THE GARDENER AND THE TALE OF THE OTHER COCONUT TAX REFUND

The gardener re-visits the tale of the other coconut tax refund, the one long forgotten…[1]

The past hundred years saw two kinds of taxes zeroing in on the coconut industry which both became quite controversial in our country.

Today– of these two controversial taxes – only one is known to the public and not necessarily properly understood, namely, the controversial coconut levy of the Marcos-Cojuangco-Enrile-Angara Era.

The struggle for justice in the area of the latter coco-levy controversy is far from over, and therefore continues to invite strategic review and planning for effective meaningful action.

And yet, as if that were not enough, there is still another area – just as controversial as the levy, similarly huge in amount – or, perhaps, not quite, but nonetheless big enough, one would think, in as much as the amounts convert to billions of pesos – an area that needs to be explained carefully as an invitation for ever greater people’s participation in the never-ending saga of the quest for justice in the Philippine coconut industry.

For this other controversial tax known as the Coconut Excise Tax – we go back many years farther than the Marcos regime – way back to colonial times – or the last years of that dispensation, the Commonwealth period, to characters on the world stage long since gone – colorful personalities like Franklin Delano Roosevelt, Manuel Luis Quezon, Jose Yulo, Quentin Paredes, Francis Sayre, Frank Waring, Maximo Kalaw, Manuel Roxas I…

Today, of course, we have witnessed again the return of the Quezonians to the helm of coconut  state power – from Alcala and Forbes to Oca Santos and Bobby Tanada.

Go with the Gardener, then, on a trip to the past – to the time when Quezon province was Tayabas and Quezon was a human live wire occupying the presidential seat, and underlying the political movement for independence was a most controversial economic issue named the Coconut Excise Tax – whose salient points include the following:

• In preparation for the amicable political divorce between the United States and the Philippines, scheduled for 1946, the US Congress – over the objections of both Franklin Delano Roosevelt and Manuel Luis Quezon – passed the US Revenue Act of 1934 that included provisos for collecting an excise tax on Philippine coconut oil. The amount was equal to 3 cents per pound of the oil extracted either in the Philippines or in the US from copra of Philippine origin. The Act became effective on May 10^th 1934. It was meant to favor the producers of American dairy butter whose lobbyists sought protection from Philippine coconut oil.

Franklin D. Roosevelt, President Quezon of the Philippines and family, and Captain McCrea in Washington, D.C. (May 13, 1942)(Picture from the Franklin D. Roosevelt Library 4315112)

The colonial economy made America and the Philippines co-dependents when it came to copra. For instance, in 1935 – of 528,224 metric tons the Philippines sold overseas, 478,409 went to the United States.

Under the Independence Act (Tydings-McDuffie Act –“to keep the Philippines economically while letting them govern themselves politically”) and the Revenue Acts of 1934, 1935, and 1936, so important was coconut oil that it was the only product whose export to the United States was subject to any restriction (with duty-free limitation amounting to 200,000 long tons per year).

To say merely that the prewar Philippine economy was tied to that of the United States would be an understatement. To the US came agricultural raw materials and products needed for manufacture and from there went out industrial goods and commodities vital to the colonial underdeveloped economy.

In the conscious development of Philippine underdevelopment, copra was by far the leading agricultural item whose production went beyond a million tons but whose price though sometimes high was always unsteady.

The coconut industry is one of the oldest and most important in the Philippines. When Magellan first landed in Leyte, Siamese junks were already engaged in the copra trade.

• From May 10^th 1934 to March 31^st 1938, some $61.1-million was collected on 2,037-million pounds of coconut oil from copra of Philippine source. By 1967 when the tax was finally abolished, a total of $332-million had been collected.

• The monies collected from the tax were originally not retained in the US. They were remitted to the Philippine government for use by the latter to the absolute exclusion of any assistance to coconut producers or the development of the coconut industry – a conditionality religiously followed by Philippine authorities out of self-respect as a new government and out of fear that the remittances would stop immediately should it be shown that a violation of the Act had happened.

• President Manuel Luis Quezon used the refunds for the construction of roads and schools and hospitals and even for the acquisition of large haciendas in his incipient agrarian reform program. At one time he said,[2]“Were it not for the refunds from the excise tax, your taxes would have been increased by 100 percent or as much as 150 percent, before we could have wide roads where automobiles can safely pass one another….[without the excise tax] many years, perhaps, would pass before we could develop Mindanao. I have the premonition that if Mindanao is not occupied and inhabited by Filipinos, aliens would colonize and develop it for us and eventually wrest it from our hands.” [Which, unbeknownst to MLQ, is exactly what happened in Sabah.]

• The coconut industry was disadvantaged by the excise tax. Also, the very purpose for its enactment (to protect the dairy industry and the US farmers) was not quite attained. Dairymen contended that the tax resulted in increased butter prices but with oleomargarine manufacturers paying the tax and still underselling butter by 5 to 10 cents a pound.

The excise taxes, since they were in effect, kept the Philippines from enjoying as large a percentage of the oil consumption that came about in the USA as a result of the drought and the restrictive programs, which were in effect.

Had the excise restrictions not been in effect, and had the shipments of soy-bean oil, cottonseed oil, peanut oil, sesame oil, and so on, not entered the US market in such proportions there would have been a greater demand for and consumption of coconut oil.

• The tax also caused an extensive shift in the use of coconut oil in oleomargarine with duty-free cottonseed oil replacing it to the great disadvantage of Philippine oil mills. Ironically the biggest portion of cottonseed oil came from imperial Japan – then America’s prospective foe – to the disadvantage of the Philippines, America’s ever-loyal ally. How did the line go? “With such friends, who needed foes?”

• As to who precisely bore the excise tax burden became a most controversial question – the copra producers, the oil millers or the American consumers? Extensive hearings on this issue were held in both Washington and Manila. The Philippine political front debated the matter no end generating more heat than light on the issue.

Manuel Luis Quezon sometimes sounded like he believed the American consumers paid the tax while at other times he talked like he believed it was the Filipino farmer who bore the tax burden. On July 23, 1939 in Atimonan, Tayabas, he said: “The truth of the matter is that the tax is paid by the consumer and not by the vendor…The American consumers of soap manufactured from oil extracted from our copra are the ones who pay the tax. If there are no other countries where copra could be purchased – although truth is that oil of the same grade as ours can be obtained from other nations – they would be obliged, even if the excise tax were increased, to buy our oil if it is what they specifically need in the manufacture of soap.”

• The Philippine Coconut Association (the original PCA) submitted that copra producers were hurt the most by the tax which also neither benefited American oil producers, the dairy industry and the Philippine coconut oil industry whose profit margins supposedly slimmed considerably as a result.

The truth is dairymen were the largest US domestic group that lobbied for the tax. Oleomargarine in which was used some 150,000,000 pounds of coconut oil annually, competed with and undersold butter from 8 cents to 15 cents per pound.

• Smarting from charges that he had betrayed his own people of Tayabas – the top coconut producers at the time – President Manuel Luis Quezon took every occasion to explain how the excise tax on coconut oil was enacted – that is, over his and FDR’s vehement objections (a long-winded Spanish way of saying, ‘Don’t blame me for it!’).

Time and again he would insist that the excise tax did not reduce copra prices. The rise and fall of copra prices were due to supply and demand not to excise taxes, MLQ asserted, and the Philippine government was not the price setter. The world market was. He then stressed the need to look at other possible income sources from the use of coconut (coco jelly, bukayo, etc.) urging Philippine farmers to be as industrious and creative as the Americans and the Japanese.

It is true, in fact, that for a while copra prices increased even after the passage of the excise tax not because of the tax but because of droughts in the US, production shortages in the Philippines, and artificial limitation of American crops, together with the return of prosperity.

Understandably defensive, Quezon did not tire of repeating – “Copra, as   

From 2bp.blogspot.com

you know, is sold in the United States, not here. Its price is set by the purchasing country and by other oil-selling competitors, not by the Commonwealth government.” [3] Or, he would say, “We are receiving the excise tax refunds to the benefit of our government. I may add that Tayabas is also benefiting from such refunds, for where would the two million pesos allotted to Tayabas for public works come if there were no excise tax?“

• Manuel Luis Quezon knew only too well that, on the minimum, 4 out of every 10 pesos that his government spent came from the coconut excise tax refund. In 1938, the proportion was exceptionally high: the total income of the Philippine Treasury from taxes levied and collected by the National Government amounted to P87,797,400.00 but the proceeds derived from the excise tax on coconut came to a whopping P116,334,490.04.

It was thus not that Quezon loved Tayabas less – the coco-based Tayabas that gave him his life, his political career, his all – but that he loved his presidency more. For what would a presidency be like without the funds with which to govern?

• In May of 1940, for instance, President Quezon had his way in the use of the coco funds: P46.44-million for the departments of agriculture (minus coconut!) and commerce and for government corporations from the oil tax collected for the period January 1,1939 to June 30, 1940; P34.3-million for the Office of the President, the department of public works and communications and government corporations from the oil tax collected for the period July 1940 to June 30 1941.

Up to the eve of World War II, the war on coco funds continued unabated.

• “Today the Province of Tayabas is poor, and its people are undergoing economic difficulties,” (sincerely?) lamented Manuel Luis Quezon in February 1938 before coconut planters and municipal mayors gathered together at Malacanan. “There was a time when we were unable to hire laborers from the Province of Tayabas to work on road constructions. We had to hire workers from other provinces. Very few Tayabenses were willing to work on road constructions because the coconut industry supported them, gave them a comfortable livelihood. Today, however, I am certain that I can find a number of Tayabenses working on the roads in Tayabas.”

• Roosevelt-style, however, the great Manuel Luis Quezon did not blame the excise tax [the problem, presumably] for the people’s poverty but preferred, rather, to blame the people themselves [the real solution]. Literally scolding the people of the coconut industry, Quezon said, “There was a time when the Philippine coconut industry was more important, incomparably so, than the sugar industry…and yet you have not made yourselves perfectly organized to cope with situations that may be detrimental to the coconut industry. Consider the sugar people – they are well organized, and when they start an agitation you think the whole world is going down. They have been organized for many years. The province of Occidental Negros gave more trouble to the Government of the Philippines than all the provinces put together…No, I am not criticizing them. But if you make just one-third of the noise that the people of Negros make, I have no doubt that you will make yourselves heard day and night…Gentlemen, let me tell you this: Organize yourselves, study your problems and acquaint the peoples of America and the Philippines with a few plain facts…You can present your grievances in the proper way, you can present them in public, and you will be immediately heard. What do you do in your respective towns? You simply talk among yourselves and say,’nalintikan na!‘”

Again in October 29, 1938 at Candelaria, Tayabas Manuel Quezon pleaded:” It is imperative [that coconut farmers have their own] organizations so that those who raise coconuts can sell their products directly which procedure will undoubtedly eliminate those unnecessary deals made through indirect channels, such as the Chinese or other coconut merchants.

“Even if the Government may not be able to raise the price of coconut, so long as the landowners can sell directly their products in the markets, we can still hope for a rise in the price. Copra, which is sold at P5 in Manila, is priced and bought here at P3.50 or P4 because of the expenses entailed when it exchanges hands during the transit. Let us then organize cooperative associations for the purpose of buying coconuts not only in Tayabas but also in the different provinces…In the coming session of the National Assembly, I will recommend the establishment of an industrial or agricultural bank.” [Yeah, Quezon would have founded either the Land Bank or the United Coconut Planters Bank UCPB or both!]

• As if anticipating the post-Edsa farmer organizations’ proposals, the man from Tayabas said, “What we Filipinos should do is study the different possibilities of the coconut. We may even learn to supplement our rice with coconut products. The coconut, after all, is more nutritious than rice. …When I was a young student I always asked money from my mother with which to buy matamis na bao (coconut jelly) from the Chinese store near the school. The trouble with us Filipinos is we forget what is truly our own. We have so many needs and uses for coconut. Why don’t we rediscover them so as to increase not only our export but also our local consumption of coconut? The National Development Company has several expert chemists studying the different uses of the coconut; more important, however, is to have our coconut planters take full initiative on this matter.“

Quezon, however, was not unaware of the need for social reform: “One of our defects,” he’s say,” is that when a proprietor has two hundred, four hundred, or a thousand coconut trees, he no longer personally harvests his nuts or converts them into copra. Another man does the work for him; hence, his income is lessened. In the United States the landowner farms his own land; here in our country many of our landowners spend their time in the town or in the cockpit. We can have no remedy for our livelihood unless we ourselves make it.” Edit

• In neighboring Batangas, Assemblyman Maximo Kalaw of the
  

  Commemorative Stamp – Maximo Kalaw (from 3.bp.blogspot.com)

  Philippine Coconut Association proved to be an endless pain in Manuel Luis Quezon’s side.

Kalaw wrote a brief wherein he stated, “at times the amount of money the coconut planter gets from his product is much less than the excise tax the Government levies on it.” He pointed out concretely that from July 1, 1934 to 1937,the excise tax collection of $48-million was reported alongside the value of US imports of copra and coconut oil that amounted to $57-million. But after deducting necessary expenses, the net value of the coconut imports amounted to only $44-million – justifying Kalaw’s claim that 108 percent of the value of the copra to the producer was reverted to the Government in the form of taxes.

“This kind of taxation is confiscatory,” said Kalaw, “and I believe no other civilized nation would dare tax a product so heavily unless it were a product like opium…” He particularly resented the fact that the excise tax was not applicable to all oils of a similar nature. “The excise tax on sugar applies to American and Philippine sugar alike. The excise tax on coconut does not apply to competing domestic (US) oil,” Kalaw fulminated.

• After World War II, the US partially refunded to the Philippine government about US$150,000,000.00 – none of which, in accordance with law, was used for the development of the coconut industry.  Some of these monies were used for infrastructure projects while the rest became, in the traditional wisdom of politicians, their necessary discretionary funds, the better to serve the Filipino people, presumably, but certainly not the coconut industry from whence the monies came.

• However, the collections from 1946 up to 1967 remained in the US Trust Account titled “Philippine Coconut Oil”. The estimate of the amount without interest goes to a total of some US$182,000,000.00 – or easily a few billion pesos (depending on current forex rates). The Philippines clearly has legal grounds for pursuing the claim.

An Omnibus Claim initiated during the time of President Ramon Magsaysay and Foreign Affairs Secretary Narciso Ramos may be a good start to go back to. The records exist to prove the legal claims of the Philippines on the excise tax collections. The US cannot touch the Trust Fund in any case -without congressional authorization.

Pres. Ramon Magsaysay (from www.philippine-history.org)

In the Omnibus Claim of President Magsaysay, covering 16 items for a total of $860,211,458.38, Claim No. (14) is titled “Refund of processing taxes on coconut oil from 1946 to 1955” = US$175,227,687.92.

In March 1956 when Secretary of State John Foster Dulles spent a day or two in Manila on his return from attending a SEATO Council meeting in Karachi, President Magsaysay himself presented the Secretary an aide memoire on the claims. Magsaysay said: “The Philippine government believes that these claims are valid and binding commitments of the United States and that it has clearly and fully established its entitlement to the amounts involved. Their immediate settlement has become doubly important and pressing because of this county’s need for a more vigorous implementation of its economic development program.”

Well, then – here we are back to the beginning of the Third Millennium, with the coconut industry none any the better for it. From 4 million dependents of Filipinos on the coconut industry some three score and seven years ago, we now have more than twenty million.

The small farmers are still clamoring for justice  – in the area of the coco levy funds whose fulfillment has become a receding dream for many, and now, perhaps in the area of the excise tax refund – that has been unattended to, nay even forgotten, for decades upon long decades now.

MANUEL LUIS QUEZON, Your sons from Tayabas are here – here at the helm of the Philippine coconut industry. May your sense of fairness, your fighting spirit and your extraordinary intelligence rub off on them so that peace and justice and prosperity will finally become the fruits of cocos nucifera – the Tree of Life, the industry you wept over in many a dazzling speech all over the country. The coconut excise tax refunds are intact in the US Treasury, identified and identifiable as such, but no Philippine government has since seriously followed through in its collection…well, wail.

–FINIS-

Charles Avila -The Gardener
The Gardener’s Tales

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