Tuesday, September 22, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]
A BICAMERAL conference committee is scheduled to start deliberations today on a measure regulating the establishment of real estate investment trusts (REITs).
Legislators expressed confidence the bill would soon be approved, while the Finance department urged Congress to limit the provision of tax incentives given the need to raise revenues.
"There are no major differences [between the Senate and the House of Representatives’ measures]," said Aurora Rep. Juan Edgardo M. Angara, one of the principal authors of the House version.
"[I] think eventually the bill will be approved. It is an attractive way for property companies to raise funds from the public and to develop our infrastructure."
House Bill 6379 and Senate Bill 2639 seek to define the legal and regulatory framework for the establishment of REITs — publicly listed corporations whose investors will earn from the ownership of a pool of real estate assets.
A REIT must distribute least 90% of its income to investors annually and as an incentive, both bills state that this 90% will not be subject to income tax. Individual shareholders, meanwhile, will only pay a 10% dividends tax.
The Senate version provides more perks as it grants a lower corporate income tax rate of 25%, instead of 30%, to REITs formed within three years from the law’s effectivity. The Senate bill also exempts overseas Filipino workers who invest in REITs from payment of the dividend tax.
Other incentives offered under both measures include:
* documentary stamp tax (DST) exemption for the REIT’s acquisition of real property;
* value added-tax (VAT) exemption for the sale, exchange, or transfer of securities that are part of a REIT’s real estate-related assets; and
* exemption from creditable withholding tax (CWT) for gains from the transfer of assets to the REIT.
The Finance department, in a position paper issued last month, described the perks as "too generous."
It said, "The proposed tax incentive package to REITs would result in revenue foregone estimated at P5.16 billion per annum. It is a level that the national government can ill afford particularly at a present time when the revenue base needs to be strengthened to enable us to implement a fiscal stimulus program."
The department said it wanted the preferential tax treatment limited to 10 years, adding that "as a matter of policy, tax incentives, being forms of government assistance to develop preferred businesses, should not be perpetual."
The DST, VAT, and CWT exemptions, it added, are not being offered by other countries with REITs.
This position was reiterated last week by Lourdes B. Recente, Finance department director for research, who said "We will ask the bicam to consider the DoF (Department of Finance) position to minimize the revenue losses."
Mr. Angara said the bicameral panel was open to the suggestion but maintained that tax perks were crucial to making REITs attractive.
"We are conscious of the need for a balance between fiscal responsibility and the demands involved in creating a new industry," he said. "[But] there has to be some form of attractiveness or they (investors) will not enter into such business." — Alexis Douglas B. Romero
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