By Dennis Gadil
[ Malaya.com.ph ] December 9, 2009
The Department of Finance (DOF) was able to trim down its projected annual revenue losses from the soon-to-be-enacted law providing incentives on investments related to financing and management of large-scale real estate projects by half from the original P5.3 billion P2.7 billion.
A DOF paper traced the reduction to "victories" won during bicameral deliberations on the proposed law on Real Estate Investment Trust (REIT).
The DOF paper, submitted to Finance Secretary Margarito Teves, said the insertion of the provisions in the final bill have "tempered" the over-all adverse revenue impact of the measure.
"We were able to convince both panels to adopt some our recommendations or to temper their proposals by putting in mitigating provisions," the paper quoted DOF officials who attended the bicameral sessions as saying.
The DOF paper said at least five original provisions were incorporated into the final form of the bill, which included the position of the finance department that there should be no additional income tax incentive extended to REIT corporations.
Bill proponents originally sought for a much lower corporate income tax of 25 percent slapped on REIT companies instead of the already reduced 30 percent, with the incentive lasting seven years.
The DOF likewise convinced bicameral members to impose a creditable withholding tax (CWT) and income tax on transfers of property to REIT firms.
"The original proposal was exemption from CWT and no mention of the income tax treatment on said transfers," the paper said.
The DOF team, which acted as resource persons for the bicameral panel, also managed to slip in the provision that income-generating activities of REIT companies be covered by the 12 percent value-added tax.
The panel also adopted the DOF proposal mandating the commissioner of the Bureau of Internal Revenue (BIR) to prepare the tax regulations "after exhaustive consultations with all sectors concerned."
The DOF, however, "lost" on provisions extending an open-ended preferential income tax treatment to REIT firms and exempting OFWs investing in REITs from the dividend tax lasting up to seven years.
The DOF originally wanted a "sunset provision" for the preferential income tax treatment to REIT companies by limiting it to 10 years only.
The preferential treatment comes in the form of a 30 percent corporate tax on 10 percent of earnings of the REIT company while 90 percent are tax-free but are mandated to be distributed as dividends among the investors.
The DOF paper said the projected revenue impact would only be P2.7 billion a year with no zero impact this year since the bill has yet to be signed in to law.
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