Sta. Ana coordinates Action for Economic Reforms. This piece was published in the October 10, 2011 edition of the BusinessWorld, pages S1/4 to S1/5.


Strange that the story about the decision of the Bureau of Internal Revenue (BIR) to apply the 20 percent withholding tax on the celebrated or notorious (depending on which side you are on) PEACe Bonds did not merit space in the major dailies.

The major dailies like the Philippine Daily Inquirer and the Philippine Star did not run the story though it is an explosive one.  The PEACe Bonds controversy, which happened in 2001, continues to hound its main characters till today.  During the resistance to Gloria Macapagal-Arroyo, sections of the opposition cited the PEACe Bonds as one of the blatant cases of corruption during her long term.

And when Noynoy Aquino became President, the PEACe Bonds issue was resurrected as an example of an unresolved issue that the Arroyo administration must account for. More importantly, the PEACe Bonds became an arena of the infighting in Aquino’s loose coalition, as some forces wanted to undermine some of Aquino’s close allies who are associated with or have been linked to engineering the PEACe Bonds.

In November 2010, President Aquino, as reported by, said he welcomes a probe into the PEACe Bonds. “That’s good. That will put a closure to it.”

In gist, the PEACe Bonds (PEACe, being the shorthand for Poverty Eradication and Alleviation Certifcates) were 10-year zero-coupon notes issued by the Republic of the Philippines through the Bureau of Treasury in 2001, which was awarded to the Rizal Commercial Banking Corporation (RCBC).

What is controversial about the PEACe Bonds is the allegation that rules were bent or broken to favor certain parties.  The CODE-NGO, then an ally of Gloria Macapagal Arroyo and whose president was the sister of then Finance Secretary Isidro Camacho, used its political connections to get rules that favored RCBC, the winning bidder.

I need not elaborate on the arguments against the PEACe Bonds—the changing of rules favoring one party, the information asymmetry among bidders, the rent seeking, etc.  All this has been discussed publicly elsewhere by economists like Felipe Medalla and Ernest Leung as well as by non-governmental organizations like Freedom from Debt Coalition and Action for Economic Reforms.  What perhaps will unravel soon are the stories of offended bankers, who understandably could not openly denounce what happened then, for fear of reprisal.

A key component of the PEACe Bonds—one of the sweeteners—was the ruling of then BIR Commissioner Rene Bañez to exempt the certificates from the 20 percent withholding tax.

Precisely, it is the Bañezruling that the current BIR has overturned.  I came across this story on the Interaksyon website.  I asked myself: “Is this for real?”  I didn’t find the story in the leading papers or on their online sites.  For verification, I decided to visit the Department of Finance (DOF) website, and voila, I found the statement that Interaksyon used.

Let me quote the crucial paragraphs of the DOF statement:

“The Bureau of Internal Revenue (BIR) confirmed today that the 20% final withholding tax is applicable to the so-called PEACe Bonds.

“In its Ruling, the BIR stated that the Bureau of the Treasury should withhold the applicable tax from the P35 Billion face value of the bonds which is set to be paid out on October 18, 2011. The tax due is estimated at almost P5 Billion.


“Responding to a query from the Department of Finance, the BIR confirmed that BIR Ruling Nos. DA-491-04 and 008-05, dated September 13, 2004 and July 28, 2005 respectively, applied to the PEACe Bonds.  These Rulings held that all Government Securities issued by the Treasury are ‘deposit substitutes’ and therefore subject to the 20% withholding tax.

“The 2004 and 2005 Rulings effectively reversed an earlier 2001 Ruling of the BIR, which found that the PEACe Bonds were exempt from the 20% final withholding tax.

“Sought for comment, Finance Secretary Cesar V. Purisima stated that the recent BIR Ruling merely confirms that existing rulings on the tax treatment of Treasury Bills and Treasury Bonds apply to the PEACe Bonds and provides appropriate legal basis for the Treasury to withhold the tax.


“Secretary Purisima, BIR Commissioner Kim Jacinto-Henares, and National Treasurer Roberto Tan, today met with government securities eligible dealers to discuss this development and have agreed to coordinate on its implementation.”

It goes without saying that Secretary Purisima, Commissioner Jacinto-Henares and National Treasurer Roberto Tan are fulfilling their duty of protecting government’s interest.

But we must not forget another far-reaching implication of this decision, which I will explain by way of sharing my conversation with friend and fellow BusinessWorld columnist Toti Chikiamco some weeks back.  On a grey Saturday afternoon, we met and exchanged ideas about problems that beset the Philippine economy.  Unavoidably we talked about corruption. The always skeptical Toti (skepticism is a good attribute) said that he is unconvinced about Aquino’s anti-corruption platform. His mind could change, though, if the President deals not only with the corruption of the past and of Gloria Arroyo, but also with present corruption.

The decision of the BIR and the DOF that subjects the PEACe Bonds to a withholding tax should provide the assurance to Toti that the PNoy administration’s anti-corruption program is serious.  That it is not done as political vendetta and that it is not selectively applied.  The message then is:  the brave reformers in the Aquino administration will relentlessly pursue measures for the public good, even if they go against the special interests of kabarilan, kaklase, and kaibigan.