By Iris C. Gonzales (The Philippine Star) Updated September 22, 2009 12:00 AM
MANILA, Philippines - The Department of Finance (DOF) has rejected proposals in Congress seeking to grant hefty tax perks to publicly-listed companies operating as a real estate investment trust (REIT), saying that this would mean annual losses of P5.16 billion for the government.
A company operating as a REIT finds investors and buys real property. It also gives each investor either a percentage interest in the property itself or an interest in a loan secured by a mortgage or deed of trust on the property. The loan is usually for developing property and to build upon it, and then there is a division of profits upon sale — if there is a profit.
Finance Secretary Margarito Teves said the two measures, House Bill (HB) 6379 and Senate Bill (SB) 2639 should be reconsidered because they do not “ensure a level playing field among players in an industry or among similar industries.”
Under the proposals pending at the Senate, a REIT company will be exempted from documentary stamp tax (DST), value-added tax (VAT), creditable withholding tax (CWT), and likewise exempt special investors such as overseas Filipino workers (OFWs) from tax on dividends.
The REIT bill also provides a 25 percent corporate tax instead of the current revised rate of 30 percent from the year-ago level of 35 percent income tax.
On top of these, a REIT company will enjoy the tax privileges “perpetually.”
“Admittedly, it is a level that the government can ill-afford particularly at the present time when the revenue base needs to be preserved,” Teves said in a letter to Senator Edgardo Angara, chairman of the Senate committee on finance, referring to the projected annual losses of P5.16 billion.
The Finance chief, reasoned that the acquisition of real estate properties, whether directly or through a special purpose vehicle like a REIT, is subject to DST just like in Hong Kong and Japan.
Teves also warned that granting tax exemption to OFWs investing in the REIT would violate the neutrality principle.
“The OFWs are just like other REITs investors like an ordinary employee or a government retiree who would put in their hard-earned money in this new investment vehicle,” Teves said.
Instead of the hefty tax perks provided under the pending measures, Teves said the DOF is willing to compromise by only taxing 10 percent of the REIT’s income while declaring 90 percent of its income “tax-free.”
He said the DST could be waived though on secondary trading of REIT stocks.
Teves said the revenue loss for such compromise would only be P1.66 billion, which he said, “could be a manageable level for government in the near-term.”
He, however, stressed that such “preferential treatment” and other tax holidays should be time-bound for 10 years.
“As a matter of policy, tax incentives, being forms of government assistance to develop preferred businesses, should not be perpetual,” Teves said.
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