PDI Get Real 10.14.06 Incredible Logic

GET REAL Incredible logic
By Solita Collas-Monsod
Philippine Daily Inquirer
First Posted 01:48am (Mla time) 10/14/2006
Published on Page A12 of the October 14, 2006 issue of the Philippine Daily Inquirer

IF GENERAL outrage met the decision of the Ombudsman, which held that no personnel of the Commission on Elections (Comelec) was criminally liable for the P1.3-billion contract that the Supreme Court had declared illegal and void, the reaction to the decision of Metropolitan Trial Court Judge Alex E. Ruiz, which acquitted Lucio Tan et al. in a P25-billion tax fraud case, can be characterized as muted. Why this is so (former internal revenue commissioner Liwayway Vinzons-Chato, who initiated the case way back in 1993, tells me that she was interviewed only by the ANC television channel — no calls from radio), I will leave to others to analyze.

The Ruiz decision is extremely well-written — its command of the English language would put some of the Supreme Court decisions to shame, as far as articulation and grammar are concerned, so much so that one wonders how come Ruiz is still a Metropolitan Trial Court judge and has not risen in the judicial ranks. But his reasoning and, therefore, his conclusions, are about the same quality as those which characterized the Ombudsman’s decision — they stretch credulity to the breaking point.

Setting aside the legalese, the government claimed that Tan and his Fortune Tobacco Corporation had defrauded the government of P25 billion in taxes (including interest and penalties). How? By selling their cigarettes at ridiculously low “Manufacturers Registered Wholesale Price,” or MRWP. (When I wrote about this 13 years ago, I pointed out that although labor costs and cigarette retail prices had gone up, the MRWP hardly moved, which meant that Fortune Tobacco was allowing its profit per unit to decrease, while presumably the middlemen were reaping financial bonanzas.) And since by law the MRWP was the basis of Fortune Tobacco’s tax liabilities, the government’s tax take was made correspondingly low. The fraud came about because, the government (through then-internal revenue commissioner Chato) claimed, the middlemen — nine “exclusive” marketing corporations and more than 2,000 individuals — were used as dummies or were non-existent.

What proof did the government have to buttress this claim? Insofar as the nine corporations were concerned, the government produced evidence to the effect that: eight of the nine corporations were incorporated at around the same time; their articles of incorporation were notarized by the same notary public; seven out of nine corporations had the same auditor, who was also the external auditor of Fortune Tobacco; they held office at buildings owned by Tan; all sales invoices of these corporations were identically printed as to format and registered in Makati, Metro Manila despite the fact that their bases of operation were in the provinces; all corporations did not have visible, tangible assets — this indicating that they were not going concerns and were not actually conducting business operations; neither did their stockholders show any visible assets consistent with conducting business involving millions of pesos; all corporations did not appear to have any personnel or workforce at their registered addresses; all corporations had their alphabetically arranged list of customers and their official receipts chronology showed that these customers also made their purchases in alphabetical order; and the corporations had interlocking directors/officers.

Insofar as the more than 2,000 persons/buyers were concerned, the bases of the government’s claim that they were fictitious are as follows: Not one of them is registered with the Bureau of Internal Revenue (BIR), or has a Tax Identification Number (TIN), or appears in telephone directories, or has middle initials; or has acknowledged receipt of goods, despite the volumes and values involved; and their addresses are not available. The Fortune Tobacco list just has general directions; each of them transacted business with Fortune Tobacco only once and never came back to reorder; plus the fact that the “barangay” [village] captains and/or municipal treasurers in the areas involved issued certifications that these persons were non-existent. The government documents also pointed out that if these buyers were first-timers or one-timers, the transactions between them and Fortune Tobacco would have had to be in cash, and they would have had to pick up the merchandise on their own. Which means that they had to carry on their persons an average of P4-6 million. Not only that: if they were the ones who picked up their orders, they would have used their own trucks or delivery equipment. So how come the Fortune Tobacco spent close to P110 million in the period under consideration (1992) for gas, oil and freight and delivery?

To the lay person, it would seem that all the above would be clear evidence that Tan’s Fortune Tobacco was indeed using dummies. The dictionary defines a dummy as a person or agency secretly in the service of another — to cheat the government of its rightful sales (not to mention income) taxes.

But Judge Ruiz, in effect, pooh-poohed the government claims. With respect to the corporations, he pointed out that there was no evidence that Tan and cohorts had even a single share in any of the nine corporations — so how could there be a connection between him and them? To him, the link had to be overt, which essentially means that he does not accept the concept of a dummy. Duh? He also swept away the evidence that the more than 2,000 individuals were fictitious by the simple expedient of labeling them “hearsay.” Hello?