BIR commissioner Kim Jacinto Henares made the statement in response to queries over the private sector’s concerns that the tax measure would make the yet to be implemented Philippine REIT law less attractive to issuers, namely, large real-estate players in the country.
“There will be some companies that will be subject to VAT and some who will not. It depends on the nature of the property,” Henares said in a phone interview.
She declined to discuss specific details on tax regulations, saying these cannot be finalized without the Securities and Exchange Commission (SEC) first revising its implementing rules for REITs.
The new rules are the result of a separate round of compromise talks between the private sector and the Department of Finance (DOF), which oversees the BIR.
Up for revision by the SEC is the increase of a REIT’s minimum level of public ownership to 40 percent from the previously approved 33.3 percent during its initial share sale. This figureshould be increased to over 60 percent in three years.
The DOF had earlier insisted on an initial public float of at least 51 percent.
Moreover, restrictions on how a REIT uses its authorized capital and rules concerning property managers will see revisions.
In the meantime, SEC chairman Fe Barin said she is seeking a meeting with private sector players and the tax regulator, with talks seen to hash out differences of opinion on the VAT measure.
“What use will our revised rules be if they [the REIT issuers] will not come in because of the tax,” Barin said in an interview last week.
Henares insisted, however, that the SEC must first amend the rules before BIR can proceed with the issuance of a tax regulation.
Even with the SEC revising its implementing rules, market watchers remain skeptical of the law’s viability given the uncertainties brought about by the BIR’s plan to impose the VAT on property transfers. Prospective issuers had expected REITs to be exempt from this particular tax.
The fiscal government is concerned that the REIT law, passed in late 2009, would erode government revenues due to the tax perks involved.
Based on the law, a REIT is required to pay shareholders 90 percent of its distributable income as dividends, meaning only the remaining amount will be subject to the 30-percent income-tax rate.
Other expected perks for REITs include the exemption from the initial public offering tax and DST from selling shares through the Philippine Stock Exchange (PSE).
Such incentives were designed to entice companies to tap the law, which will allow them to spin-off select real-estate assets such as shopping malls and hotels to be listed on the PSE.
This allows them to raise fresh capital to expand their businesses, while giving the public the opportunity to invest in mature real estate assets that provide relatively steady returns.
Private sector players have maintained that a robust REIT market, which is expected to boost economic activity and employment, would eventually offset tax losses.
Real-estate developers SM Prime Holdings Inc.,Ayala Land Inc. and Robinsons Land Corp. are seen raising at least $1 billion each by spinning off assets into REITs.
