DISCREPANCY | Group wants Pharmally to show records over possible P402M underdeclared tax

September 10, 2021 , 04:25 PM

By Beatrice Puente

(September 10, 2021) – The embattled Pharmally Pharmaceutical Corporation should fully disclose its tax returns in 2020 to explain the possible P402 million tax deficiency due to potential underdeclaration of records, an independent analysis of the company’s audited financial statement showed.

Two certified public accountants, Jahleel-AN Burao and John Michael Lava, worked with the Citizens’ Budget Tracker and the Right to Know, Right Now! Coalition to assess the audited financial report of the controversial firm, flagging five high-risk observations.

They said Pharmally Pharmaceutical Corporation only paid the value-added tax (VAT) for P3.89 billion purchases for inventory and capital goods, recomputing the amount based on disclosures. But the audit showed the company’s purchases amounted to P7.2 billion, posing a discrepancy of P3.35 billion. Its 12% VAT is P402.2 million.

“The difference could be related to the imports of certain medical goods which are exempted from all import duties and taxes in response to the COVID-19 pandemic,” said the report. “However, whether purchases of Pharmally relate to exempt transactions cannot be ascertained in the note disclosures.”

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Posted by Right to Know Right Now Coalition on Monday, September 6, 2021

Lawmakers have raised concerns that the company, which provided overpriced COVID-19 supplies for the Department of Health, might have only acted as a trading firm and not a manufacturing company, sourcing the face masks, face shields, and other supplies from China.

Some imported supplies can be tax-exempt only if they are not readily available in the country, according to government regulations. To clarify the matter, the report urged Pharmally Pharmaceutical Corporation to release its certification from the Department of Trade and Industry.

“If the purchases are a mix of foreign- and locally-sourced items, then this raises the concern why importations were made if the items are locally available,” added the report.

‘High risk’

Pharmally Pharmaceutical Corporation, linked to former economic adviser Michael Yang, obtained P8.68 billion worth of procurement contracts from the Department of Budget and Management despite having a measly starting capital of P625,000. It is not enough to warrant P7.9 billion worth of deals awarded from April to June alone since it falls below the acceptable Net Financial Contracting Capacity (NFCC), said the report.

At the minimum, the company should have at least P6.24 million in its working capital as of April 2020 to carry the approved P62.4 million budget for the first contract. It became more insufficient in the succeeding days when it bagged two more contracts amounting to P985 million.

“While meeting the NFCC is not a mandatory requirement, it is worth looking into this figure to approximate a company’s ability to fulfill its contractual obligations,” continued the report, noting the “very high risk” of default and insolvency given the low capital.

Senators hit the PS-DBM for favoring Pharmally Pharmaceutical Corporation when other local suppliers would have been able to supply the same requirements.

EMS Components Assembly, a local producer that won one contract, lamented its losses as the DBM allegedly delayed the delivery of the COVID-19 supplies. It provided the lowest price for face masks at P13.50 per piece, way below the P22.50 supplied by Pharmally Pharmaceutical Corporation.

President Rodrigo Duterte, who vowed not to tolerate even a “whiff of corruption,” has repeatedly lambasted senators for their investigation into the dubious transactions. He insisted there was no corruption in any of the deals but promised to step down, as he has repeatedly said so in the past, if the allegations are proven true.

Yang, who ignored subpoenas for the legislative hearings, showed up this afternoon.

(PM)

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