The six-man panel of the Bureau of Internal Revenue (BIR) that evaluated the proposal of Swiss firm Sicpa Product Security SA to plug leaks in tax collection has cast doubt on the Swiss firm's financial standing.
The committee reported that it was impressed by the technology offered by the firm to make excise- tax cheating a thing of the past, but the panel fears that Sicpa may be overleveraged or has more than the acceptable amount of debts in its books than it has capital.
The National Economic and Development Authority (Neda) said in a letter to the BIR that as a rule, a company intending to do business with the government must maintain a debt-to-equity ratio of 75:25 "to avoid overleveraging and to ensure that the project proponent's financial capacity for debt repayment or other investment activities will not be at stake."
Based on this standard, the committee temporarily declared Sicpa as not "possessing the financial capacity to sustain the financing of the project."
The Sicpa has an outstanding build-operate-transfer proposal that will cost government P13.3 billion over a 7-year period.
The committee added, however, that it based its assessment on the firm's 2005 and 2006 financial statements, and in the end the committee recommended accepting the Sicpa proposal pending a reevaluation of its financial capabilities.
Sicpa plans to use tamper-proof strip stamps designed to track each and every cigarette and tobacco product as this leaves the manufacturing facilities. The firm said this will plug the steady flow of tax leaks that has bedeviled the BIR for decades.
The BIR has been undercollecting taxes by as large as P30 billion to P40 billion a year, mostly because its collection system is very inefficient and fraud-prone.
This inefficiency has led the International Monetary Fund (IMF), time and again, to urge legislators to speed up the adoption of still more sin tax reforms, rationalize the country's fiscal incentives program, and streamline the optional deductions for both professionals and the self-employed to stop the leaks.