MANILA, December 3, 2004 (STAR) By Mary Ann Ll. Reyes - Hinting its opposition to the proposed franchise tax on the telecommunications industry, Philippine Long Distance Telephone Co. (PLDT) group chairman Manuel V. Pangilinan emphasized that the company is already doing its share in helping government finance its requirements.

"We understand that government wants to raise additional tax revenues from the telecoms industry in the amount of P10 billion per year. We believe that PLDT is doing its part to cover a substantial portion of these new revenues under the existing taxation regime," Pangilinan said.

The PLDT group, which includes wireless subsidiary Smart Communications, has paid approximately P9.7 billion of taxes to government in 2003, and is expected to make tax payments this year of about P13.8 billion.

Pangilinan disclosed that next year, the group anticipates that it will be paying aggregate taxes of approximately P17.3 billion, an increase of another P3.5 billion under the current taxation structure.

Nonetheless, he said PLDT is prepared to dialogue with government on the most effective means of addressing the fiscal deficit.

"PLDT recognizes the critical need to address the country’s fiscal deficit and is open to ways on how we and the industry can assist to remedy this deficit," Pangilinan pointed out.

There is a proposal in Congress for the passage of a law that will set aside a fixed percentage of the gross income of these telecommunications companies as tax to be known as a franchise tax.

Earlier, both Smart and Globe Telecom maintain that the telecommunications industry is already one of the most heavily taxed industries in the country and that to impose another form of tax may force these companies to pass the additional cost on to their subscribers.

The franchise tax proposal is seen as a cut on the telcos - revenues and is expected to generate less opposition from the public than the earlier proposed tax on text messaging.

Faced with a possible revolution from texters numbering to close to 30 million in the Philippines, Congress said it would no longer impose a tax on text messaging but instead will resort to a franchise tax on telco firms to raise money for the cash-strapped government.

A franchise tax is the government’s share from telecom firms for the use of the airwaves.

Smart and Globe are among the country’s top tax payers. Globe paid more than P3 billion last year

Taxing the windfall profits of telecommunication firms was among the eight tax measures President Arroyo asked Congress to pass to help narrow the budget deficit. The deficit is expected to hit about P200 billion this year.

At present, telecom firms pay a 32-percent income tax, 10 percent value-added tax (VAT) and 10 percent overseas communication tax.

They are also subject to a 20-percent final tax on interest income, three percent real estate tax, 32 percent fringe benefit tax, one percent local business tax and various fees and charges for licenses with the National Telecommunications Commission.

Digitel president Lance Gokongwei, whose company Sun Cellular, said the government’s huge budget deficit would require a combination of improved tax collection and introduction of new taxes. "Of course, as a businessman, I hope that my sector doesn’t get taxed," he said.

Imposing a franchise tax on gross receipts would unduly burden the industry as it would have to be slapped also on all members of the telecom industry, most of which are financially distressed or under rehabilitation, according to Globe senior vice president Rodolfo Salalima.

Salalima said that aside from Globe and Smart, there were more than 50 telecom players operating wireless, fixed-line, international gateway and rural telecom facilities that were "in various levels of financial distress."

"If the government would insist on these new taxes, it could only lead to the demise of the telecom industry. Taxes have the power to destroy when they are unreasonable," the Globe official said.

Reported by: Sol Jose Vanzi

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