Sep 192014
 

http://wikileaks.org/cable/2006/03/06MANILA1222.html#

Reference ID Created Released Classification Origin
06MANILA1222 2006-03-17 10:30 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Manila
VZCZCXRO7244
PP RUEHZC
DE RUEHML #1222/01 0761030
ZNR UUUUU ZZH
P 171030Z MAR 06 PER YOU ZDK
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC PRIORITY 0045
INFO RUEHZS/ASEAN COLLECTIVE
RUEHGV/USMISSION GENEVA 2152
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 02 MANILA 001222

SIPDIS

SIPDIS

SENSITIVE

DEPT FOR EAP/MTS
STATE PASS TO USTR FOR KBHATIA, RDEHAAN, BWEISEL/DKATZ
USDOC FOR 4430/ITA/MAC/DBISBEE AND SBERLINGUETTE

E.O. 12958: N/A
TAGS: ETRD EAGR ETTC EINV KIPR RP
SUBJECT: DEPUTY USTR BHATIA’S MEETINGS IN MANILA: FINANCE SECRETARY TEVES, MARCH 16

REF: 05 Manila 3778

MANILA 00001222 001.5 OF 002

SENSITIVE BUT UNCLASSIFIED – NOT FOR INTERNET
DISTRIBUTION – PROTECT ACCORDINGLY

——-
SUMMARY
——-

¶1. (SBU) In a March 16 meeting with Deputy USTR
Ambassador Karan Bhatia, Finance Secretary Gary Teves
highlighted fiscal reform measures such as the expanded
value added tax and increased tax revenue collection.
Teves, noting that the Philippines’s GDP growth rate is
lower than other countries in the region, said that the
2.7% deficit-to-GDP ratio must be reduced in order to
encourage rapid economic growth. While tax collection
results were below target in January 2006, February
collections exceeded expectations. Teves reaffirmed the
GRP’s intent to submit its Millennium Challenge Account
Threshold proposal, emphasizing good governance and anti-
corruption, by its self-imposed April 1 deadline. On
Clark tax incentives, Teves described interim solutions
to be implemented until the issue can be permanently
resolved by legislation. Teves also said he is working
to resolve the issue of back taxes on foreign currency
deposits (reftel). End Summary.

————
PARTICIPANTS
————

¶2. (SBU) — USG: Deputy USTR Ambassador Karan Bhatia,
Assistant USTR Barbara Weisel, USTR Special Assistant Bob
Dehaan, Charge d’Affaires Paul Jones, Economic Counselor
Robert Ludan, and Economic Officer Michelle Hoyt.
— GRP: Finance Secretary Gary Teves, Under Secretary
Gaudencio Mendoza, and Under Secretary Gil Beltran.

——————
REVENUE COLLECTION
——————

¶3. (SBU) Ambassador Bhatia congratulated Secretary
Teves on recent fiscal reform measures, including
expanded value-added tax (EVAT), and encouraged him to
find the right balance between deficit reduction and
infrastructure investment. Teves said that the success
of the EVAT has been supported by external factors
including the active role of the media in communicating
developments to the public. He said that if the RP can
“get over the hurdle” of 2006, there will be increased
momentum for continued progress in revenue administration
in the coming years. He cited the need for debt
reduction and referenced the high ratio of deficit-to-
GDP, which was 2.7% at the end of 2005. Teves
acknowledged that the RP, with a 5.1% GDP growth rate in
2005, is behind other countries in the region. He said
that if the debt level decreases, the RP could grow at a
faster rate than it has in the past. Teves said that the
RP needs foreign investment in order to catch up with
regional leaders such as China, India, and Vietnam.

¶4. (SBU) On tax collection, Teves reported that the
Bureau of Internal Revenue (BIR) was 600 million pesos
short of its collection target for January 2006.
However, preliminary reports show over one 1 billion
pesos collected beyond the target in February 2006, which
more than makes up for the slow start.

—————————-
MILLENNIUM CHALLENGE ACCOUNT
—————————-

¶5. (SBU) Bhatia said that he is delighted the RP has
been selected as a Threshold Country and urged the GRP to
more forward quickly to submit its proposal. Teves said
that GRP wanted to meet the self-imposed April 1 deadline
and is anxious to receive feedback on its plan. He noted
that the MCC proposal would emphasize performance goals
for good governance initiatives such as Run After Tax
Evaders (RATE), Run After the Smugglers (RATS), and
lifestyle checks. Teves cited the need for experts to
provide technical assistance on the RATE and RATS

MANILA 00001222 002.2 OF 002

programs. He said that the IRS has been very helpful
with the RATE program and suggested something similar
could benefit the Bureau of Customs (BOC). Mendoza added
that the BOC has intensified its campaign against
smugglers. He related how President Arroyo had been
taking a very tough stance with agencies to make progress
on tax and customs collection and anti-corruption
initiatives.

——————–
CLARK TAX INCENTIVES
——————–

¶6. (SBU) Bhatia underscored the importance of restoring
permanent tax incentives for firms at Clark Special
Economic Zone (SEZ) to reassure investors. Teves
explained a three-pronged approach. The first step is
deliberately to avoid collection of back tax obligations
despite the Supreme Court ruling requiring that they be
collected. Delaying collection, however, puts the
government at risk for being found in contempt of the
Supreme Court ruling. Second, the GRP is working on an
interim solution to restore tax incentives to the Clark
locators by Presidential Proclamation. The Philippine
Export Zone Authority (PEZA) has prepared the necessary
documents and submitted them to the Office of the
President. Teves estimated that the Proclamation would
be finalized within the month. The Presidential
Proclamation would give the DOF “an excuse” not to
collect the taxes. The final measure is to pass
legislation that would restore Clark tax incentives on a
permanent basis and eliminate the back taxes. President
Arroyo designated the pending legislation “urgent.”
Teves said major businesses at Clark had been briefed on
these plans.

——————————
FOREIGN CURRENCY DEPOSIT UNITS
——————————

¶7. (SBU) On the long-standing issue of foreign currency
deposit units (reftel), Teves noted that while a solution
is sought, there are legal constraints to consider. He
is working with the Congressional Oversight Committee to
confirm whether the law intended to exempt banks from the
taxes. Bhatia noted that progress such as removing the
RP from the IPR Priority Watch List has given a vote of
confidence to the RP investment climate. Resolution of
issues such as the Clark tax incentives and the foreign
currency deposit units could be seen as further examples
of RP good will.

————–
WTO DOHA ROUND
————–

¶8. (SBU) Bhatia urged the GRP to take a more active
role in cutting tariffs on agricultural and industrial
products. Teves said it is important that the rules of
the game be applied fairly. He noted that not all
countries are playing by the rules and there must be a
level playing field in order to move forward with
implementation.

¶9. (U) Ambassador Bhatia did not have an opportunity to
clear this message.

JONES

   

 

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