It also sets global standards for our motor vehicle products. It seeks to ensure benefits for our local car industry vis-a-vis other countries that we have mutual free trade agreements with. It aims to improve incentives so local vehicle and parts manufacturing can export to other countries. It reiterates the ban on importing used vehicles. Part and parcel of all of this is a necessary review of current taxes and tariffs.

Like any piece of legislation, the EO, like any Batas Pambansa, goes through a series of public-private consultations which in this case is with the MVIC or Motor Vehicle Industry Council. It’s composed of heads of government agencies and representatives of the industry.

The fruit of this consultation is the IRR or implementing rules and regulations that will be drafted by the concerned implementing agency, which in this case is the BoI.

In previous occasions, the process has always been consistent: the legislative body passes a law on broad objectives and noble purposes then the implementing government agency is given considerable discretion to draft the rules that they have to enforce. Sometimes this can lead to a divergence between means and end or lead to the wrong end. Herein lies the public’s distrust for the discretionary power that is in the hands of the government agency that drafts the IRR.

A recent example is the VAT on expressway tolls. On the principle of taxation, how can a value be added on a surcharge for passage? The toll itself is a surcharge and it is not a manufactured or created good as there is no input, the basis by which a value-added tax is computed. And if the BIR press releases are to be understood, this VAT on tolls is retroactive, clearly another blasphemy on the principles of taxation. This VAT on tolls can even be interpreted as double taxation. True there is a deficit to be financed but it should not be achieved through such dubious means like double taxation.

Implementing government agencies should not abuse their privilege to draft IRRs to chase revenue quotas at the expense of double taxation.

Senate President Enrile, one of the more intellectual of our senators, is right in opposing this VAT, but the bigger wonder is why isn’t opposition to this as vocal as opposition to SLEx toll increases? Incidentally, any new VAT on tolls will also translate into new toll fare hikes.

Clearly there is a lot of power vested in the agency tasked to make the IRR. In my experience working in the Bangko Sentral ng Pilipinas, the drafting and consultation stage is the time to be heard. But one will only be heard if one does his homework and presents persuasive facts and assumptions, not rhetoric and self-serving emotional pleas. I recall that in those days, the Citibank lawyers and research staff were the most studied and convincing while the bankers who were essentially mom-and-pop operations or diversification ventures of alleged ex-smugglers or pawnbrokers were those who could not argue their cases intelligently. They can do worse by failing to be heard and not pay attention to these consultative hearings. Or, just complain and rumor-monger to the press.

Rumors have been flying about making life difficult for importers and that long standing auto industry groupings are breaking up into opposing camps. The future devastating effects of the EO are all being presumed with the certainty of biblical prophecies. Meantime, the IRR is still being drafted, the time to be heard is still ongoing. All options are on the table to improve the competitiveness of the local car and parts industry. Instead of opposing the EO on the streets, the concerned parties must seek to be heard. Besides, it was the members of the auto industry that lobbied for this EO and the Arroyo administration obliged.

If that defines a midnight EO, then I don’t see anything wrong with a quick response to a cry for help from one of the pillars of the Philippine economy. –Not So Fast By — Tito F. Hermoso, BUsinessworld