The House of Representatives is considering the amendment of the Real Estate Investment Trust (REIT) Act, Bohol Representative Arthur Yap said.
During the recent real estate market briefing of Leechiu Property Consultants (LPC), Yap said the chamber may opt to amend the REIT law and specify that the transfer of assets into REITs will be tax-free and be exempted from value-added tax (VAT).
Yap, who is also the chair of the House committee on economic affairs, said the REIT law would have to undergo the same process and “will have to fall in line” along with other bills in the Congress if it would be amended.
Republic Act 9856 was enacted in 2009 to encourage investments in property projects and to further develop the capital market.
However, REIT has yet to take off in the country due to uncertainties like whether the transfer of asset should be subject to the 12-percent VAT.
The REIT Act lapsed into law in 2009 but has not really moved forward on issues like minimum public ownership and taxation.
Under the law, REITs are required to have a public float of 40 percent in its first two years after listing with the Philippine Stock Exchange (PSE). Public ownership should rise to 67 percent by the third year after listing.
There have been proposals to cut the public float to a little over 30 percent to encourage more real estate businesses to start a REIT.
Under the term of former Internal Revenue Commissioner Kim Henares, the Bureau of Internal Revenue (BIR) issued a memorandum order that the transfer of asset under REIT will be slapped with VAT.
Yap stressed that Congress would stick to imposing the law and giving a tax-free transfer of asset and also exempted from VAT as it recognized that there is no gain or loss on the initial transfer for the income purposes.
He said the House committee on economic affairs is waiting for the recommendation and final position of the BIR.
“The BIR is working right now very hard, with what the interpretation of the BIR would be; on whether the first transfers of the asset into the REIT will be VATable or not,” Yap said.
“I, on my part, I feel that I would have to issue a committee report by this October on the status of the REIT,” he added.
Finance Secretary Carlos Dominguez III added that any amendment to the REIT Act should assure that money allocated for this purpose will be used for domestic activities.
Lawmakers are now awaiting the Department of Finance’s (DOF) input on possible amendments in the law.
Dominguez said he is open to any amendments on the law if this means money will be used for productive purposes in the domestic market and not overseas.
“They can amend the law, do what they want, but until I am assured that the funds are going to be recycled in a productive way, I will not implement it,” he said.
Dominguez said he wants REITs to infuse the funds for domestic purposes instead of investing it overseas to provide additional lift for the Philippine economy.
Proposals for REIT amendments were not prioritized by the previous administration, thus, investors continue to call for it.
“I don’t know what their reason was but my reason is I don’t mind giving a tax free investment if it is reinvested. But if it’s not reinvested and sent to buy property abroad and declared as dividends and will be spent abroad that doesn’t make sense,” he added.