The Facts Surrounding the Pilipinas Shell Tax Issue at the Ombudsman

Yesterday afternoon, as I was on my way to a speaking engagement, I received a text message from my staff who said that a friend of hers from the media inquired about information that a complaint was filed at the Office of the Ombudsman against myself, Finance Secretary Cesar Purisima and Batangas District Customs Collector  Rene Benavides.

I was surprised and concerned about the information because I was not aware of any issue against me that could be a trigger for such a complaint. In my whole three terms as Congressman, there was not a single complaint or case against me. Definitely, within my nine months as Commissioner, there were no issues that would warrant a case in the Ombudsman.

So I validated the information from media different sources, and confirmed that there was indeed a news report over DZMM which said that Secretary Purisima and I were “charged at the Ombudsman”. (See news item here – http://dzmm.abs-cbnnews.com/news/National/Purisima_at_Biazon,_kinasuhan_sa_Ombudsman.html)

It was then that I got a clearer picture of what the story was about. The complaint was about the controversy surrounding the importation of Pilipinas Shell, whether they are supposed to pay Excise Taxes and VAT on Excise or not. The accusation was that we failed to issue a demand letter to the oil company.

The person who wrote the Ombudsman is a reporter/publisher of regional newspaper covering Southern Luzon. Lourdes Aclan has been following this issue since it first broke out about two years ago. She sent the complaint as a taxpayer.

Last night, my eldest son approached me and told me that friends of his were asking about a case filed against me at the Ombudsman. Indeed, he sounded concerned. I explained to him the circumstances surrounding the issue to ease his anxiety. Of course, I am disturbed at how this looks not just to my family but to the public as well. In order to put things in the proper perspective, allow me to put forward the following facts of the case:

1. This is a policy issue, and none of us—myself, Sec. Purisima and Collector Benavides—are accused of stealing money from the government, accepting a bribe, abusing our office or getting personal gain from anything that has to do with our office.

The issue is whether or not the government should collect taxes from Pilipinas Shell for the importation of petroleum products. The contention is that we allegedly failed to collect from Shell.

But the fact is that efforts are being undertaken to determine if there is indeed basis to collect in the first place. This is evidenced by communication which the BOC has been exchanging between the Department of Energy and the Tariff Commission during my term and that of my predecessor. It is a controversy that is in the process being resolved as of the time the complaint was filed.

2. This is an issue that was carried over from the previous Customs administration. I had just inherited the controversy, which was in the process of being resolved up to this time.

The issue is a legal and technical matter which began under the term of my predecessor. Since it came out toward the end of his tenure, it would naturally spillover to mine, and the process of resolving the legal and technical issues is still underway.

Some of the issues were clarified before I assumed office, and some are still being studied as of now. So it cannot be said that we deliberately refuse to collect from Pilipinas Shell to the detriment of government.

The fact is, we are judiciously studying the legal and technical issues to arrive at a correct conclusion.

3. We have not been charged of any violation of law by the Ombudsman.

Some news reports say that we have been charged by the Ombudsman. The fact is that a taxpayer wrote to the Ombudsman asking that an investigation be conducted on our alleged failure to perform our duty to collect taxes.

4. The controversy is in the process of being resolved.

The controversy is borne from the assessment done by the former Batangas Customs Collector John Tan on the importations of Pilipinas Shell where he said that alkylate, the product imported by Shell, are taxable. He recommended to the former Customs Commissioner that a demand letter be issued to Shell for them to pay excise taxes for the product.

Shell contends that alkylate is a blending component, not a finished product, and under the law, the product is exempt from taxes. The former Customs Commissioner initiated some queries to determine if alkylate is a finished product and therefore subject to taxes.

A neutral third party, the foreign technical company Société Générale de Surveillance or SGS, conducted an examination of the product and their analysis showed that alkylate does not meet the PNS for gasoline, therefore it may not be considered a finished product.

While there was a decision made by the former Customs Commissioner that the products were non-taxable, when I took over and the contention to collect from Shell persisted, I took the initiative to add more technical and legal inputs to the issue.

I requested the Tariff Commission, the agency mandated to determine the classification of commodities and products in order to arrive at which duty rate is applicable, to study the matter and make a ruling on alkylates.

Last March, the Tariff Commission essentially validated the findings of the SGS and ruled that alkylates are not finished products and therefore subject to 0% taxes. In addition, the Bureau of Internal Revenue issued an Authority to Release Imported Goods (ATRIG) on the alkylate importations of Shell and other petroleum companies.

The BOC is just BIR’s collecting agent for excise taxes. If BIR issues the ATRIG, it only means that we are cleared to release the shipment since there is no obligation to pay taxes because either it is already paid or is exempt.As stated, we are in the process of resolving this controversy. This complaint is premature, and perhaps might be even lacking in information. But nevertheless, we are prepared to reply to defend ourselves.

I am confident that we will be able to clear our names on this matter. We have not failed on our duty but we have been vigilant not only for the government to collect, but to collect what is right.