Vol. XXI, No. 208 [ Business World Online ]
Friday, May 23, 2008 | MANILA, PHILIPPINES
A PROPOSAL for generous tax incentives on real estate investment trusts (REITs) should not create more opportunities for tax arbitrage among capital market players, the Department of Finance has said.
In a position paper, Finance Undersecretary Gil S. Beltran said keeping taxation as neutral as possible is critical in ensuring a level playing field among players in an industry or among similar industries.
The department argued that the success of REITs — which pool capital from investors to buy and manage properties and are supposed to trade on an exchange — "does not necessarily depend on generous tax incentives but on other equally important considerations" such as the organizational structures, the regulatory environment, corporate governance issues and distribution rules, among others.
The bill seeking tax perks on REITs was filed last year by Sen. Edgardo Angara Jr.
The Finance department, however, has reservations on the proposal to reduce the income tax rate to 25% on a portion of the corporate income tax of REICs.
The government is also wary of exempting overseas Filipinos from the dividend tax since the policy is that there should be no tax exemptions on passive earnings.
"For instance, everyone who earns interests or dividends or capital gains is subject to income tax. Why then should there be a special treatment for overseas Filipino workers over other sectors [like retirees or teachers or soldiers]?," the Finance department asked.
As REICs are no different from mutual funds since both pool capital from future investors, alternative investment vehicles should be "made to compete on the basis of the merits inherent in their structure and let the market determine where resources should flow," the Finance department said.
The Senate bill also proposes that the sale or transfer of assets to REICs be exempted from the documentary stamp tax (DST) and the creditable withholding tax on income. Mr. Beltran, however, argued that documentary stamps taxes were already revamped in 2003 to remove differences in rates for similar types of financial instruments.
Mr. Beltran said transactions of REICs should be subject to the stock transaction tax and the value-added tax.
But the department sought more time to study the proposal to exempt them from the IPO or initial public offering tax. — Ruby Anne M. Rubio
________________________________________________________________________
