Groups back finance department’s call for lower estate tax, one-time amnesty

February 24, 2017

The National Tax Research Center (NTRC) and several groups have expressed their support for a legislative proposal granting a one-time amnesty on estate tax payments and  lowering its rate  from the current 5-20 percent to a  flat 6 percent, as part of the Comprehensive Tax Reform Program (CTRP) of the Department of Finance (DOF).

To prevent the proposed uniform rate of  six percent from inadvertently increasing the rates for estates charged five percent or lower under the current tax table, the finance department has proposed a  hike in the P1 million threshold for family home exemptions  to P3 million, on top of the standard deduction of P1 million.

“We seek to maintain the family home exemption at P3 million (plus a standard deduction of P1 million), [which] is an improvement from the maximum rate of P1 million and standard deduction of P1 million," Assistant Finance Secretary Mark Dennis Joven said during a hearing by the Senate ways and means committee.

“So basically, someone with a net estate of P4 million or lower will not be subject to that six percent estate tax,” Joven said. “We consider him or her not rich enough to be subject to the redistributive effects of estate tax.”

Finance Secretary Carlos Dominguez III said at the presentation of the 2017 national budget last year he was pushing for lowering of estate tax rates to encourage the updated documentation of land ownership and the development of idle lands, which , in turn will  “unlock the land market,  help local government units raise more revenues and encourage more efficient land use that can help foster investments and create jobs.”

The NTRC has backed Dominguez’s proposal, with its executive director, Trinidad Rodriguez telling the committee chaired by Senator Juan Edgardo Angara that substantially lowering the estate tax rate would “ease the burden of the heirs from the ordeal of paying the said tax after having suffered a loss of a family member, and shouldering many other expenses related to the death.”

“A flat tax rate is deemed simpler and easier to understand, enhancing the chances of higher tax compliance. More specifically, setting the estate tax at  6 percent, meaning the same rate as the capital gains tax, and for that matter, also for the donor's tax, is deemed more practical and reasonable,” Rodriguez said.

She pointed out that  imposing a uniform rate on all types of transfer transactions, either through sale, inheritance or donation, will minimize  the tendency of taxpayers to resort to “manipulative tax planning”  to minimize their tax liabilities.

Rodriguez bared the low compliance rate on the part of the heirs to settle their tax liabilities, citing as an example that the tax returns in 2015 only totaled 43,123 or around seven percent of total deaths in the country.

“Administrative efficiency could have also contributed to the low collection,” she said. “Also, the generous deductions from gross estate before arriving at net estate, which is the base of the tax, must have significantly narrowed down the tax base.”

Rodriguez noted that in 2014 and 2015, around 80 percent of tax filers had reported net estate worth of not over P200,000. “So that means that these are exempt tax filers. So any collection based on the records of the BIR, are mainly fines and penalties, maybe for late filing or late payment of estate tax,” she said.

Related to this is the tendency of some tax filers to overstate expenses if only to reduce their tax liabilities. Thus, the proposal to simplify the estate tax system is timely and worth pursuing, she added. DMS