July 18, 2018, 6:33 pm
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TRAIN to boost property sector

The Tax Reform for Acceleration and Inclusion (TRAIN) or the Republic Act of 10963 is a development in the right direction, said Monique Pronove, chief executive officer of Pronove Tai International Property Consultants.

Once TRAIN is implemented, socialized housing transactions worth P450,000 and below as well as low-cost housing worth P3 million and below will be exempt from the 12-percent value-added tax (VAT).

This is an improvement from the previously exempted low-cost housing sales worth P1.9 million, according to Pronove.  

“This translates to a saving of up to P360,000 for starting families due to the VAT exemption,” Pronove explained. Outside Metro Manila, sale of residential dwellings worth P2 million and below will also be exempt from VAT.

 “This provision supports the move to decongest Metro Manila,” Pronove added.

Pronove said the VAT exemption on association dues in codominiums would especially be beneficial to young professionals who rent condos or apartments.

Based on the latest data of the Philippine Statistics Authority, young professionals aged 21 to 35 dominate the labor force at 47 percent. These young members of the workforce, tend to rent condominiums or apartments near their workplaces. 

“They will benefit the most in the VAT exemption for lease of residential units being raised from P12,800 to P15,000 as well as the removal of VAT on association dues for condominiums,” Pronove said.   

The VAT exemption of business process outsourcing (BPO) will also ensure the growth of the sector and in turn will further boost office space takeup, Pronove said.

According to Pronove,  the BPO sector has been contributing to the robust office market in Philippine Economic Zone Authority proclaimed buildings. 

Aside from having the supply of skilled Filipino talents suited for BPOs, investors also prefer doing business in the country due to tax exemptions given to them.   

In 2017, office pre-leasing from the BPO sector slowed quarter-on-quarter due to limited new entrants coming in to invest in the Philippines.

 Investments in the sector were put onhold while the government’s tax measures remained unclear. TRAIN retained the tax exemption for BPOs. 

Another positive impact on real estate of TRAIN will come from the simplified estate tax and donor’s tax to a flat rate of 6 percent based on the assessed value of the estate property.  Estate tax is levied on the transfer of estate from the deceased person to their lawful heirs. 

Under the previous system, transfer of estates with a value of P200,000 to P10 million above was levied between 5 and 20 percent. Additionally, with this new law, surviving heirs are allowed to withdraw any amount on the deceased person’s account to cover the expenses related to the estate transfer. 

TRAIN removed the previous ceiling of P20,000 withdrawals and imposition of 6 percent withholding tax for all the withdrawals.  

Donor’s tax is levied on transfer of the estate properties by gift or donation. TRAIN retains exemptions on estates worth P100,000 and below and imposed a flat rate of 6 percent on those estates with value of P100,000 and above whether the recipient is related or not. 

“TRAIN simplified the tax policy by removing the 2 to 15 percent tax table as previously used,” said Pronove. 

Aiming for a simpler, fairer tax code, the TRAIN comes 20 years after the previous one was put in place. 

Effective January 1, cuts on the personal income tax of almost 8 million employees (those earning up to P250,000 annually) will commence.

TRAIN also increases the levies on sugar beverages, fuel, cars, and tobacco products. 

From the P150 billion expected to be raised from TRAIN, 30 percent will be utilized for social services funding.  

“While corporate and commercial property taxes were not included in the first package, several provisions would encourage growth,” Pronove said.

Pronove is hopeful the implementation of TRAIN will be done  smoothly and efficiently.

“Twenty years is a long time, the tax code was definitely in need of a simplification to encourage compliance and increase generation,” Pronove concluded.
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