KEEPING the budgetary shortfall within P250 billion this year is getting increasingly difficult, especially in the absence of asset-sale proceeds, Finance Secretary Margarito Teves said on Wednesday.

The finance chief conceded the matter as the new leadership of the Bureau of Internal Revenue (BIR), which accounts for 60 percent of revenue so crucial to plugging the government’s deficit, continued to face legal challenge to its scheme to impose a 5-percent campaign tax on political donations in the 2010 elections, as part of desperate measures to shore up collection.

The latest word of caution came from Makati City Mayor Jejomar Binay, who noted that even Commission on Elections (Comelec) chairman Jose Melo had earlier said the scheme needed to be discussed, owing to its dubious legal basis.

Teves told reporters the estimated P50 billion from the sale of San Miguel Corp. (SMC) shares alone could help prevent the budget deficit from pushing past P300 billion, or within the absolute ceiling Teves agreed to work this year.

He realized, though, that the SMC shares remain hounded by ownership issues. Still, he expressed optimism the Supreme Court, which last ruled in favor of converting the government’s common shareholdings into preferred, would favor them again and rule with finality on the issue.

“Without the SMC shares, we are likely to breach the P250-billion deficit ceiling,” Teves said.

He stands to generate P11 billion from the sale of the exploratory arm of the Philippine National Oil Co., or PNOC-EC, and some P13 billion from the 102-hectare Food Terminal Inc. Complex.

Hard to enforce

Senate President Juan Ponce Enrile predicted that the government will have a hard time enforcing the 5-percent campaign tax to be slapped on all candidates in the 2010 national and local elections.

This developed as Makati Mayor Binay advised BIR Acting Commissioner Joel Tan-Torres to go slow in implementing the new tax on campaign spending amid concerns this would favor candidates with abundant war chests.

In a separate interview, Enrile conceded the complexity of enforcing the new tax, where the burden is placed on candidates who will withhold the tax and remit this to the national treasury.

“It is very difficult to administer this law. For example, if someone donates T-shirts, but the donor is anonymous or does not wish to be known, how can the candidate withhold the tax? It’s not the candidate’s fault that he’s the beneficiary, as he didn’t solicit it,” he said.

Binay said the new BIR chief needs to be reminded that the Comelec and the political opposition have “serious doubts on the legality and the propriety of the new tax measure slapping a 5-percent withholding tax on campaign expenses and donations.

“The campaign-tax plan favors moneyed candidates and those supported by the Arroyo administration. It also puts the opposition at a disadvantage since the administration will be able to pinpoint businessmen who are opposition contributors,” Binay said, after Torres announced that BIR will immediately implement the tax.

Besides legal questions, Binay said the campaign tax favors administration-backed candidates with access to national government resources. “It would also cripple the opposition since the national government would now be able to pinpoint opposition donors from the business community,” he added.

According to Enrile, there is no need to enact a new law to enforce the campaign tax.  “There is a law already [on that]. It’s in the Internal Revenue Code of 1997.”

But he said the campaign tax is being implemented only now. “I understand they have already published the regulations,” which means “there is no legal impediment” to its application in the 2010 election campaign.

Binay pointed out, however, that even Comelec chief Jose Melo had said the tax on campaign expenditures needs to be discussed thoroughly with the poll body, noting the lack of public discussion on the issue, especially with the political parties.

“We do not envy the situation of the new BIR chief. He needs to increase revenues to address a yawning deficit caused in large part by the reckless spending of this administration. But this does not justify imposing tax measures that are legally questionable. More than that, the campaign tax will put the opposition at a clear disadvantage going into the campaign period,” Binay said.

The BIR hopes to raise an additional P1.4 billion by taxing campaign transactions and all activities of candidates, contributors and supporters. It admitted that the new tax is intended to address another shortfall in the BIR’s collection.

Binay insisted that the national government only needs to improve tax collection and go after smugglers if it seriously wants to improve its revenues.

Under Revenue Regulations 8-09, the national government now requires all political candidates, parties and their contributors to remit 5-percent withholding tax on their campaign expenditures and contributions.

The new regulation also requires all political candidates and parties to register with the BIR as a withholding agent.

“As it is worded, Revenue Regulation 8-09 covers purchases of goods and services during the campaign period and all election activities of candidates, their contributors and supporters. There is a need to clarify the scope of coverage since the law exempts electoral contributions from any form of tax,” he said.

According to Binay, the Omnibus Election Code defines electoral contributions as “gift, donation, subscription, loan, advance or deposit of money or anything of value, or a contract, promise or agreement to contribute” for the purpose of influencing the results of the elections.

Republic Act 7166 states that any electoral contribution will not be subject to the donors’ tax or any form of tax.

Assets sale not enough

Meanwhile, according to Teves, proceeds from the sale of state assets, admittedly problematic, would not be enough to firm up the government’s weakened revenue potential.

This is why he looks to the sale of the SMC shares with greater favor no matter that its ownership is still mired in litigation.

“Even if we [successfully] sell PNOC-EC and FTI we are still likely to breach P250 billion,” Teves said.

His aim, he told reporters, was to sell all three together, or at the very least sell the SMC shares to help the budgetary shortfall from getting out of control.

Already, the budget deficit stood at P237.5 billion in the first nine months, or already 85 percent of the full-year program, he noted.