DOF to review previous savings, investment laws

By Luis Leoncio 

The Department of Finance (DOF) will review the Real Estate Investment Trust (REIT) and the Personal Equity and Retirement Account (PERA) as part of the agency’s effort to connect with the people, Finance Secretary Carlos Dominguez III said. 

Both laws seek to encourage Filipinos to save money but were considered to have failed to achieve their goals, Dominguez said after the turnover ceremony of the Department of Finance (DOF) leadership.

He said the two laws have not proven their effectiveness in enhancing the Filipinos’ attitude on savings; a positive change would have benefitted the domestic capital market.

PERA or Republic Act (RA) 9505 was signed into law in August 22, 2008. It is a long-term voluntary retirement account that encourages individuals to save for their retirement.

PERA itself has yet to be implemented, however.

The last Bangko Sentral ng Pilipinas announcement about the law indicated a January 2015 target launch date, but that also was not met. The delay has been blamed on the guidelines and processes that the BSP has yet to work out with the banks and other entities.

Dominguez said the DOF “will hold a lot of discussions” on this topic since PERA gives investors tax breaks at the start but they will be taxed later on.

”Apparently it’s not working. Why are we not getting more savings? Our citizens have to be encouraged to save money and invest it in the capital markets,” he said.

The REIT Act, which lapsed into law in December 2009, aims to encourage Filipinos to invest in real estate through placements in real estate and investment trust (REIT) stocks.

REIT will also be reviewed, he added, because the law’s implementing rules were “written in such a way that it really discourages the REIT.”

“(It’s about) issues of equity and we will certainly look at that very closely. Those are first two items we are going to review,” he added.

Securities and Exchange (SEC) Chairman Teresita Herbosa said they were looking at the experiences of other countries’ REIT programs to learn from them.

“We have to also look at the legislation for possible amendments because there are other items that can’t be done by just modifying the rules,” she said.

“We promised the new secretary that we would do a review of the rules within the first three to six months so by the end of that period, we already have a definite action to take,” she added.

Dominguez also vowed to be creative in his job at the Department of Finance (DOF) to ensure that social protection is given to all Filipinos.

In his speech during the turnover ceremony held at the Ayuntamiento de Manila Building in Intramuros, Manila, Dominguez said the DOF is mandated to define the government’s fiscal policy.

”We must ensure sufficient revenue flow to look after the social protection needs of our people. We are responsible for stable financial management and help in the development of our capital markets,” he said.

The focus of the DOF under Dominguez will be the adjustments in tax rates “to bring them closer to reality.”

Changes will be implemented in the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) in terms of simplification of procedures, improved automation and enhanced trade facilitation.

Dominguez said these changes will be done to reduce corruption and improve the agencies’ services.

“The Department of Finance can no longer use its fancy calculations to continue its detachment from the everyday lives and everyday Filipinos. We need to do our job a little differently, a little more creatively,” he said.

Dominguez said the DOF will make sure it will help deliver an economy that works for the people’s betterment.”

“If we can raise taxes and feed all our people at the same instant, that will be the best of all worlds. If we cannot, then let us feed our people first,” he said.

“These may be very broad strokes, but I feel there lies the essence of the challenge ahead. We were elected to office to bring progress for all. We must never lose sight of that.”

In an interview after the turnover ceremony, Dominguez said the new administration needs “to be very creative in spending more, and in reducing sources of revenues from the individual taxpayers.”

To date, corporate income tax has a ceiling of 30 percent while individual income tax has a 32-percent ceiling.

Dominguez said his team will submit to Congress in September a proposed tax-reform package, which may possibly include a change in the value-added tax (VAT) rate, which currently is at 12 percent.

He explained that domestic VAT collections account for 4.2 percent of the domestic output, which is the same level with that of Thailand whose VAT rate is 7 percent.

The Philippines’s corporate-income tax rates are also among the highest in the region, but Dominguez said it seems that the country collects the lowest income-tax amount in the region.

“Why do we have that big difference? Perhaps we have a lot of exemptions and certainly we will review this,” he said.

Dominguez said the inter-agency Development Budget Coordination Committee (DBCC) will have its first meeting under the current administration on Tuesday next week and among the topics to be discussed is the spending program in the 2017 budget and the tax-reform package.