House OKs estate tax amnesty
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MANILA - Two bills seeking to increase estate tax collection by granting tax amnesty and lowering the tax rates of the Bureau of Internal Revenue (BIR) have hurdled committee level at the House of Representatives and are among those to be lined up for deliberations when sessions resume next week.
The House Committee on Ways and Means had approved the measures prior to the congressional adjournment for the yearend holidays.
The committee chaired by Rep. Dakila Carlo E. Cua (Lone District, Quirino) approved House Bill 1889, authored by Rep. Arthur R. Defensor (3rd District, Iloilo) and HB 3010 by Deputy Speaker and Marikina City Second District Rep. Romero Quimbo.
Cua said the proposed estate tax amnesty applied to prior years of incurred penalties. He said the prospective was it could be for the next five years with restructured rate, or it could even be restructured permanently until the law is further amended. “What you are trying to achieve, what you are championing is really not impossible,” Cua told the authors during the hearing.
Quimbo said the purpose of HB 3010 is identical with that of Defensor’s bill, which is to make the tax amnesty a mechanism by which the government can generate more revenues.
As it stands, Quimbo said only a small percentage of the BIR tax collection pertains to estate taxes. In 2013, he said only 28,634 were registered estate tax payers. Quimbo said data from the Philippine Statistics Authority (PSA) also showed a total of 531,280 deaths in the same year.
“After deducting the registered estate taxpayers from the total deaths in 2013, data show that 94 percent did not file the required estate tax return. Even if the estate is exempt from taxes, the filing of a return is still required under the National Internal Revenue Code (NIRC). Just looking at the number of deaths that year and looking at the estate tax filing, which is needed to be filed over a 120-day period, less than 7.2 percent actually filed for estate tax filings with the BIR,” said Quimbo.
Quimbo said several concerns were also raised about the filing of the estate tax return. For one, the failure to file such within six months from the death of the decedent, extendible by the BIR Commissioner for 30 days, subjects the taxpayer to penalties and interests under the NIRC. Moreover, compliance with the tax filing and payment is rendered more difficult by the arduous procedure the taxpayer has to go through.
“This results in a situation wherein the heirs of the deceased resort to non-compliance with the law’s requirements, hindering them from using these properties. Thus, the decedents’ properties become idle and unproductive, providing a disincentive to the heirs, as well as to the economy, given the potential income that can be derived from these stagnant properties,” said Quimbo.
The issue becomes more incongruous considering that in 2013, only 2.69 percent of the total collection of the BIR comprise of collection of taxes on property, including estate taxes according to Quimbo.
This, he said, created a double whammy: the government is not able to derive revenue from these properties; and the heirs are unable to productively use said properties.
“To unlock this impasse, HB 3010 bill seeks the grant of tax amnesty for all unpaid estate taxes at the time of the bill’s passage, as well as those which shall be due three years from the time of its enactment. It proposes a revised schedule of tax due for each estate to encourage the declaration of tax returns and payment for non-compliant estates,” said Quimbo.
The government should be able to provide an amnesty program because the estate tax was something the BIR was not able to collect, Quimbo said. “It is not like an amnesty program over something that the BIR is poised to collect at this point in time. It has been shown in the last three decades that these are literally bad debts for lack of a better term.”
He said the first step was condonation; and second, the levying of a tariff that was identical, if not similar, to capital gains.
Defensor said his House Bill 1889 was more than just an amnesty as it sought to replace the present tax base for estate taxes, which is considered rather high or unreasonable.
“This is a bill which seeks to provide a compelling reason for the settlement of unsettled estates right now with the end view of releasing into commercial circulation the properties which are tied up to unsettled estates, which we as authors, believe are in the billions already. So this is an amnesty and an administrative clean-up measure,” Defensor said.
Defensor said once the objective of this bill is realized, it would create more subjects of taxation and in the long term, generate more taxes because properties would be released into commercial circulation, and vulnerable to business transactions thereby generating more taxes.
“This bill, in order for it to materialize, must be simple and straightforward. This cannot succeed alone, it needs a more comprehensive effort and initiative by the Executive branch in particular, the Department of Finance (DOF) in order to succeed,” he said.
House Bill 1889 provides that within the period of the estate tax amnesty, the estate tax shall be levied, assessed, collected and paid upon the transfer of the net estate, as determined in accordance with Section 85 and 86 of Republic Act No. 8424, as amended, of every decedent, whether resident or non-resident of the Philippines based on the value of such net estate, as computed in accordance with the following schedule:
• If the net estate is: not over P2 million, it shall be tax exempt;
• over P2 million but not over P5 million, the tax shall be P15,000 plus 5 percent of the excess over P2 million;
• over P5 million but not over P10 million, the tax shall be P135,000 plus 8 percent of the excess over P5 million;
• over P10 million but not over P50 million, the tax shall be P465,000 plus 11 percent of the excess over P10 million.
Moreover, estates with a net estate value exceeding P50 million shall be levied, assessed and pay estate tax in accordance with the schedule in Section 84 of R.A. No.8424, as amended.
Quimbo’s proposal is as follows:
• If the net estate is: not over P3 million, it shall be exempt from tax;
• over P3 million but not over P6 million, the tax shall be P20,000 plus 5 percent of the excess over P3 million;
• P6 million but not over P12 million, the tax shall be P200,000 plus 8 percent of the excess over P6 million;
• over P12 million, the tax shall be P650,000 plus 11 percent of the excess over P12 million.
Finance Assistant Secretary Maria Teresa Habitan said they recognize the economic and commercial impact of the two bills that are being discussed. While the DOF does not object to the bills, Habitan said the agency has a tax reform package that would also touch on the estate tax. Currently, she said, the DOF is conducting studies on the proposal to grant amnesty to unpaid estate taxes.
Habitan said what they wanted deleted in the bills was the coverage and duration of the tax amnesty. “Because this is an estate tax and it only becomes due when a person dies. Tax amnesty is a misdeameanor that has been committed in the past, and so therefore we would like to strike out the words and those that shall be due within five years because we do not want to give an incentive for people not to declare in the future so that they will avail themselves of this amnesty,” said Habitan.
National Tax Research Center (NTRC) Executive Director Trinidad Rodriguez expressed support for the two bills. “We support the tax amnesty as mentioned by the authors. This will encourage settlement of estates and transfers to the heirs. The properties of decedent may be sold, maybe leased, or subjected to other transactions which will later generate taxes. This will stimulate the property market as well as the economy and consequently increase government revenue,” said Rodriguez.
Also present in the hearing were committee vice chairperson Rep. Lianda B. Bolilia (4th Dist., Batangas), Rep. Manuel Zubiri (3rd District, Bukidnon), Deputy Minority Leaders Reps. Anthony Bravo (Party-list, COOP NATCCO) and Eugene Michael B. De Vera (Party-list ABS), Reps. Peter John D. Calderon (7th Dist., Cebu), Tricia Nicole Q. Velasco Catera (Party-list, MATA), and Johnny Ty Pimentel (2nd Dist., Surigao del Sur).