Chinese firm Xuzhou Consruction is the second biggest winner of the Philippine government’s pandemic contracts, but senators found it “incredulous” why the company did not pay income tax and why the Procurement Service of the Department of Budget and Management (PS-DBM) handled their customs clearance for them.

Xuzhou, which supplied Personal Protective Equipment (PPE) to the government, bagged at least P1.9 billlion in contracts according to the database of  Government Procurement Policy Board (GPPB). They have the second highest amount of contracts next to embattled Pharmally Pharmaceutical, which cornered at least P10 billion.

Xuzhou directly negotiated with the PS-DBM and got its customs clearance from the PS, said Robin Han, the company’s country manager, as translated by the Senate’s interpreter.

“We do not directly import, it is the DBM who gets it from us. The clearance is handled by DBM. The clearance with Customs is handled by the DBM,” Han said on Tuesday, October 19, during the resumption of Senate hearings.

Senator Richard Gordon said “that is the first time I ever heard of DBM handling clearances for a Chinese company.”

Han said Xuzhou paid the 12% Valued Added Tax (VAT) as mandated by the Philippine tax code, but it was the PS-DBM which deducted it from the company, which is “state-owned” by China as Han described it.

“That’s weird,” said Gordon.

Xuzhou also did not pay income tax, said Han, prompting more questions from senators.

Generally, income derived by non-resident foreign corporations, where goods are sold outside of the country and subsequently imported, and where the foreign corporation has no permanent business establishment here, is not subject to income tax.

“I dispute that,” said Senator Franklin Drilon, a lawyer and former justice secretary.

“You sold goods here, you made profit for the commercial transaction, you are liable for income taxes,” said Drilon.

“There should have been 25% income tax withheld,” said tax expert Mon Abrea, Senate’s resource person.

But neither the Bureau of Internal Revenue (BIR) nor the Bureau of Customs (BOC) could weigh in because of President Rodrigo Duterte’s order for Cabinet officials to snub the hearings.

Gordon said it was an example of how Duterte’s order – which the senator called “stupid” – could hamper the hearings.

“I share the incredulity and curiosity, and it makes me wonder, what happened to the PS-DBM, did they usurp the mandate of the BIR?” said Senator Risa Hontiveros.

The blue ribbon committee will resume hearings on Thursday, October 21, at 11 am. – Rappler.com