Bungling back to the future

The year just gone and the new year we heralded in are bridged with trumpet blasts, the tooting of horns, the clanging of pots and pans and the modest crackle of fireworks presumably to frighten away persistent demons of the past. As the din dies down and a new year begins, at least that is our fervent prayer. Unfortunately, not only is past prologue but where we stubbornly refuse to learn from our mistakes and, therefore, reject the righteous seeking of accountabilities, the past, as painful as it was, forges forward, rampaging, even ravaging. 

Let us apply that premise both to the corporate world and to our economy. Where it works positively in one, on the other it is an infernal curse.

In accountancy, one of the most ingenuous ways to legally avoid paying one’s dues in the present is to carry forward losses against future net incomes so that the effective tax shields and other such shelters are arrayed against other incomes and across a wider swathe. It effectively rids current managers of present-day accountability as losses are carried forward. As these are postponed, future revenues and their eventual bottom lines carry the burden. The trick is to distribute accountability over a larger foundation, creating virtual economies of scale and applying costs against revenues more able to bear these.

The effect on capital is generally positive. It effectively redounds to the benefit of equity holders as it enhances net worth and increases shareholder value. Depreciation, accrued interest and other tax shelters like losses carried forward are treated as expenses but because they are non-cash flows that reduce incomes, they likewise reduce the amount of income taxes. The effect of lower income-tax burdens enhance equity and are thus, considered forms of equity multipliers.

The DuPont Identity, an analytical equation created by that famous conglomerate, incorporates into returns on equity analyses the positive impact of debt and equity enhancers like loss carry forward in measuring executive performance.

It is neither a tax loophole nor is it illegal. It simply arrays relatively heavy losses against more robust revenues.

As different as day is from night, in the political bureaucracy, carry-forward losses and accrued liabilities inflict on, rather than enhance, equity. In the dark and nether world of partisan politics, it is not only a manner to avoid accountability, but more important, it inflicts on future generations the mortal sins of the past.

Allow us to analyze at least P4-billion charges inflicted on this current administration as well as on future generations as a result of our stubborn refusal to demand accountabilities from past administrations including that colossally inept that simply bungled its way for six years.

One credible count of liabilities from the last administration that the current must contend with measures the total liabilities at over P117 billion, inclusive of damages. The total from the Aquino administration’s bungled handling of its statutory obligations is a substantial portion of that.

The most brazen carried forward and inflicted on the public by the Aquino administration is a bill for over P79 billion representing damages from a suit filed by a utility concessionaire against the government for the latter’s deliberate failure to honor concession obligations. Not only is this perhaps one of the largest liabilities dumped on an unsuspecting public that could effectively increase tax burdens already predatory and unconscionable, but the deliberate violation of contractual commitments is characteristic and is repeated in most of these carry-forward burdens.

Note it’s similarity where the deliberate impetus to dishonor contracts and obligations are concerned. One other liability involves P2.44 billion to recompense lost revenues by an infrastructure-related contractor due to the deliberate failure by the government to grant rate adjustments clearly stipulated in its contract. The same modus is replicated in another agreement likewise violated by the government and likewise involving contractual provisions on critical rate adjustments.

The foregoing involve the stupid failure to honor contractual obligations, such reneging critical when viewed against our anemic performance in attracting foreign direct investments in relation to neighboring economies. View that against the fourth case where the propensity to impugn the sanctity of contracts as well as the sacredness of statutory agreements is concerned.

As much as P4.9 billion is owed by the government to an investment bank in relation to the state’s misinterpretation of the withholding-tax structures of a deep-discount zero coupon bond. The Aquino administration, desperate that for the most part of its incumbency it had consistently failed its revenue targets, decided to deny the bank what had been owed.

Filipinos are forgiving to a fault. We also put off for tomorrow what we should be doing today. Both found the injustices we inflict on ourselves.