Ongpin says he paid his due in taxes

Last Wednesday, when I reported on the publication of the list of top 500 taxpayers, I made the comment that Bobby Ongpin was only at 306th and paid P2.8 million in income taxes. I did not imply Mr Ongpin was evading his taxes but was merely wondering why movie starlet Rufa Mae Quinto, 133rd, paid more than Bobby at P4.8 million. It was an honest question in my mind.

Indeed, I figured it could well be the intricacies of our tax laws that allow high profile business tycoons to legally reduce the taxes they pay. It is such that even as a percentage of gross income, the middle class and the poor (they also pay taxes like VAT) actually pay more taxes than the rich.

We were not even talking of tax evasion here. We were merely thinking in terms of the principle that in a society where the rich are extremely rich and the poor are extremely poor, the well off should carry a much larger share of the burden of running the government.

Anyway, here, in full, is the e-mail I received from Bobby Ongpin in reaction to that column.

I was about to board my plane in London to return to Hong Kong when my secretary read to me your column of Wednesday, September 29.  As you can expect, I was not very pleased that you chose to single me out and inferred, in so many words, that I don’t pay correct taxes.

I therefore feel constrained to write you to set the record straight.

1. You may not know that I have been a resident of Hong Kong for some 20 years now. As such, under Philippine tax regulations, I pay my Hong Kong derived income in Hong Kong and only my Philippine derived income in the Philippines. Therefore for the year 2008 (and for previous and future years) what you have in the BizNews Asia report is my taxes paid only from my Philippine income.

2. While it is really none of any one’s business, you oblige me to point out to you that my Philippine-sourced income is minimal as I am paid a salary by only one of my four listed companies, i.e. PhilWeb Corporation. I also earned for 2008, only director’s fees from Petron and Philex. I was not paid a salary by either. I only became a Director of San Miguel in 2009. Alphaland Southgate Mall and Tower was completed in 2009 and is not owned by me personally but by Alphaland Corporation, a publicly listed company.

3. You are also wrong when you say that I “control Petron and San Miguel shares through Ashmore.” While it is true that I am Ashmore’s partner in the Philippines, the ownership and control of their shares in Petron (I don’t think they own shares in San Miguel Corporation), are “owned and controlled” by them, not by myself.

4. What I found most distressing was your inference that, while not said in so many words, I am a tax cheat.  I should not need to point out to you that income taxes are paid on income, not on net worth. I do not deny that my net worth is substantial (although not as much as what Forbes Asia claims, because they have not taken into account my liabilities which should be subtracted from my assets to arrive at my correct net worth).

Taxes are paid on the basis of income earned for the year, not on the increase in the value of one’s assets, which in my case is mostly from the appreciation of the shares in my listed companies. Income arises only when shares of stocks in listed companies are sold and profits are therefore realized.

Even then, the gains are taxed at 1/4 of 1% which is a final tax and is obviously not included in the income taxes paid. Any attempt therefore to correlate income taxes paid to net worth almost always results in incorrect conclusions. Unfortunately, many people do not realize this but I sure expected you to.

5. Ironically, and you can verify this with Gary Teves and Joel Tan-Torres or even Cesar Purisima, I have always been an advocate of publication of income taxes paid by individuals. During the Marcos years, we did this for one year and the next year, individual income tax received by the BIR increased 30 percent. But my objective has always been to “shame” professionals and others, on whose income taxes are not withheld, into paying proper taxes. It was never the intention to correlate income taxes paid with net worth which would be obviously fallacious.

While I am a faithful reader of your column and on most occasions I agree with your opinions and sometimes have even emailed you so, I am most disappointed by your September 29 column which singles me out and is based on wrong information. You have my telephone number, and my email address and it would have been easy for you to just pose the question and ask me about my income tax payments.

Instead, you chose to infer that I am a tax evader without knowing the facts nor attempting to check on them. With a few paragraphs in your column, you assailed my integrity which I have sought to maintain at the highest standard throughout my entire career. Most disappointing and very sad indeed.

My reply

I think Mr. Ongpin protests too much. I never implied that he was a tax cheat. All I did was wonder why tycoons and taipans like him appear to be paying so little in taxes. Of course I know the basis of our income tax system is income earned in the country during the year rather than net worth. I was questioning a system where the obviously well off can get away with paying what they do in taxes and everything could be perfectly legal.

In the case of Mr Ongpin, I know his businesses are international in nature and he pays taxes in many countries. What I was wondering about in his case is this: Does he mean that the value of the benefits he gets from this country and this government is worth a mere $62,000 ($1=P45) for one whole year? That would barely cover the cost of a hotel room in London that befits the stature of Mr Ongpin for a week.

I will grant that from a businessman’s perspective, our judicial system sucks, our public infrastructures inadequate and the police protection we get are far from adequate which explains why many of the rich have private security. But without government, the anarchy would have been a lot worse and that would have made Mr. Ongpin unable to operate here as smoothly as he had.

Sure, the P2.8 million Mr. Ongpin paid in taxes is probably just the amount he legally owes under our tax laws. I am not blaming Mr. Ongpin for anything. If there is any fault we must deal with, it is the system itself. I am glad he is in favor of publishing the top taxpayers list to name and shame everyone not carrying their weight.

I am sorry if I offended Mr. Ongpin. That was not the intention. Mr. Ongpin knows that I have admired him from the time we first met in the 80s. I like his no nonsense ways and I am at awe at how his vision and execution of projects have created value for his investors.

I did not single him out because I also mentioned others. But because of his many successful big ticket local ventures lately, he was very much top of mind. I am grateful that he took time to respond and explain the situation from his perspective. I have always enjoyed this kind of policy debates with someone like Mr. Ongpin. But it really is way beyond Mr. Ongpin… or Tonyboy Cojuangco for that matter.

Congress should re-examine this system and institute reforms on the basis of the unfair reality at ground level. I am sure there are many of us do not like being taken for fools because we don’t have a choice. Like all those high paying movie stars, our taxes are withheld at source. The rich have the wiggle room and the tax accountants with connections to the BIR. That’s the system our legislators are obligated to do something about.

But as they say out there at the beer house: ay naku… umasa ka pa!

Bad investment

Found on the web:

BIR agent to taxpayer: “I’m afraid we can’t allow you to deduct last year’s tax as a bad investment.”

Boo Chanco’s e-mail address is bchanco@gmail.com –Boo Chanco (The Philippine Star)