By Jun Ramirez, Manila Bulletin

Tax experts in and out of the Bureau of Internal Revenue (BIR) described Monday the new Real Estate Investments Trusts (REIT) law as “ridiculous,” saying it will not perk up the real estate business as it is envisioned and will cut taxes from this source by at least P10 billion annually.

The experts said the measure will substantially reduce income and business taxes from the realty sector as the law provides tax incentives to land developers opening their business to outsiders.

REIT law was passed by Congress and later lapsed into law in December, 2009 after then President Gloria Macapagal Arroyo did not sign it upon the recommendation of the Department of Finance (DoF) to veto it. Under the 1987 Constitution, a bill neither vetoed nor signed by the President becomes a law after 30 days.

Despite lapsing into law, its implementation was delayed because officials of the DoF, the Philippine Stock Exchange (PSE), and real estate companies could not agree on how to divide or distribute the ownership between property owners and the public investors.

Last July, the BIR finally came out with Revenue Regulations 13-2011 implementing the REIT Act, signed by Finance Secretary Cesar Purisima based on the recommendation of BIR Commissioner Kim S. Jacinto Henares.

The REIT grants tax incentives on real estate developers to encourage them to list their firms with the PSE, offering 67 percents of their stocks to the public and retaining only 33 percent of the shares.

The incentives included 50 percent discount in the payment of documentary stamp tax for all transfer of property covered by REIT.

Proponents of the measure said that as a result, there will be more public investors to the real estate industry because they will now have a major role in running the business.

Under the same revenue regulations, the developers are required to distribute 90 percent of their net income to REIT shareholders before the end of the year, lest their dividend payments will be subjected to income tax.

But tax experts believe that real estate companies can easily circumvent the law to avail themselves of the tax incentives and still control the business.

They said it would be illogical and absurd for these land developers to just allow outsiders to control or have a say on how to run the their business.

One ploy, they said, is for developers to avail themselves of the tax incentives and still retain control of the business by selling shares of stocks to dummies and cronies.

The experts’ observation gained credence when Philippine Stocks Exchange (PSE) officials expressed skepticism over the scheme and some even predicted that the REIT law will not encourage outsiders to invest in such undertakings knowing that owners of the land developers will not relinquish control of their business through the dummy system.

8 Aug 2011