By Miguel R. Camus, BusinessMirror

The Bureau of Internal Revenue (BIR) is closing its doors to further revisions to the contentious tax rules it issued last week for real-estate investment trusts (REITs), saying changes can only happen once the law is amended.

During a breakfast forum organized on Friday by the BusinessMirror, the Philippines Graphic and dwIZ, Internal Revenue Commissioner Kim Jacinto-Henares said the recently finalized tax rules for REITs have been implemented fairly and within the limits set by the REIT Act of 2009.

The tax rules included a provision that one-time property transfers to REITs would be subject to the 12% value-added tax (VAT), which would mean greater costs for firms establishing REIT companies. The BIR and its parent agency, the Department of Finance (DOF), have been consistent in their stand that VAT should apply to these transactions. But that has not stopped the private sector, led by the country’s biggest real-estate developers, from lobbying for its removal, which they said would put the success of Philippine REITs at risk as success of Philippine REITs at risk as some may simply forgo holding a REIT offer.

“We are just implementing the REIT law. Any amendment should be done by the legislators,” Henares said. “One of the defining policies of this administration is to implement the law strictly, so anyone can predict how we will do it.”

The issue on VAT is one of two main concerns the private sector has with the implementation of REITs.

The second concern involves the requirements for REIT owners to sell to the public a majority stake, or at least 67%, in three years from the initial 40% upon listing. This provision was earlier approved by the Securities and Exchange Commission (SEC), but only after the DOF insisted that it be included.

Eduardo Francisco, president of BDO Capital and Investment Corp. and a co-chairman of the Capital Markets Development Council (CMDC), said the private sector would not immediately move to have the REIT law amended.

“We will just wait and see. We might give it until the first quarter of 2012. It’s too late to hold a REIT [offer] for this quarter anyway,” Francisco said in a phone interview on Friday.

Francisco said CMDC, which is also co-chaired by the heads of the SEC and DOF, is scheduled to hold its next regular meeting in September.

He noted that interested developers, which have included Ayala Land Inc., SM Prime Holdings Inc. and Robinsons Land Corp., are unlikely to tap the law, given the inclusion of VAT.

The Philippine Stock Exchange last week echoed similar concerns, with bourse President Hans Sicat saying the REIT may have no takers. “But we could be wrong. Maybe [issuers] will change their minds,” Sicat had said.

Henares said last week the tough measures were only placed to ensure that the private sector would not unduly benefit from the REIT’s real purpose of recycling capital. The BIR had earlier estimated significant tax losses from the implementation of the law.

“The position of the Bureau of Internal Revenue or any government agency is we encourage businesses to earn income but they should earn it because of their acumen and efficient management. They should not earn it off tax revenue,” she said.

By contrast, the private sector has maintained that a robust REIT market will allow firms to grow faster, creating more jobs and economic activity, thus, offsetting potential tax losses.

1 Aug 2011