Slash in Philippine estate tax rates sought

In a briefing with reporters, Finance Secretary Carlos G Dominguez III said he wanted to see the estate-tax rate of 20 per cent cut to as low as 6 per cent of the value of the property being transferred.
If passed by Congress and enacted into law, this lower rate would put it on a par with the tax level for capital gains, which is now the preferred method of transferring assets from a property owner to his heirs.
“Quite frankly, we know when people go around buying and leasing land, most of the land [is] still in the name of people’s [deceased] grandfathers,” the finance chief said. “They don’t want to transfer [ownership] because they don’t want to pay the 20-per-cent [estate tax].
“Most likely, the outcome that we want is to reduce the tax rates to something like [the rate for] capital gains on stocks of 6 per cent.”
The policy marks a new approach to the drive of the Bureau of Internal Revenue (BIR) to raise estate-tax collections from the heirs of deceased property owners. During the administration of president Benigno Aquino, internal revenue commissioner Kim Henares set an ambitious goal of 50 billion pesos (Bt37 billion) in collections from estate taxes by 2016, or an average of 12.5 billion pesos a year when the target was set in 2012.
The old programme called for greater enforcement by the BIR in coordination with other agencies such as the National Statistics Office to monitor the death of wealthy individuals, but its success in raising revenues was limited.
Instead of strong-arm tactics, however, Dominguez’s scheme hopes to encourage compliance by making it cheaper to do so, with the hope of compensating the lower estate tax each individual will pay government with higher volume of payments.
At the same time, the economic activity to be generated by the faster development of the property would also generate greater revenues for the government, he explained.
“A lot of people don’t pay [estate taxes] because they don’t like to pay for the transfer of the land,” he said. “A lot of land is still in the name of their grandfathers, so its [value is] locked up. If you are encouraging them to just pay lower taxes – let’s say 6 per cent – then there’s a potential for [the properties] to be developed quickly.”
The finance chief also said the high estate-tax rate discouraged heirs from declaring the correct value of the properties they inherited. The resulting lower property values also contribute to these becoming idle land, he said – something he hopes to change if the lower rate is approved by Congress.
“Now, we would encourage the economy to move ahead,” Dominguez said. “It’s part of the tax-reform programme.
“So those who have estate-planning businesses, I am sorry, but you will be out of business soon,” he added.