The amendments to the Foreign Exchange Tax Law

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Part of The American Chamber of Commerce Journal

Title: The amendments to the Foreign Exchange Tax Law
Language: English
Source: The American Chamber of Commerce Journal Volume XXVIII (No. 8) August 1952
Year: 1952
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Fulltext: The first lines of Longfellow’s poem, “The Ship of State”, are so familiar that they have become somewhat stale. The last few lines, not so well known, express the feeling of every citizen in a democracy: "Sail on, nor fear to breast the seal Our hearts, our hopes, are all with thee, Our hearts, our hopes, our prayers, our tears, Our faith triumphant o’er our fears, Are all with thee—are all with thee I” President Quirino is to be congratulated on the suc cess of his ten-day state visit to Indonesia which he made last month in return for the visit of President President Sukarno to this country Quirino’s Visit early last year, to Indonesia The President and his party were made to feel most welcome and the visit definitely strengthened the cordiality of the relations between the two countries. The Philippine President carefully’avoided the horta- ’ tory in the several speeches he made, yet found opportunity to suggest that in the present world situation, an indepen dent policy,'seen in effect as neutrality, to which Indonesia is clinging even at the expense of refusing Western aid, is of doubtful value, and that the idea of the people of south ern and southeastern Asia constituting themselves into a “third force” is not likely to be effective in practice. There is good evidence for the belief that the Indo nesians, though their territory is vastly greater than the Philippines and their population four times as large, and though their culture is far more autochthonous, yet look up to the Filipinos, and it may become clearer to them as time passes that what they admire in the Filipinos is pre cisely that which the Filipinos owe to their eclecticism. While the people of Indonesia have clung to their old and established ways, the Filipinos for centuries have not scorned to borrow from other peoples and have not hesitated to adapt themselves to the modern world. As a consequence, they are better prepared for modern nation hood. Thanks largely to Spain, the Filipinos are more united as a people; thanks largely to America, they. are more practiced in governmental administration. Literacy is further advanced and the people are better prepared to govern themselves. The nationalistic spirit runs high in Indonesia, at least in the major parts of it, but this nationalism takes the form largely—as it does in some other Moslem countries, of suspicion and fear of foreigners and distrust of all foreign influence. The offer of American technical assistance was recently refused because of a misunderstanding of Amer ican motives. As the Indonesians may learn in these matters from the Filipinos, so the Filipinos may take an object lesson from Indonesia as to the dangers of a narrow nationalism. But the situation involves much more than merely the taking of such lessons. For without outside assistance, for a period of time at least, Indonesia may not, almost cer tainly would not, be able to stand. And the risks to the world entailed in a collapse would be very great. A writer in the July Foreign Affairs, General Augustin Guillaume, states that it is clear that— “the ancient East, from the Arab states of the Mediterranean basin to Pakistan, India, and the new Indonesian Republic, is not yet fully aware of this [the present] world revolutipn. . . Whatever dreams it may have of forming a third force—traditionalist, feudal, and artisan in nature—can not survive the inexorable lessons of reality. Should the West succumb, each of these countries would have to surrender to Communism; their very nationalism would have prepared them for that fate.” Another writer in that same issue of Foreign Affairs, Jacques Soustelle, states: "The time has come to view things in the Far East realistically. If France retreated from Tonkin and Saigon, Indo-China would at once fall into Soviet hands, and Malaya as far as Singapore would quickly follow. What would happen then to Indonesia, Burma, and Siam? And who would expect that the Philippines, Ceylon, and India would be immune? With all Southeast Asia at stake, the mastery of the Pacific as a whole is plainly in balance.” A collapse in Indonesia as much as the fall of Indo China would break America’s, that is to say, civilization’s, defense chain in the Pacific and would largely isolate the Philippines,—which was liberated during the last war, as everyone knows, from the direction of Australia and the East Indies. There was great good reason in President Quirino’s state visit to Indonesia and in his wise counsel with respect to “neutralism” and the practical powerlessness of the so-called “third force”. Act 601, known as the Foreign Exchange Tax Law, which imposed a 17% tax on the value in Philippine pesos The Amendments to the Foreign Exchange Tax Law of foreign exchange sold or au thorized to be sold by the Central Bank, was made effective for two years from the date of its approval on March 28, 1951, and would therefore have expired in March, next year. Although it was allegedly an emergency measure, adopted to arrest a flight of capital and to further curb imports, it also proved lucrative as a revenue measure, and there was little hope, therefore, that the Act would be allowed to expire, despite the fact that, while it ac complished the purposes aimed at, it also brought about effects extremely deleterious to the Philippine economy,— not only further heavy increases in the cost of imports, but also further discouragement of foreign capital invest ment. As it appeared obvious that the life of the Act would be extended regardless of all argument to the contrary, few serious voices were raised demanding that the ex change tax be abolished, but it was strongly urged that the law be drastically amended in various respects. The most practical proposals to this effect were ad vanced by Mr. J. A. Parrish, then President of the American Chamber of Commerce, in an article entitled, “Should the Exchange Tax Law be Amended?” which was published in the January issue of this Journal and which received widespread attention and support. At least three bills embodying amendments were in troduced in the House of Representatives and in February and March the Committee of Ways and Means, under the Chairmanship of Representative Cipriano S. Allas, held a number of public hearings which were attended by Mr. Parrish and other members of the American Chamber of Commerce. Following the hearings, the Committee of Ways and Means submitted a report and introduced Bill No. 3116, prepared by the Committee, which incor porated some of the features of the three earlier bills,—No. 2322, introduced by Representatives Roy and Marcos, No. 2476, introduced by Representative Romualdez, and No. 2990, introduced by Representatives Ferrer, Fortich, Hilado, Marcos, and Pelaez. The first of these bills, No. 2322, sought to exempt from the tax the remittances for payment of outstanding obligations contracted prior to March 28, 1951, (the date the law went into effect) the proceeds of which were used for agricultural or industrial rehabilitation. The second, No. 2476, would have extended the life of the Act for an other year but reduced the tax from 17% to 12-1/2%. And the third, No. 2990, would have included agricultural machinery and implements among the imports payment for which is exempted in the original Act. 292 The compromise bill, No. 3116, provided for the ex tension of the life of the Act until the end of 1953, but com promised on the amount of the tax, specifying that 17% would continue to be levied until June 30, 1953, the tax to be reduced to 12-1/2% during the period from July 1, 1953, to December 31, 1953. It also included, among the exemptions, payments for agricultural machinery and implements and payments for outstanding obligations contracted prior to March 28, 1951, as in Bill No. 2322. The Committee’s compromise bill was further amended on the floor, most of the amendments being minor ones and the principal one being the elimination from the original Act of the highly objectionable requirement that the tax shall be collected even on the payments of exempted im ports, for later refund by the Bank. The amended Act now simply states that the tax “shall not be collected” on such payments. Besides the inclusion among the exempted imports of “agricultural machineries and imple ments and their spare parts and accessories”, also exempted are the “supplies and equipment purchased directly by or for the Armed Forces of the Philippines and the Civil Aeronautics Administration as certified by the corre sponding Department heads”; also “spare parts, equipments, accessories of airplanes and vessels of Philippine register”, with certain reservations. The proposed amendment exempting payments for outstanding obligations contracted prior to March 28, 1951, the proceeds of which were used for agricultural and industrial rehabilitation, was lost. It will be seen that the gains made against the con tinued imposition of the exchange tax, in spite of all the effort made to obtain more important modifications, are not great. The reduction from 17% to 12-1/2% will apply to only the latter half of the year 1953. On the other hand, the life of the Act has .been extended for less than a year beyond the originally specified period. And completely blocked was the earlier proposal that the tax be increased from 17% to 25%! Republic Act No. 814, amending the original Foreign Exchange Tax Act No. 601, is not as bad as it might have been in view of all the circumstances. However, the only eventuality, with respect to the exchange tax, to which industry and business and the people as a whole can look forward to with any optimism, is its total abolition come end of the year 1953. ■ Meanwhile, and for as long as this capital-trap may continue to exist, we must give up all hope of any large private foreign capital investment in local enterprise. This past session of the Philippine Congress, both the Philippine Immigration Act of 1940 and the Alien Reg, istration Act of 1950 were again Aliens amended. “Fees” and The first was amended by Rethe Rule of Law public Act No. 749 which provides, among other things, for an increase in the alien head tax from P16.00 to P25.00, this tax being payable by every alien over 16 years of age admitted to the Philippines. The Act also increases various fees, as (1) for executing an application for a passport-visa for a non-immigrant, from P5.00 to P10.00; (2) for an extension of a re-entry permit, from P10.00 to P20.00; (3) for exe cuting an application for an immigration visa, from P5.00 to P10.00; (4) for a petition for preference-quota status, from P 10.00 to P40.00; (5) for a petition for a visa for a non-immigrant coming to pre-arranged employment, from P20.00 to P80.00. The Act furthermore provides that if an alien’s certificate of residence has been lost, original fee, P50.00, the fee for a duplicate is P40.00; and while the fee for a re-entry permit is P20.00, the fee for a duplicate re-entry permit is P40.00. The fee for an extension of a temporary stay is P10.00 for every month of extension. Even in the case of students, the Act provides that for every year, or fraction thereof, of a stay beyond two years, as a non-immigrant student, the fee is P50.00 This list does not include many other fees which the Act leaves unchanged. Republic Act No. 751, which amends the Alien Regis tration Act, increases the annual report fee for aliens from P0.50 in documentary stamps to P20.00 in documentary, stamps for all aliens 14 years of age or over, and from P0.50 to P10.00 for all aliens less than .14 years of age. The same Act increases the fee for a duplicate original of a lost alien certificate of registration, ori ginal fee, P50.00, from P2.00 plus a 30-centavo docu mentary stamp, to Pl0.00. The explanatory note prefixed to the original Bill stated: “No less than P3,000,000 will be collected annually in the form of alien annual report fees if the proposed rates are approved.” This referred only to the revenues from the increase in the annual report fees, not to the increase in revenues expected from the increases in the other fees. The sponsors of the two original bills were, in the one case, Representatives Macapagal, Allas, and Lacson, and, in the other, Representatives Macapagal, Cases, and Duran. Both were recommended for approval by the House Com mittee on Foreign Affairs, of which Representative Maca pagal is the Chairman, and were duly approved, not only by the House, but by the Senate, and, finally, by President Quirino. In the issue of this Journal for March, of this year, . we published a list of government fees and other incidental expenses incurred by a hypothetical American, with a family who comes to take a position in the Philippines, say in a mining firm. In addition to the costs of the journey,— railroad fare, hotel expenses, sea or air transportation, new clothing suitable to the Philippine climate, and the loss and expense usually entailed in breaking up a house hold and setting it up again many thousands of miles away, these fees and incidental expenses were, as of a few months ago: United States Passport Husband............................................................. $10.00 Wife and 3 children (combined)................. 10.00 Application for 2 visas—Philippine Government................................................. 5.00 2 visas................................................................ 20.00 $45.00 P 90.00 Philippines Husband Head Tax..................................................... P 16.00 Alien Registration Certificate and stamps........................................................ 50.30 Immigrant Residence Certificate and stamps........................................................ 50.60 12 photographs (not paid to Govern ment) .......................................................... 7.00 City Residence Certificate...................... .50 Wife Head Tax...................................................... 16.00 Alien Registration Certificate and stamps........................................................ 50.30 Immigrant Residence Certificate and Stamps........................................................ 50.60 12 photographs (not paid to Govern ment).......................................................... 7.00 City Residence Certificate...................... .50 Child No. 1 (16 years old) Head Tax...................................................... 16.00 Alien Registration Certificate and stamps........................................................ 50.30 Immigrant Residence Certificate and stamps........................................................ 50.60 12 photographs (not paid to Govern ment).......................................................... 7.00 124.40 124.40 123.90 294