Estate tax is one of the lowest performers in our tax system. Payable six months after death – now extended to one year under the Tax Reform for Acceleration and Inclusion (TRAIN) – the tax is often paid late. The lack of liquid cash to pay the previous range of taxes, the highest of which was 20 percent, is often the culprit for the non-payment or delay in payment of this tax. The consequence is not just the mounting of interest and penalties, but also the locking up of properties, or the delay in their development. Almost too often, heirs will have to sell properties and wait for a willing property buyer who could fund the estate tax, including interest and penalties, before settling it.
Thus, it was a welcome development when Republic Act No. 10963 (TRAIN) not only reduced the estate taxes to 6 percent of the net estate, but also increased deductions (standard deduction was increased to P5 million from P1 million and the family home deduction to P10 million from P1 million). It also allowed banks to release cash from bank deposits subject to a 6 percent final withholding tax.
However, the other legislation that everyone is still waiting for is the estate tax amnesty.
As early as January of last year, House Bill No. 4814 (HB 4814) or the “Estate Tax Amnesty Law,” was submitted to the House of Representatives. The bill was already transmitted to and received by the Senate on February 15, 2017, months before the TRAIN package 1was endorsed to the Senate.
Under HB 4814, the amnesty can be availed of by paying the 6 percent estate amnesty tax (without surcharge or interest) within two years from the passage of the law’s implementing rules. Those who availed of the tax amnesty would be entitled to several immunities and privileges, such as: (1) immunity from the payment of penalties under our Tax Code, (2) inadmissibility in evidence of the taxpayer’s estate tax amnesty returns in estate settlement proceedings, and (3) non-examination of taxpayer’s books of accounts and other records of the taxpayer.
So what happened to the estate tax amnesty bill, which was endorsed to the Senate even months ahead of the TRAIN Law?
Unfortunately, it is still pending with the Senate Ways and Means Committee, and seems to have been overtaken or eclipsed by the general tax amnesty, which is now under discussion in the Senate and the House of Representatives.
Senate Bill No. 1494 (SB 1494) seeks to grant a general tax amnesty for all national internal revenue taxes for taxable year 2015 and prior years. Under SB 1494, those availing of the amnesty shall pay the amnesty tax equivalent to 5 percent of the increase of the taxpayer’s net worth, or 20 percent of the increase in their gross revenues, whichever is higher. The increase in net worth or gross revenues is the difference between the adjusted declarations and those previously declared or reported as of December 31, 2015. Thus, those availing of the amnesty are required to submit adjusted declarations of all their assets, liabilities and net worth as of December 31, 2015.
House Bill No. 7105, which was filed in the House of Representatives in February 2018, also proposes a similar general tax amnesty, requiring those who avail of it to pay an amnesty tax of 8 percent or 4 percent of their net worth, or increase in net worth. It similarly requires taxpayers to file a statement of assets and liabilities, or SALNs.
Since the above general tax amnesty bills cover all “internal revenue taxes,” they include estate tax.
The requirements under a general tax amnesty, however, may be too complicated for heirs to comply with if they are imposed on them individually. For instance, it will not work if the heirs will be required to file individual SALNs. In our experience, many heirs are abroad and are no longer taxpayers in the Philippines. Also, estate tax settlement is always beset with complicated family issues.
Under HB 4814, the estate tax amnesty requires the filing of a single tax amnesty application by the estate, which is regarded as a separate taxpayer. Unless the general amnesty law will allow a single application by an estate, as a separate taxpayer, it will be difficult for the heirs to enjoy it.
While a general tax amnesty will definitely bring in revenue collections and provide relief to taxpayers, it might be more complicated to avail of than the straightforward estate tax amnesty contemplated under HB 4814. Moreover, because of the general amnesty’s wider scope, it will take time for our legislators to deliberate on the bills. It will thus be simpler and easier to pass a separate estate tax amnesty program. Such program will definitely achieve the objective of unlocking properties and spurring economic activity in the country.
Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a past president of the Tax Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at firstname.lastname@example.org or visit MTF website at www.mtfcounsel.com.