Congress approves anti-corruption bill

Phillipines legislature approved yesterday a bicameral report on a landmark anticorruption measure which rewrote the rules for major contracts and hopes to put in place transparency and integrity in government transactions.

The Senate and the House of Representatives approved yesterday a bicameral conference committee report on a landmark anticorruption measure which rewrote the bidding and awards rules for supplies and infrastructure contracts and hopes to put in place transparency and integrity in government transactions.

The two chambers ratified the bicameral report last night, said Senator Edgardo J. Angara, leader of the Senate panel that helped craft a draft law from the Senate and House versions.

Angara, Senate Majority Leader Loren Legarda, and Sen. Aquilino Pimentel Jr. represented the Senate while the House panel was composed of Representatives Rolando Andaya, Imee Marcos, and Plaridel Abaya.

The major provisions of the bicameral report are:

– A five-year warranty will be required on completed projects instead of the usual one year.

– Open and transparent bids shall be done to choose contractors and suppliers.

– Simplified bids and negotiated contracts shall be done away, except after two failed public bids.

– The lengthy and fraud-prone pre-qualification, bidding and awards committees (PBACs) system will be replaced to give way to a simple eligibility check on contractors/suppliers. The PBACs have been blamed for limiting the pool of bidders for easy rigging and manipulation

– The floor price is scrapped in favor of a ceiling price which cannot be exceeded.

– All government procurement and infrastructure projects will be posted on the Internet to attract the broadest possible pool of bidders and the most competitive price.

The final shape of the proposed Government Procurement Act was largely drawn from the Senate version but three important inputs from the House were carried. These are:

— Local contractors and suppliers may bid for foreign-funded projects.

— Preference will be given to local contractors on small contracts in the provinces.

— After two failed bids, the contracting agency may negotiate a contract to prevent delays in implementation.

“The draft law plugs all possible holes and gaps in the procurement of goods and services and the bidding of infrastructure contracts,” said Angara, adding that the yearly loss to corrupt procurement and bidding is P22 billion a year.

Angara said that the P22-billion yearly loss to the fraud-prone procurement and bidding and awards rules is the equivalent of 520 million textbooks or 63,000 new classrooms for public education.

Angara said that unchecked official corruption in the Philippines has been a cause of concern for multilateral institutions and a World Bank report said that $48 billion had been lost by the Philippines to corruption over the past 20 years.

Angara said the $48 billion loss is more than enough to cover the country’s external debt.

Angara said that Transparency International-in a survey of corruption in 100 countries-had ranked the Philippines the 11th most corrupt in the world.

The public institution index of the World Economic Forum had likewise noted the worsening official corruption in the country, he said.

Angara said that corruption saps the country’s ability to compete and squanders precious government funds.

SPV bill

The Senate ratified Tuesday night a congressional bicameral conference committee report on the proposed Special Purpose Vehicle (SPV), an urgent administration measure that is expected to unload P637.892 billion worth of non-performing assets (NPAs) of the banking industry.

Congress is scheduled to go on a three-week Christmas break starting tomorrow.

Ratification of the report came after the House of Representatives approved the same report after two months of hard bargaining by senators and congressmen on several issues.

“It is timely that Congress passed the measure in the light of the budget deficit. The measure can be used by the government in solving our deficit problem. We can show investors that we are serious in addressing our deficit and improve our credit rating,” Sen. Ralph G. Recto, chairman of the Senate ways and means committee, said.

The P637.89-billion NPA is composed of P218.67-billion real and other properties owned or acquired (ROPOAs) and P419.219-billion non-performing loans (NPLs) as of last June 30..

The bad loans were said to be hobbling banks and preventing them from aggressively lending what would funds that could spur economic growth. The bad loans were said to be one of the causes of the inability of banks to give better returns to depositors and stockholders.

Recto said the he had to parry charges that the bill would benefit only banks that would be allowed to clean up their books through asset management companies, the original name of SPV.

The measure alkso suffered from the fallout from accounting scandals in the United States where power and telecom firms doctored their books. The guilty auditing firms have Philippines partners, which were the financial advisors of banks saddled with big NPAs.

Recto was alternately blamed as rewarding delinquents and scaring away foreign investors in his defense of borrowers against large interests represented by banks, financial institutions, and later SPV investors.

As a result, senators and congressmen, who are members of the bicameral conference committee, agreed to come up with a “conscience clause” to dismiss speculations that the measure, earlier tagged as a bill to salvage banks, favored any sector.

The “conscience clause” in section 27 y warns firms against unsound business practices or mismanagement.

By granting to an individual the benefits granted to financial institutions (FIs) and SPVs to small borrowers, Recto stemmed what would have been massive foreclosures of mortgated homes among the low-and middle- income borrowers once the measure is passsed into law.

He stood firm during the bicameral conference committee to ensure that the SPV measure was focused on curing the bad loans problem arising mainly from the 1997 financial crisis, and said he would not add to the loss of tax revenues with a cut-off date.

Highlights of the measure follow:

— On true sale: Crossownership between selling FIs and SPV is barred with the Securities and Exchange Commission (SEC) disclosure requirement of beneficial ownership of more than five percent to the transferee SPV.

– On foreign land ownership: 60 percent of SPV outstanding capital stock shall be owned by Philippine nationals, in line with Republic Act 7042 (the Foreign Investment Act).

– On home mortgages: Tax exemptions and fee privileges given to FIs and SPVs shall be extended to any individual, provided transaction is limited to a single family residential unit (ROPOA or NPL) secured by real estate mortgage on a residential unit; only one transaction consisting of one residential unit per individual; the two- year transfer and fiveyear entitlement period granted to NPA shall also apply to a single family residential unit.

— Transactions granted tax exemptions and fee privileges: FI to SPV – two years; SPV to third party — five years; borrower or third party to FI – two years; and borrower or third party to SPV – five years.

On tax exemptions:

— Documentary stamp tax (DST) on the transfer of NPAs’ “dacion en pago” under the Title VII of the National Internal Revenue Code (NIRC) capital gains tax on the transfer of lands and/or other assets treated as capital assets, under Section 31 of NIRC.

– Creditable withholding income taxes imposed on the transfer of land and/or buildings treated as ordinary assets pursuant to revenue regulation No. 2-98, as amended.

— Value-added tax (VAT) on the transfer of NPAs may be imposed under title IV of the NIRC of 1997 or gross receipts under title V of NIRC, which is applicable.

On fee privileges:

— Fifty percent of applicable mortgage registration and transfer fees on the transfer of real estate mortgage registrations to and from the SPV, in accordance with existing regulations of the Land Registration Agency (LRA).

— Fifty percent of the filing fees for any foreclosure initiated by the SPV in relation to any NPA acquired from an FI, as prescribed by the Rules of Court.

— Fifty percent of land registration fees under LRA circulars.

–Penalty for abuse of tax exemptions and privileges; refund double the amount of tax exemptions and privileges availed of under this Act plus interest of 12 percent per year from the date prescribed for its payment until fully paid.

The congressional oversight committee will consist of seven members each from the Senate and the House of Representatives according to proportional representation of parties or coalitions with at least two from the minority.

The SPV minimum authorized capital stock is P500 million, while minimum subscribed capital stock is P125 million. Minimum paid-up capital is P31.25 million.

Minimum Investment Unit Instruments (IUIs) of permitted investors total P10 million.

Mario B. Casayuran, Manila Bulletin, December 19, 2002

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