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Solon questions Meridian Telekoms sale(Business World (Philippines) Via Thomson Dialog NewsEdge) A House Representative has expressed his concern over the possibility that the government may not have collected the appropriate taxes from the purchase made by a subsidiary of Philippine Long Distance Telephone Co. (PLDT). House oversight committee chairman Danilo E. Suarez said in a committee hearing last week that the government must look into the high acquisition price of the shares of Meridian Telekoms, Inc. to PLDT mobile phone subsidiary Smart Telecommunications, Inc. In 2004, Smart Communications bought Meridian, the first local telecommunications company to venture primarily in Internet broadband services, for $45 million or P2.25 billion. This despite that Meridian's authorized capital stock amounted to only P100 million, and had only about 600 subscribers. Recently, Smart renamed Meridian to Smart Broadband, Inc. to mark the company's focus on broadband deployment Mr. Suarez expressed doubts on the acquisition cost based on data presented by the Bureau of Internal Revenue (BIR) at the hearing. At the committee hearing last week, the BIR showed details of three transactions involving the sale of Meridian shares, the selling price of which summed up only to P738 million. "[Based on the table presented by BIR], we accounted for only less than a billion [pesos]. Where are the rest?" he said. BIR data showed that Meridian shareholder Myla C. Villanueva in Aug. 5, 2004 bought 250,000 shares, with a par value of P25 million, from Edgar B. Francisco at P9.23 million. Since the purchase was a loss transaction, no capital gain was declared and no capital gains tax was paid. Capital gains tax is imposed on the gains presumed to have been realized from the sale, exchange, or other disposition of capital assets. Net capital gain is obtained by deducting the cost from the selling price, 10% of which are remitted to the BIR as taxes. But a month after the transaction, Micro D International, Inc. sold its 499,995 shares with a par value of almost P50 million to Smart at P501 million. Smart paid a 10% capital gain tax of P45 million at the BIR Regional District Office (RDO) in Makati. On Feb. 18, 2005, Smart bought 225,000 shares, with a par value of P22.5 million from a certain Rene B. Dos Remedios, worth P227.7 million. Taxes paid by buyers of Meridian shares only summed to P65.6 million, far from the expected revenues that the government should have obtained as estimated by Mr. Suarez. "The government should have gotten about P200 million from that $45 million. What is scary about that is what may have happened to the money from the overpricing," he told BusinessWorld. But the bureau said that the data they showed reflect only those transaction reflected in the RDO of Makati. The committee ordered the BIR to compile all documents regarding the transaction. Last month, Justice Secretary Raul M. Gonzalez also called on the BIR to investigate anew the sale if it had been properly taxed. In response to Mr. Gonzalez' call, PLDT spokesman Ramon R. Isberto earlier said the payment of capital gains and documentary stamp tax by former shareholders of Meridian was a requisite for the sale. Since the BIR had issued a tax clearance, this presumes that proper taxes were paid. "The shares could not have been transferred unless the taxes were paid. That's the process the sale has to go through," he said. The representative of the third District of Quezon province also questioned the $45 million, which is purportedly 20 times the book value of the company, which was only less than P100 million that time supposedly because it is not earning. "We must look into that [acquisition]. If it is really earning, Globe [Telecoms, Inc.] and Sun Cellular [of Digital Telecommunications Philippines, Inc.] should have tried to buy [Meridian]. But we will look at the view of Smart [in the next hearings]" he said. He added that the government must be concerned about the investment venture in Meridian that Smart has entered into since the government has stakes in PLDT. The government is currently selling its 6%-7% stake in Philippine Telecommunications Investment Corp. (PTIC) which is the biggest stakeholder of PLDT, with a 28% share. The Supreme Court in August ruled with finality that a 46.125% stake in PTIC of the Cojuangco family was part of the ill-gotten Marcos wealth. Copyright 2006 BusinessWorld (Philippines). Source: Financial Times Information Limited - Asia Intelligence Wire. |