VICTIMS of calamities availing themselves of government
housing programs, small investors and certain cooperatives are
among those who could be adversely affected by the proposed amendments to the proposed Passive Income and Financial Intermediary Taxation Act (Pifita) now being tackled by senators.
In the Senate Ways and Means Committee hearing on Monday, Committee Chairman Senator Sherwin Gatchalian said the concerns raised by various sectors will be carefully studied to prevent the amendments from adversely affecting those at the grassroots.
Among those who raised their concerns was the National Housing Authority (NHA) represented by Corporate Planning Department (CPD) Manager Cromwell C. Teves. According to him, the documentary stamp tax (DST) could increase the agency’s costs by P95 million for this year alone for the 30,400 units they aim to build.
“Based on our production target for the current year 2024, with approximately 30,400 units, with equivalent value of more than P12.6 billion, requiring NHA to pay DST would entail an additional cost of approximately P95 million, Mr. Chair,” Teves said. “We are respectfully requesting to maintain NHA exemption from DST under the Republic Act 72729 [Urban Development and Housing Act of 1992].”
Teves explained that since NHA will provide funding for the housing construction for these families—mainly informal settlers and calamity victims—the DST will initially be shouldered by NHA and then passed on to these families.
In the meantime, in order to defray the cost of the DST, the NHA would have to reduce the number of houses it will construct annually by over 200 units across various housing programs.
In terms of recovering the DST, Teves said, the NHA may have to wait for 30 years to get back the taxes it paid on behalf of the housing beneficiaries as the maximum term length of repayment for these housing units is three decades.
Based on the NHA estimate, the DST will increase the cost of housing projects. For 26-square-meter units, the current price is P716,000 but with the DST, this will increase the cost by P5,370 to P721,370.
The cost of the DST to be paid increases as the size of the housing units increase. For the 28-square-meter unit, the cost right now is P816,000 but with the DST, this will increase by P6,120 to P822,120.
“I am very biased to extending help to our grassroots constituents, especially those who are in need; for example, the calamity victims. Even though it’s a small portion, it might send the wrong signal to our constituents. So we’ll study this very carefully,” Gatchalian stressed.
Meanwhile, small investors such as those investing in Unit Investment Trust Funds (UITFs) may also be adversely affected by the proposed amendments to the Pifita. Currently, there are over 100 UITFs operating nationwide.
Trust Officers Association of the Philippines (TOAP) President Steven C. Te said at Monday’s hearing that paying DSTs may discourage investors, including those with UITFs, which allow investments of as low as P5,000.
Te said the proposed amendments include a DST rate of 0.75 percent of the par value of shares of stock and on collective investment schemes. UITFs, Te said, is a collective investment scheme.
“Therefore, the proposed DST rate of 0.75 percent on units of participation or UITF is onerous to the investors. This additional cost expense will deter the smaller investors from participating in UITFs,” Te said. “A DST will certainly curtail the investors appetite for UITFs or activities which will consequently, negatively impact the capital market.”
Te also noted that the underlying securities in UITFs have already been subjected to DST. This includes deposits, government securities, equities, and corporate bonds.
He said that while technically this cannot be deemed double taxation, it would have the same effect on UITF investors.
He said a DST, which is currently not imposed on UITFs, will then have to be deducted from the net asset value of these investments along with withholding tax and management fees, among others.
“Imposing a documentary stamp tax will form part of the expenses and will therefore reduce the net asset value of that investment which would tranlate to the investor reducing its ROI [Return on Investment],” Te said.
Gatchalian for his part recognized that investments are important for the government’s financial inclusion goals. He said there is a need to encourage Filipinos to save and invest as these are low at the moment.
Meanwhile, Ma. Lourdes P. Pacao of the Cooperative Development Authority (CDA) raised concerns regarding the impact of the proposed amendments to the Pifita that would adversely affect credit surety fund (CSF) cooperatives.
The proposed amendments under Senate Bills 1347 and 1364 removed the tax exemption granted to CSF cooperatives under Republic Act 10744 which created these cooperatives and took effect only in 2016.
“If this law will be repealed, the credit surety fund cooperatives which are starting now would be adversely disadvantaged. They are barely starting (to benefit from their) tax exemptions (which are) detrimental to the program. With this, Mr. Chair, we strongly oppose the inclusion of letter V in section 38 of SB 1364 and 1347,” Pacao said.
Pacao explained that CSF cooperatives are Local Government Unit (LGU) partnered cooperatives. They can secure loans, which should finance income-generating projects, from banks using their credit surety fund as collateral.
The loans they obtain from banks are used by micro, small, and medium enterprises (MSMEs) who are members of the cooperatives. There are also nongovernment organizations who are part of these cooperatives.
The CSF cooperatives was the brainchild of the Bangko Sentral ng Pilipinas (BSP) and was subsequently institutionalized through Republic Act 10744 in 2016. Currently, there are 39 CSF cooperatives.