Posted on 10:16 PM, September 14, 2010 [ BusinessWorld Online ]
COMPANIES PLANNING to list on the stock exchange under the new law on real estate investment trusts (REIT) must sell more than half of the shares to the public, the Department of Finance (DoF) said yesterday.
This will make sure these tax-free REITs won’t use the money to be raised to repay debts, Finance Secretary Cesar V. Purisima said.
Mr. Purisima said he would ask the Securities and Exchange Commission (SEC) to revise the rules on REITs to justify tax incentives to be granted. Under the implementing rules, only minimum 33.3% of a REIT’s shares must be sold to the public.
“If you only sell 33%, you’re just trying to find a way to come up with an incentive, making you tax-free. For us, that doesn’t serve the purpose as envisioned by the law,” Mr. Purisima said at the sidelines of budget deliberations in Congress.
Under Republic Act 9856, a REIT company -- which will pool income-generating property assets and then raise funds from the stock exchange -- will be entitled to tax incentives and privileges, including a lower creditable withholding tax rate of 1% for income payments received and reduced documentary stamp taxes (DST) for the sale or transfer of real property.
But the company should list on the stock exchange within two years after getting the DST incentive. It must have a minimum capital of P300 million.
The law has yet to be implemented as the Bureau of Internal Revenue (BIR) has yet to come up with tax rules.
Mr. Purisima said money raised by REIT companies should not be used to pay debts. “In three years, the whole amount raised must not be completely used. None of this money should be used for deleveraging because if you deleverage, you don’t achieve the purpose of a REIT,” he said.
In July, the Finance department said the government was concerned over the estimated P2.7 billion in foregone revenues annually due to REIT perks.
Val Antonio B. Suarez, president and chief executive of the Philippine Stock Exchange, said: “We have to study our own listing rules to find out whether we can tweak it in such a way that we can accommodate the suggestion of the government.”
Mr. Suarez noted that the government wanted higher public ownership of REITs and reinvestment of capital in three years.
Property developers and PSE officials pointed out the law would generate jobs and increase tax collections. “The fact is this has a net positive tax activity even from the first year,” PSE Chairman Hans B. Sicat said.
“Hopefully before the yearend [government officials] can sign [the rules] because the implications are massive ... It is open secret the top developers are ready to launch REITs,” Mr. Sicat said.
Property giants have expressed interest in acquiring funds through the new investment vehicle. SM Prime, the country’s largest mall operator, is looking to raise as much as $500 million through a REIT, while Ayala Land wants to raise a minimum $300 million.
Gokongwei-led Robinsons Land Corp. also plans to form its own REIT.
Rex C. Drilon II, chief operating officer of Ortigas & Co. Ltd. Partnership, said: “The more you float, the more you mobilize the capital market.”
But Mr. Drilon said the authorized capital for REIT companies should be increased to at least P1 billion from the current P300 million to prevent “fly-by-night operators from using the REIT privilege as a tax avoidance scheme.” -- Prinz P. Magtulis and Neil Jerome C. Morales
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