Leaders of the real estate and housing industry have opposed a move to raise the capital gains tax from six percent to 10 percent, saying the poor will suffer most from the measure.
In a joint position paper, the major organizations of the real property sector – Chamber of Real Estate and Builders’ Associations (CREBA), the National Real Estate Association and the Subdivision and Housing Developers Association – said that the measure poses serious adverse effects including increased housing costs, decreased investor activity and overall stunted economic growth.
In a statement on Tuesday, CREBA said earlier, Department of Finance (DOF) Secretary Ralph Recto announced plans to increase the rates for capital gains, donor and estate taxes to ten percent. Capital gains tax is imposed on the sale of real property, stocks and other assets which are not held in the ordinary course of business.
CREBA said Recto was reported saying the increase “ won’t affect the masses” since “it’s not consumption-based, these are financial taxes.”
CREBA President Noel Cariño said in the statement the move will lead to spiraling land prices, economic destabilization, and loss of employment opportunities for workers.
Land price spiral
Stressing that land is indispensable to any human activity, Cariño said that any significant tax or imposition that affects land transactions has a tidal effect across the economic spectrum.
“It will affect all sectors, not just the real property market”, Cariño said, “and will seriously dampen income and employment generating investments whether foreign or domestic.”
Cariño called for a more in-depth cost-benefit analysis, stressing that “the expected revenues from this measure, reportedly P300 billion for five years, may not be worth it given the adverse scenarios.”
Real property sector position
The industry leaders said in the joint position paper that hiking the capital gains tax (CGT) rate from 6 to 10 percent will lead to higher housing costs.
As the CGT is a pass-on tax, the consequent rise in land costs will inevitably drive-up production costs, thus further impairing housing affordability, particularly for the lower income segments which account for the bulk of the housing backlog.
The resulting inability of low and middle-income earners to absorb the tax will prevent housing developers from embarking on housing projects catering to these market segments, the groups said.
The housing sector also pointed out a potential slowdown in real property development activity which would destabilize the construction and property development sectors, where laborers and temporary workers are particularly vulnerable.
The groups warned that the higher tax burden will increase investment costs, particularly for land acquisition and eventual price escalation as associated costs will trickle down to consumers in the form of higher prices of goods and services.
Higher land costs, the associations said, will translate to higher infrastructure development costs, which are inevitably borne by the taxpayers.
