Legislator to file bill amending real estate investment trust law

CONGRESS will have to file a bill that will amend a portion of the real estate investment trust (REIT) law.

Rep. Arthur Yap of Bohol said he himself may spearhead the sponsorship of the bill to make the REIT exempted from value-added tax (VAT). The tax is being levied by the Bureau of Internal Revenue (BIR) on all firms participating in the investment meant to recycle funds from the property sector.

Yap explained the amendment may only contain a one-liner statement that all REIT transactions will be free from VAT.

Yap is currently the chairman of the House of Representatives’s economic affairs committee, the same body that spearheaded the passage of the REIT bill that was signed into law in 2009.

He warned, however, that it may take time before it can be passed—even if it’s just a one-liner amendment—since it has to be certified urgent first by Malacañang before it can move past legislation.

“Apparently, there’s no stopping anyone who wants to put his assets into a REIT. The law is there,” Yap said in a briefing organized by Leechiu Property Consultants Inc. (LPCI). “But the gray area is on the VAT; that’s where the controversy is right now.”

Yap, however, believes the BIR is “working very hard on their interpretation of the first transfers of the assets into the REIT is VAT-able”.

“I, on my part, will have to issue a committee report by October on the status of the REIT,” he said, adding they are keen to force the implementation of the law.

LPCI CEO David Leechiu said, for now, only big companies, such as the Ayala Group and the SM Group, can muster the transfer of their assets into the REIT since they have the larger projects.

“Yes you can buy P400,000 socialized housing, but that market is not a reliable rental market. Collecting from that market is very hard,” Leechiu said in the same news briefing. “The REIT’s biggest advantage to take the unpredictability of the stock market out of the investment equation.”

Talks to revive the country’s REIT were under way during the early part of the year with officials of the Philippine Stock Exchange trying to convince the administration of President Duterte to amend the law’s implementing rules and regulations (IRR) to make it more palatable to investors.

PSE President and CEO Ramon Monzon said they are in discussions with an official of the Department of Finance to possibly repeal the IRR that were enacted by previous administration, mainly the BIR that slapped VAT on the transferred properties.

The Securities and Exchange Commission (SEC), meanwhile, also imposed a provision the REIT law IRR that increases public ownership in the transferred property firm.

“When you have an exchange of property, it is tax free. For example, Ayala Land [Inc.] creates a REIT and transfers real estate into it and they still control that REIT,” Monzon said. “Under our tax law, that’s a tax-free exchange.”

“However, the BIR under [Kim] Henares suddenly said it may be free from capital-gains tax but there should be a VAT,” Monzon added. “That’s really not in the Tax Code. That’s a nontaxable transaction. A tax-free transaction.”

The REIT law was enacted on 2009, under the Arroyo administration, with the main aim of broadening the participation of the public in the ownership of real estate in the Philippines and use the capital market as an instrument to help finance and develop infrastructure projects.

The IRR of the said law, however, were crafted by the Aquino economic team. The said law was designed to recycle real-estate assets by placing it in another REIT company in which the public can invest into by purchasing shares. The shares of the company can also be traded at the PSE.

Reit owners are also required to sell to the public a majority stake, or at least 67 percent, in three years from the initial 40 percent upon listing.