CreditSights: Smart closure order to have limited impact on PLDT

CREDIT analyst CreditSights said it expects the closure notice on Smart Communications, Inc.’s Makati office to have limited impact on parent firm PLDT Inc. as the telecommunications giant has stable credit fundamentals.

“We agree with PLDT that the physical padlocking of Smart’s headquarters is unlikely to materially affect operations,” CreditSights said in a report.

In a press release on Monday, the Makati City local government unit (LGU) said that it had issued a closure order against Smart for operating without a business permit since 2019 and for owing the city P3.2 billion in franchise tax covering January 2012 to December 2015.

The case goes back to 2016 when the Office of the City Treasurer assessed that the company supposedly owes the local government more than P3.2 billion in franchise tax over four years.

The Makati LGU requested Smart to submit a breakdown of revenues and business taxes paid in all branches nationwide. Smart declined the request, citing a lack of jurisdiction by the LGU.

The telecommunications company filed a petition for review before the Makati Regional Trial Court Branch 122 to seek nullification of the notice of assessment.

The Makati court ruled in favor of the city government, a decision that was upheld in an appeal filed before the Court of Tax Appeals. The company is yet to elevate the case to the Supreme Court.

According to CreditSights, there had been no notable instances of large Philippine corporations being shut down due to unpaid taxes.

“PLDT also affirmed that there was no tax evasion at play, and that the dispute involved an incorrect assessment of taxes payable. Considering the quantum of unpaid taxes is relatively low at P3.2 billion, we believe PLDT may prioritize restoring operational normalcy over negotiating lower tax liabilities,” it said.

However, CreditSights said that the issue could have some damage to PLDT’s reputation after just being hit by its P48-billion budget overrun.

“Coupled with the recent US securities class action lawsuit (which we think has limited material operational impact but could hurt PLDT’s reputation), we believe corporate governance flaws could remain an overhang on the company,” it added.

On Wednesday, Smart said that it has submitted to the Makati City Office of the City Treasurer the documents requested by the city government.

In a press release, PLDT’s wireless unit said the requested documents pertain to the company’s outstanding local taxation issues with the Makati City LGU

“The submission of the documents is part of ongoing discussions between the company and the Makati City LGU who both aim to arrive at a resolution to the matter at hand,” the company said.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Justine Irish D. Tabile