EVEN if the levy on corporate and commercial properties has not been included in the initial package of the Tax Reform for Acceleration and Inclusion (TRAIN) law, real-estate players and stakeholders believe that the provisions for residential leasing will encourage growth.
“[So] we welcome the first package of Tax Reform for Acceleration and Inclusion Bill, or the Republic Act (RA) 10963, as a development in the right direction,” said Monique Pronove, CEO of Pronove Tai International Property Consultants (PTIPC).
A priority measure of the government, the law was signed by President Duterte on December 19, 2017—two decades after the previous tax code was put in place.
“Twenty years is a long time, the tax code was definitely in need of a simplification to encourage compliance and increase generation,” she noted.
Cuts on the personal income tax of almost 8 million employees, who earn up to P250,000 annually, have already commenced since January 1, 2018. Meanwhile, levy on sugary beverages, fuel, cars and tobacco has increased from the beginning of this year.
“We remain hopeful that [full] implementation will be done smoothly and efficiently,” the top executive said.
On socialized housing
AIMED at simplifying and making the tax code fair for the property sector, the TRAIN law exempts transactions on socialized and low-cost housing worth up to P450,000 and P3 million, respectively, from value-added tax (VAT).
This is an improvement from the previously exempted low-cost housing sales for units worth P1.9 million.
According to Pronove, the new scheme translates to a maximum of P360,000 savings for starting families due to the VAT exemption.
Outside the National Capital Region, residential units sold for P2 million and below will not be covered also by the 12-percent VAT.
“This provision supports the move to decongest Metro Manila,” the CEO pointed out.
VAT-exempt condo dwellers
MILLENNIALS, who are mostly the target market of developers for their vertical developments, will likely benefit also from the new legislation.
Based on the latest data from the Philippine Statistics Authority (PSA), young professionals aged 21 to 35 comprised 47 percent of the labor market.
With their strong disposable income, they usually live independently, renting condominium units or apartments near their workplaces.
“They will benefit the most in the VAT exemption for lease of residential units being raised from P12,800 to P15,000, as well as the removal of VAT on association dues for condominiums,” Pronove said.
Estate, donor’s taxes made more simple
WITH TRAIN, both the estate and donor’s taxes were simplified to a flat rate of 6 percent in accordance with the assessed value of the property.
Estate tax is levied on the transfer of estate from the deceased person to lawful heirs.
Under the previous system, transfer of properties valued P200,000 to P10 million above were taxed from 5 percent to 20 percent.
Additionally, with this new policy, surviving heirs are allowed to withdraw any amount from the dead person’s account to cover the expenses related to the transfer of estate.
The TRAIN removed the past ceiling of P20,000 withdrawals and imposition of 6-percent withholding tax for all the withdrawals.
The donor’s tax, on the other hand, is levied on transfer of the estate by gift or donation.
The new law keeps exemptions on estates worth P100,000 and below, and implements a flat rate of 6 percent on properties with value of P100,000 and above, whether the recipient is related or not.
“TRAIN simplified the tax policy by removing the 2-percent to 15-percent tax table as previously used,” Pronove said.
‘Bill to build’
After his assumption of office in Malacañang, Duterte placed infrastructure development and Metro Manila decongestion among the top priorities of his administration’s economic agenda.
In fact, 70 percent of the P130-billion revenue that the TRAIN is expected to generate will be appropriated to infrastructure spending of the national government.
This will include the “Build, Build, Build” program of the chief executive.
“In general, better infrastructure means more efficient business,” Pronove said, while citing that 30 percent will be allocated for social services.
Keep or lose BPO
OVER the years, the information technology-business process management (IT-BPM) industry has been the prime mover of the country’s real-estate sector.
It has been contributing to the robust office market in Philippine Economic Zone Authority-proclaimed buildings.
What’s attracting foreign companies to outsource back-office services to the Philippines is the highly skilled Filipino talents at affordable pay rate.
More and more investors prefer doing business in the country due to tax exemptions given them.
While IT-BPM remains a strong office-demand driver, pre-leasing from this vertical slowed down a bit on quarter-on-quarter basis last year.
Of the 2017 inventory, the industry committed to rent 41 percent, or 316,000 square meters (sq m). As of December last year, the industry has taken up 143,000 sq m of the 354,000-sq-m pre-leasing supply for 2018.
The slowdown in IT-BPM office space take-up could be attributed to limited new entrants coming in to invest in the Philippines.
Investments in the sector were put on hold while the government’s tax measures remained unclear.
Per the initial draft of TRAIN, VAT exemptions were scrapped for outsourcing firms.
This, according to the Information Technology and Business Process Association of the Philippine, would encourage foreign investors to further hold off investing in the country.
“Ultimately, the TRAIN bill signed by the President on December 19 retained the tax exemption for BPOs. This was the rainbow after the rain,” Pronove said.
Image credits: AP Photo/Aaron Favila