House ways and means committee approves  estate tax amnesty

January 7, 2017

The House Committee on Ways and Means, prior to congressional adjournment last year, approved two bills seeking to increase estate tax collection by granting tax amnesty and lowering the tax rates of the Bureau of Internal Revenue (BIR).

The committee chaired by Rep. Dakila Carlo Cua of  Quirino approved House Bill 1889 authored by Rep. Arthur Defensor of Iloilo  and HB 3010 by Deputy Speaker and Marikina  Rep. Romero Quimbo.

Cua said the proposed estate tax amnesty applies to prior years of incurred penalties. He said the prospective is it can be for the next five years with restructured rate or it can even be restructured permanently until the law is further amended.

“What you are trying to achieve, what you are championing is really not impossible,” Cua told the authors during the hearing.

Quimbo said the purpose of HB 3010 is like Defensor’s bill which is to make the tax amnesty a mechanism by which the government can earn more revenues.

Quimbo said only a small percentage of the BIR tax collection pertains to estate taxes. In 2013, he said only 28, 634 were registered estate tax payers. Quimbo said data from the Philippine Statistics Authority (PSA) also showed there is a total of 531, 280 deaths in the same year.

“After deducting the registered estate taxpayers from the total deaths in 2013, data show that 94 percent did not file the required estate tax return. Even if the estate is exempt from taxes, the filing of a return is still required under the National Internal Revenue Code (NIRC). Just looking at the number of deaths that year and looking at the estate tax filing, which is needed to be filed over a 120 day period, less than 7.2 percent actually filed for estate tax filings with the BIR,” said Quimbo.

Quimbo said several concerns were raised about  filing the estate tax return. For one, the failure to file such within six months from the death of the decedent, extendable by the BIR commissioner for 30 days, subjects the taxpayer to penalties and interests under the NIRC. Compliance with tax filing and payment is rendered more difficult by the procedure the taxpayer has to go through.

“This results in a situation wherein the heirs of the deceased resort tonon-compliance of the law’s requirements, hindering them from using these properties. Thus, the decedents’ properties become idle and unproductive, providing a disincentive to the heirs, as well as to the economy, given the potential income that can be derived from these stagnant properties,” said Quimbo.

The issue becomes more incongruous considering that in 2013, only 2.69 percent of the total collection of the BIR comprise of collection of taxes on property, including estate taxes according to Quimbo. This, he said, creates a double whammy: the government is not able to derive revenue from these properties; and the heirs are not able to productively use said properties.

“To unlock this impasse, HB 3010 bill seeks the grant of tax amnesty for all unpaid estate taxes at the time of the bill’s passage, as well as those which shall be due three years from the time of its enactment. It proposes a revised schedule of tax due for each estate to encourage the declaration of tax returns and payment for non-compliant estates,” said Quimbo.

Quimbo said the government should be able to provide an amnesty program because the estate tax is something the BIR is not able to collect. “It is not like an amnesty program over something that the BIR is poised to collect at this point in time. It has been shown in the last three decades that these are literally bad debts for lack of a better term,” he said.

He said the first step is condonation then second is to levy a tariff that is identical, if not similar to capital gains.

Defensor said his House Bill 1889 is more than just an amnesty as it seeks to replace the present tax base for estate taxes.

“This is a bill which seeks to provide a compelling reason for the settlement of unsettled estates right now with the end view of releasing into commercial circulation the properties which are tied up to unsettled estates, which we as authors, believe are in the billions already. So this is an amnesty and an administrative clean up measure,” Defensor said.

Finance Assistant Secretary Maria Teresa Habitan said they recognize the economic and commercial impact of the two bills that are being discussed. While the finance department  does not interpose objection to the bills, Habitan said the agency has a tax reform package that would also touch on the estate tax. She said the finance department  is conducting studies on the proposal to grant amnesty to unpaid estate taxes.

Habitan said what they wanted deleted in the bills is the coverage and duration of the tax amnesty. “Because this is an estate tax and it only becomes due when a person dies. Tax amnesty is a misdeameanor that has been committed in the past, and so therefore we would like to strike out the words and those that shall be due within five years because we do not want to give an incentive for people not to declare in the future so that they will avail of this amnesty,” said Habitan. DMS