Asiaweek Magazine The Power of Lucio Tan

Asiaweek Magazine

The Power of Lucio Tan

With his high court win, the magnate looks invincible

By Tim Healy and Antonio Lopez / Manila

DEPENDING ON WHOM YOU believe, Lucio Tan is either a victim of Gestapo tactics by the Philippines' Bureau of Internal Revenue, or a tax dodger of mythic proportions. Recently, a five-man division of the 15-member Supreme Court disagreed with the BIR and came down on Tan's side. In a 3-2 ruling, it upheld an injunction stopping the Justice Department from hearing a tax fraud case against him. The cigarette, beer, banking, property and airline billionaire had argued that the suit would single him out and violate his right to due process.

The decision is the latest in a string of legal victories for Tan, but it is hardly the end of the tax fight. Manila aims to take the matter to the entire Supreme Court after it returns from a recess on June 19. If Solicitor-General Raul Goco gets the go-ahead to sue, then the magnate will finally have to answer tax evasion charges in court. (Contrary to many reports, the fraud case against Tan has yet to proceed, precisely because of the injunction against Justice hearings.) If the government loses its appeal, it could still issue him an assessment for back taxes. If the claim is proven valid (this could take years) but left unpaid, it could lead to a criminal case.

For now, however, Tan's riches and power seem unbeatable. The evening after the June 4 ruling, he was in Hong Kong's Island Shangri-La hotel for cocktails hosted by his Eton Properties, which owns prime real estate in the city, and graced by Philippine Foreign Secretary Domingo Siazon. Tan, 62, certainly had reason to raise the beer mug. Recently he negotiated with the government for solid control of flag carrier Philippine Airlines. The House Ways and Means Committee has watered down a tax bill that would effectively raise duties on beer and tobacco, his cash cows. Last week, despite a special session called by President Fidel Ramos for the measure, Congress did not pass it.

"Lucio Tan appears unstoppable," writes columnist Amando Doronila, "and Filipinos are not even alarmed over his economic power." The high court ruling, says BIR Commissioner Liwayway Vinzons Chato, "has brought us to the doorstep of a clear and present danger." By compelling the authorities to issue assessments for back taxes before they can sue for fraud, the decision may hamper Manila's campaign against evaders. They could tie up assessments by appealing all the way to the Supreme Court, and do the same with any fraud charges. During this interminable process, the guilty could obstruct or flee justice. Moreover, the high court ruling seems to contradict a 1980 Supreme Court decision. It allowed the BIR to file criminal charges without first assessing for back taxes, if there was strong evidence of fraud.

In Tan's case, the government is confident it has enough to prosecute . In the BIR's submission to the Justice Department where it filed fraud charges, Tan's Fortune Tobacco Corp. is alleged to have falsified transactions with 2,000 fictitious buyers and several dummy marketing firms in order to evade taxes for 1990, 1991 and 1992. The manufacturer allegedly sold cigarettes at artificially low factory prices -- the basis of taxation -- to those entities, which then resold the goods at much higher prices. The amount sought from Fortune, including interest and penalties: $1 billion. Tan and other directors and principal officers of the cigarette maker would be the accused if the case is tried. If convicted, each defendant would face five years in prison for each year that tax fraud is proved.

The tycoon's lawyer Estelito Mendoza, a solicitor-general under Ferdinand Marcos, stresses: "As of today, not a single peso of tax deficiency is due from Fortune Tobacco, Mr. Lucio C. Tan or any of the private respondents" in the tax case. He contends that Tan is merely a "scapegoat for the BIR's failure to collect taxes effectively. He is a hardworking, very aggressive businessman who spends all his waking hours working."

Last month an anonymous letter alleged that the three justices who subsequently ruled in Tan's favor were "lavishly bribed." The day before the ruling was announced, the entire high court vigorously denied the letter's allegations. The government itself discounted the accusation. But Goco did ask Santiago Kapunan, one of the three judges, not to cast a vote. Kapunan was Mendoza's subordinate when the latter was solicitor-general. Mendoza's daughter and Kapunan's wife were partners in a restaurant. Kapunan rejected Goco's motion.

This is hardly the first time Xiamen-born Tan has been in the thick of controversy. Working as a janitor when he first arrived in Manila decades ago, Tan rose to become a close Marcos associate. A former bagman of the late president once stated that Marcos owned a half-share in all of Tan's businesses. Yet after the dictator was booted out of the Philippines in 1986, Tan prospered under President Corazon Aquino. She even issued an executive order lowering the levies on his cigarettes.

But when Ramos was elected president in 1992, having beaten Tan-backed Ramon Mitra and five other major candidates, the climate for Tan's businesses began to change. First, the preferential tax rate on Fortune Tobacco's cigarettes was removed. Then came the fraud charges in 1993, part of Ramos's crusade to stop tax cheating by the privileged. The billionaire's lawyers subsequently got the injunction against the BIR. Around that time, it emerged that Tan was the secret majority shareholder of the PR Holdings consortium that had bought two-thirds of Philippine Airlines. While he has wangled a deal to keep control of PAL, a group of senators recently asked Ramos to retake the carrier in the "national interest."

Tan also is fighting with the government and San Miguel Corp. over a new tax system for beer and cigarettes based on volume. SMC says the present scheme based on price favors Tan's Asia Brewery, which markets Carlsberg and produces a San Mig rival generically labeled Beer. SMC has said that while Asia Brewery has a 20% market share in the Philippines, by volume -- San Miguel controls virtually all the rest -- it pays only 7.4% of nationwide levies. SMC says the latest version of the tax bill would worsen the disparity.

All of this suggests that Tan and the government will be at loggerheads a while longer, and not just on the judicial, commercial or congressional fronts. In two years, the highest office in the land will be up for grabs again. Presidential candidates will be going around for support. With his wealth, political connections and media clout, Tan would make a powerful ally for any aspirant. In 1998 he might just bet on the winning horse.

This illustrates how this Yellow Economic Lucifer can easily corrupt Supreme Court justices to sell their own Filipino kind, and how brilliant lawyer Estelito Mendoza, just because of money, can do the same instead of using his God-gifted talent for the goodness of humanity.These corrupt Filipino bigwigs should be ready to burn in hell when reckoning time comes!

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