Tax reform could lower income, estate taxes

THE government will soon send a proposal to Congress to lower estate duty to 6 percent as part of a tax reform plan, along with other measures such as the reduction of individual and corporate income tax.

The Department of Finance is expected to meet with the Ways and Means Committee of the House of Representative this week to discuss these proposals.

The estate duty currently ranges from 5 percent to 20 percent of the net asset a person leaves behind upon death, which the heirs of the deceased or chosen beneficiaries will inherit. Thus, the highest amount of estate tax that shall be paid is P1.215 million, plus 20 percent if the net estate is over P10 million.

The idea behind lowering the estate duty to 6 percent across the board is to encourage land development in the country, said Finance Secretary Carlos Dominguez 3rd.

Because of the high estate duty most of the inherited land remain in the name of the deceased, as the inheritors do not want to pay 20 per cent tax and transfer the land to their name. Thus when people go around buying or leasing lands they find a lot of properties remain locked up in the name of the deceased, Dominguez pointed out during a chance interview.

“Most likely the outcome we want is to reduce the tax rates to something to be like the same as capital gain tax,” he said.

Under the prevailing policy, the estate tax return must be filed within six months of the death of a person leaving behind an inheritance. There could be surcharges and interests if the estate taxes are left unsettled six months after the decedent’s death, but the BIR Commissioner may grant an extension not exceeding 30 days and in special circumstances up to five years.

However, the Finance Secretary said: “If you are encouraging them to just pay lower tax, let us say 6 percent, then there’s a potential for them to be develop quickly,” he added.

With this measure, he pointed out that the government is encouraging the economy to move ahead toward development.

Also in the tax reform plan are measures to offset revenue loss that lower income tax may cause. Additional revenues will be sourced from the increase in excise tax on fuel and sweetened beverages.

The government earlier rejected plans for higher value-added tax (VAT) but stressed that it may reduce exemptions. However, it aims to keep the 20 percent and 12 percent VAT exemptions for senior citizens and persons with disabilities, respectively.

source:  Manila Times