The Department of Finance (DoF) said it gained support from various groups for a proposal under its Comprehensive Tax Reform Program (CTRP) granting a one-time amnesty and lower estate tax payments.
In a statement on Friday, the DoF said the legislative proposal entails a one-time amnesty on estate tax payments and a flat rate of 6 percent from the current 5 percent to 20 percent.
To avoid the inadvertent increase in the rates for estates with a 5 percent or lower rate under the current tax table, the DoF has proposed to increase 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,” Finance Assistant Secretary Mark Dennis Joven was quoted as saying 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 6 percent estate tax. We consider him or her not rich enough to be subject to the redistributive effects of estate tax,” Joven said.
State think tank National Tax Research Center (NTRC) has backed the DoF proposal, saying 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,” according to the DoF.
“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,” NTRC Executive Director Trinidad 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 totaled only 43,123 or around 7 percent of total deaths in the country.
“Administrative efficiency could have also contributed to the low collection. 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,” she said.
Rodriguez noted that in 2014 and 2015, around 80 percent of tax filers reported net estates worth not more than 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.
There is also the tendency of some tax filers to overstate expenses to reduce tax liabilities. Thus, the proposal to simplify the estate tax system is timely and worth pursuing, she added.
The League of Provinces of the Philippines (LPP) and the Financial Executives Institute of the Philippines (FINEX) also backed the proposed estate tax reforms, according to the DoF.
It said LPP Executive Director Sandra Tablan Paredes noted local governments also support the amnesty plan and even the repeal of the estate tax, given that local governments find it difficult to collect this tax because she believes that paying the government is the last thing on the mind of families grieving the death of their loved ones.
FINEX national affairs committee chairman Eduardo Yap said his organization is also supporting the reforms in the estate tax as this would help “simplify the tax system, encourage voluntary compliance and likely raise revenue collections.”
“What are the adverse effects of the estate tax? It breaks up family homes because the estate or the heirs are forced to sell in order to meet the estate tax obligation. It forces businesses to sell assets to meet personal estate tax obligation, and thereby it impairs and reduce[s]capital in the hands of the private sector. Real properties are stranded with their titles not transferred to the heirs. It hinders property development to the detriment of home accessibility and affordability,” Yap said.
Senator Juan Miguel Zubiri similarly expressed support for the proposal, the DoF said.
“I’m fully supportive of bringing [the estate tax rate]down so that we can open more lands (for development),” Zubiri was quoted as saying.