GMANews.TV - Sunday, December 20
A bill that seeks to give incentives to investments related to financing and the management of big real estate projects has lapsed into law.
In a statement, the Philippine Stock Exchange (PSE) said Republic Act 9856 or the Real Estate Investment Trust (REIT) Act is the fourth landmark legislative reform proposed by the bourse to boost the capital markets.
"We are getting a lot of interest from many of our property firms for REIT listings. This landmark law will put the Philippines at par with the rest of the world, which has had REITs for over 20 years," PSE President and Chief Executive Officer Francis Lim said.
A real estate investment trust is a corporation that uses the pooled capital of investors to buy and manage income property and mortgage loans. REITs are traded on major exchanges just like stocks.
President Gloria Macapagal-Arroyo did not sign RA 9856 following the Finance department's recommendation to veto the bill, which is expected to affect tax revenues.
Under the 1987 Constitution, a bill that has neither been vetoed nor signed by the President becomes a law after 30 days.
The Department of Finance (DoF) earlier halved to P2.7 billion its projected forgone yearly revenues from the REIT law.
The DOF traced the cut to several revisions championed by the agency and later adopted by the bicameral panel that reconciled the Senate and House versions of the bill.
"The REIT law will develop the capital markets in the Philippines and provide much needed investment opportunities for institutional and retail investors," Lim said.
He added that it would attract foreign investments and broaden control of a key sector of the economy, putting it into the hands of investors.
Lim said the PSE had filed position papers with the Office of the President, citing various reasons why the bill should become a law, in a last-ditch effort to save the bill, which lapsed into law on December 17.
The PSE noted that contrary to fears of revenue erosion, the law could contribute to state coffers by promoting transparency in tax reporting. The new business opportunities that will be created should also translate into a broader tax base for the government, he added.
"The perceived tax revenue loss is more imaginary than real. There is at present no REIT industry to speak of. Without a REIT law put into place, there will be no REIT transactions and, therefore, there will be no tax revenues," Lim said.
A real estate investment trust that wishes to avail itself of tax incentives under the law must be listed on the stock exchange and annually give out at least 90 percent of its income to shareholders
Tempered provisions The DOF earlier said at least five original provisions were incorporated into the final version of the bill, which included the position of the Finance department that no additional income tax incentives should be extended to REITs.
Bill proponents originally sought a much lower corporate income tax of 25 percent slapped on REITs instead of the already reduced 30 percent.
The DoF likewise claimed to have convinced lawmakers to impose a creditable withholding tax and income tax on transfers of property to REIT firms.
The DoF team, which acted as resource persons for the bicameral panel, also managed to insert a clause allowing the government to collect a 12-percent value-added tax on income-generating activities of REITs.
The Senate-House bicameral panel had also adopted the DoF draft allowing the Internal Revenue commissioner to "prepare the tax regulations after exhaustive consultations with all sectors concerned," the paper said.
The Finance department, however, failed to have legislators delete provisions extending an open-ended preferential income tax treatment for REIT firms and exempting migrant Filipino workers investing in the REIT industry from dividend tax for up to seven years.
The country’s budget gap is expected to hit P320 billion this year after the state failed to privatize big-ticket items. As of end-October, the deficit had reached P266.1 billion, P16.1 billion more than the full-year program of P250 billion — GMANews.TV
