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BIR bats for no VAT on land held as capital

[ manilatimes.net ] May 14, 2011
THE government will exempt taxpayers holding real properties as capital assets from payment of value-added tax (VAT) if they sell such properties under the Real Estate Investment Trust (REIT).
“If such real property is a capital asset, then the seller need not be liable for the payment of VAT in the event that it would form part of the REIT Law,” Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares told reporters.
Under the Tax Code, a capital asset is a property held by the taxpayer (other than a corporation) that is not primarily for sale to customers in the ordinary course of their trade or business.
The BIR chief explained that only land owners holding such properties as part of their trade or business shall be liable to pay VAT notwithstanding tax incentives and other perks they may avail under the REIT Law.
Without the REIT Law, a taxpayer holding a capital asset shall only be liable for final income tax at the rate of six percent based on the gross selling price or fair market value of the property, whichever is higher. An individual deriving income from real properties held not as capital assets shall pay 32 percent income tax, and 30 percent if such taxpayer is a corporation.
Jacinto-Henares said the BIR would come up with the revenue regulation (RR) within the month to finally implement the long delayed REIT Law.
“After finalizing the RR, it would be subject to the approval of Finance Secretary Cesar Purisima. If he approves it, it would then be published [in] the official gazette and/or newspaper of general circulation,” she said.
The Department of Finance (DOF) agreed that the public float of a REIT would start at 40 percent, down from an earlier floor of 51 percent. Public ownership however should rise to 67 percent within three years.
The DOF estimates revenue losses of P3.7 billion a year from the implementation of the REIT Act. For the first year alone, the government expects to lose P1 billion.
KATRINA MENNEN A. VALDEZ
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