SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones looks at the long-running issue of pass-through fees and the impact of a new Executive Order banning these.
A more permanent solution
The issuance of Executive Order 41 by President Ferdinand Marcos Jr. at the end of last month elicited cheers across the logistics community, and for good reason: it may just spell a definitive end to the scourge of pass-through fees imposed by local governments and its impact on logistics costs and the overall cost of goods in general.
Pass-through fees have been the bane of the sector for the longest time. When I first joined SCMAP in 2012, this was a problem constantly being raised by logistics providers: local governments requiring their vehicles to apply for stickers, or pay a toll fee, for the right to pass through their jurisdictions. The LGUs argue the fees are to augment their road maintenance budgets, never mind the fact that most of these vehicles are passing through national roads – roads that are under the purview of the national government, meaning it is the national government who spends on its upkeep.
The lack of uniformity and predictability in these fees – and the existence of the fees altogether – has led to headaches for both logistics providers and their principals. As our supply chain networks became more complex, relying more and more on regional distribution hubs and a myriad of transport options delivering direct to stores and even to consumers – the costs piled up. Stakeholders are left with no choice but to pass the cost on to consumers. Pass-through fees have become one factor contributing to our struggling supply chain competitiveness, alongside insufficient infrastructure and unclear regulations.
There have been many attempts to address this – most recently a Memorandum Circular by the Department of the Interior and Local Government in 2018 – but these seem to have been brushed aside by LGUs, who continued to charge these fees. One hopes the EO signed by the president would, once and for all, compel local governments to cease charging these unnecessary fees, and contribute to the hoped lowering of prices of goods across the country. (It’s definitely a small factor in the 6.1% inflation rate reported by the government last week.) Perhaps the weight of the president’s relative popularity can carry things through?
But then, I thought, there lies the problem. An Executive Order can easily be revoked by the next president. If that happens, we’ll be back to square one. But interestingly, EO 41 specifically cites a part of the Local Government Code of 1991: “The exercise of the taxing powers of [LGUs] shall not extend to the levy of … taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise.” The law is already clear – so why is it not being implemented?
Is there a loophole? I’m no legal expert, but could the wording of that provision – find it in Section 133 of the act – be interpreted as “you cannot tax the goods, but you can tax the carriers of said goods”?
In any case, EO 41 is a positive step – but it should be followed by more. As we have seen over and over, the issue of pass-through fees does not go away despite attempts by various instrumentalities of government to limit or stop it. Perhaps legislation explicitly saying this can be put in place? After all, the government now has a better understanding of the contribution of logistics in lowering prices, as evidenced by the president approving the Department of Trade and Industry’s food logistics agenda last August.
Its continued commitment to improving our supply chains is also reflected on two proposed laws currently making its way through the legislature: the International Maritime Trade Competitiveness Act, which now has a provision for the drafting of a National Logistics Strategy; and the 30-Year National Infrastructure Program Act which codifies the government’s priorities and allows them to proceed development regardless of who sits in the top. Perhaps one more explicitly about what can and cannot be charged to logistics stakeholders should be in the cards, too. It could be a more permanent solution to this long-running problem.
Logistics costs should be transparent and justifiable. The charging of fees for maintaining roads that aren’t even the legal responsibility of the charging body is neither.