Stradcom has no income, so is not liable for income tax

As the name suggests, an income tax is a tax on income. If there is no income, there is nothing to tax. So why is the  Bureau of Internal Revenue (BIR) trying to collect P300 million in income taxes from Stradcom, the IT provider of the Land Transportation Office (LTO)? Instead of earning a net income, Stradcom has been operating at a loss—P524 million in 2011.

The LTO owes Stradcom over P4 billion for services rendered. Stradcom does the registration of land transport vehicles and makes the license plates. The LTO does not want to pay, saying it does not know whom to pay since another group, the Sumbilla group, is also claiming ownership of Stradcom.

Several days ago, the Supreme Court ruled that Stradcom is owned by the  Quiambao group. It said those with  the Sumbilla group are neither officers, directors nor stockholders of the corporation, and that the cases the group has filed against the Quiambao group are “nuisance suits.”

Still, the LTO refuses to pay Stradcom the P4 billion that it owes the corporation, alleging that the Sumbilla group has filed a motion for reconsideration.

But it is a well-settled rule that a decision in intra-corporate disputes is immediately executory. The reason is to allow the corporation to operate normally so that it would not suffer business reverses. The LTO, therefore, is duty-bound to pay Stradcom the P4 billion it owes the corporation.

Perhaps, because of this, the BIR is dunning Stradcom P300 million in deficiency taxes for the year 2011. But Eric Pilapil, vice president for legal affairs of Stradcom, told a press forum last Saturday that Stradcom had no net income in 2011 and, in fact, incurred a net loss of P524 million for that year.

“Stradcom’s income tax return (for 2011) declared a loss of P524 million,” Pilapil said. “There is still no net income so no income tax is due.”

The LTO paid Stradcom P1 billion in January this year, but it still owes Stradcom P4 billion. Is it this P1 billion that the BIR is taxing? But the BIR said it is charging Stradcom for “deficiency taxes in income earned in 2011,” the same year that Stradcom declared in its income tax return a net loss of P524 million. So what net income is there to tax?

Or perhaps the BIR is collecting taxes from the P4 billion that Stradcom still has to collect from the LTO. Stradcom promises to pay the BIR the moment the LTO pays its debts.

However, it does not look like the LTO wants to pay anytime soon, not until the high court resolves the motion for reconsideration of the Sumbilla group.

Unless the problem is solved soon, things are bound to get worse. Last Aug. 5, the BIR served warrants of garnishment on Stradcom to compel it to pay the deficiency taxes. The warrants froze whatever bank accounts Stradcom still has and the computers and other equipment that Stradcom uses in its operations. Pilapil said the garnishment is crippling the operations of Stradcom and may result in a system shutdown.

When that happens, the LTO will have to do the processing of vehicle registration manually, which means vehicle owners will have to wait many, many months before their vehicles can be registered and issued license plates.

“Stradcom has done everything that it can to prevent a system shutdown,” Pilapil said, “to the extent of incurring loans, in the interest of public service. However, this garnishment further cripples the corporation’s operations on top of LTO’s continuing refusal to make regular payments.”

The LTO stopped paying Stradcom regularly in September 2011. The LTO has not been paying Stradcom for almost three years now.

“We have daily operation expenses,” Pilapil said. “We have in fact been operating at a loss just so the LTO will not experience a system shutdown…. If there is a shutdown, this must be considered a force majeure and beyond our control. We hope the LTO and the transacting public will understand and sympathize with out dilemma.”

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I can understand BIR’s sometimes “heartless” insistence on collecting taxes: It is short of its collection target, just like the Bureau of Customs. President Aquino’s P2.26-trillion budget for 2014, the biggest in Philippine history, needs plenty of funds. Especially because the budget department, instead of reducing or abolishing the hated pork barrel—as the general public demands because it results in the loss, or theft, of billions of taxpayers’ pesos—has increased its appropriations in the proposed 2014 budget.

From January to May this year, the BIR has met a month’s collection target only once. But bear in mind that the BIR has set its sights on contributing 55 percent of the administration’s budget for next year—that’s a whopping P1.253 trillion to collect by the end of the year.

That is why the BIR is desperately running after alleged tax evaders, filing cases against them (but the Department of Justice is not prosecuting them) and collecting hefty fines from delinquent companies.

But why is it not running after the importers of luxury vehicles, which are an anachronism in a poor country like the Philippines? Yes, it did go after and succeeded in collecting P1 billion in taxes from PGA Cars Inc., the distributor of Porsche, Lamborghini, Bentley and Audi.

But why is it not going after the two other importers of luxury cars—CATS-Mercedes-Benz and BMW? Records show that the BIR has assessed CATS P1.9 billion, but this amount has remained uncollected until now. BMW still has no assessment. Why, oh why?