The proposal imposing a uniform 6- percent tax for estates and donations on Tuesday gained the support of influential units within government and the private sector.
According to the Department of Finance (DOH), the privately held Tax Management Association of the Philippines (TMAP) made public its support for a uniform tax across estates and donations as part of the larger goal of encouraging Filipinos to pay the appropriate levy on two of the most intensely disliked impositions on the taxpaying public.
The TMAP found kinship with the state-funded National Tax Research Center (NTRC), whose lead personalities said a uniform imposition on estates and donations should help boost compliance and by this measure generate more collection for the nation’s coffers.
The TMAP and their counterparts at the NTRC agree that a uniform imposition should also help simplify the country’s decades-old tax system that ought to be an integral part of President Duterte’s Comprehensive Tax Reform Program.
“On the imposition of a uniform 6 percent tax rate on all transfer transactions, be it through sale or through inheritance or donation, we will now have a uniform tax rate of 6 percent that will greatly simplify the tax system. On the exemption from the tax on donations to calamity-stricken areas, we fully support that” as well, NTRC Director Trinidad A. Rodriguez said at a recent Senate Ways and Means Committee hearing.
There is at present a tax of 2 percent to 15 percent for donations made to relatives and a much higher rate of 30 percent for donations made to strangers under the National Internal Revenue Code of 1997. Failure to pay donor’s tax is subject to penalties, including a 25-percent surcharge, 20-percent interest and so-called compromise penalties ranging from P200 to P25,000.
Rodriguez further recommended that administrative safeguards be retained on the grant of tax exemptions on donations to victims of calamities to ensure that such incentives are not abused.
According to the Bureau of Internal Revenue, estate taxes are imposed a tax ranging from a low of 5 percent to as much as 20 percent.
“In terms of the donor’s tax, we support the 60-percent reduction because [this is] simplified and [in alignment with] the other transfer taxes,” TMAP President Maria Lourdes P. Lim said.
“It should be mentioned that donations made in times of calamities may be made exempt from the donor’s tax if channeled through the enumerated donee and if it complies with the requirements of the Tax Code. These safeguards imposed by law have two purposes: First, to ensure that all claims for exemptions and deductions are legitimate, and to avoid unfounded claims of the incentives; Second is to protect the donors from bogus organizations,” Rodriguez added.
The reduction of rates for estate and donor’s tax form part of House Bill 5636, or the Tax Reform Acceleration and Inclusion Act (TRAIN), which was approved on the final reading by a 246-to-nine vote with one abstention on May 31 before Congress went on sine die adjournment.
The Senate Ways and Means Committee will resume discussions on the TRAIN bill when Congress reopens in July.
Finance Secretary Carlos G. Dominguez III said the tax-reform package should enable the government to forge a more progressive tax system, especially for low- and middle-income earners, and at the same time generate sufficient revenues for higher spending on infrastructure, education, health and other forms of human-capital development, as well as on social protection for the poor, as cushion against the impact of proposed adjustments in consumption taxes.
According to the latest estimates by the DOF, the government could generate P130 billion in the first year of implementation.
Image credits: Alysa Salen