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TAX Issues : VAT, concerns, and some suggestions

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TAX Issues : VAT, concerns, and some suggestions

There are vaguaries and pitfalls in PH tax law - this thread is to discuss them

100820-r6-birbacolod.jpg

For example, One potential risk is:

The BIR may deem you as being "habitually engaged in the real estate business",

in which case, you may have to pay a 12% VAT tax when you sell a property

(before releasing a title to a buyer, the BIR may consider this)

There are some guidelines, but how reliable are they?  (A genuine question)

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SIX "SALE" TRANSACTIONS, but how do they count?

(This is from an email, concerning the "habitually-engaged" issue):

> http://www. foreclosurephilippines.com/ value-added-tax-vat-on-the- sale-of-real-estate/

"How about those not in the above list? Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer to be considered as habitually engaged in the sale of real estate. If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer, he/it may nevertheless be deemed to be engaged in the real estate business through the establishment of substantial relevant evidence (such as consummation during the preceding year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as habitually engaged in real estate business with the Local Government Unit or the Bureau of Internal Revenue (BIR), etc.).

Many ask how are the six taxable real estate sale transactions counted. According to our real estate mentor, when you buy a property and later sell it, those are counted as two transactions. I believe this is the conservative position. It will actually depend on the BIR officer processing your papers. Technically, and as written, it says six “sale” transactions"

This article doesn't mention whether renting a unit constitutes being in the real estate industry, but I think for a couple of units I can't imagine this being a problem. As you could always buy for 'self-use' and then for whatever reason, decide to rent it out. Buying 10-20 units for self-use isn't a justification but buying 1-2 units should be ok I would imagine.

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Important milestone in PH Tax History

- Editorial in Ph. Daily Inquirer
"most important piece of legislation passed by congress in 2017"

=========
+ Changes in the way that income is taxed: first P250,000 will be taxfree
+ Each income bracket saw some reductions
+ Taxes raised in other areas (VAT, etc) to fund primary & social infrastructre
+ Build, build, build to have a big impact on transport and infrastructure
+ Socially: free tuition to colleges & universities; expanded healthcare services
+ TAX AMNESTY may be coming in Q1-2018
: maybe apply to deficiencies in: property, estate and income taxes, as well as VAT
+ Second package next year may attract foreign investors, lower corporate taxes
+ Prices may rise, but increases should be more than covered by higher net income
+ Infrastructure enhancements should boost economic activity in the regions

 

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TRAIN goes into effect on Jan. 1,  2017

VAT on House&Lot, and on Condos:
Was VAT exempt up to: P3,199,200
New threshold is up to P2.5million (Jan.1, 2018)
By 2021, will fall to P2 million

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> Larger image :

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(from Lara G., on the MM viber chat):

"Just sharing with you--"

8 TRAIN Tax Reform Items that You Probably Didn’t Know

1. Deadline for filing of annual Income Tax Return (ITR)

Before: April 15
Now: May 15

2. Personal and additional exemptions have been removed

Before: personal exemption of P50,000 and additional exemption of P25,000 per qualified dependent

Now: None

3. Tax on lotto winnings and PCSO prizes

Before: Lotto winnings and all PCSO prizes are tax-exempt

Now: all PCSO and lotto prizes are taxed 20% if the amount of the prize or winnings is above ten thousand pesos (P10,000).

4. Tax on stock transactions

Sale of stocks not traded in the Philippine Stock Exchange (PSE)

Before: Tax Rate is 5-10%.
Now: Tax Rate is 15%.

Sale of stocks that are traded in the PSE

Before: Tax Rate is 0.5% of the gross trade amount
Now: Tax Rate is 0.6% of the gross trade amount

5. Documentary Stamps (Doc Stamps) Tax

Before: DST is from ₱0.75 to ₱1.50
Now: DST is doubled at ₱1.50 to ₱3.00

6. Donor’s Tax

Before: The donor’s tax was 2% to 15% if the donor and donee are related, and 30% if the donation was to a stranger.

Now: The donor’s tax was revised to a flat rate of 6% regardless of the relationship between the donor and the donee.

Donations or gifts below P250,000 are tax-exempt. Donations with value of at least P250,000 are taxed using the new rate of 6% on the amount in excess of P250,000.

7. Estate Tax

Before: Under current tax laws, only family homes worth P1 million are tax-exempt.

Now: The estate tax is now a flat 6% rate on the amount in excess of P5 million. Estates with a net value of P5 million and below will be tax-exempt. Family homes that are valued at no more than P10 million will also be exempted.

8. Tax Exempt on 13th Month Pay and Other Benefits

Before: ₱82,000
Now: ₱90,000

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That's great news!

Products, service, or groups that will continue to be VAT-exempt

  • Food and agricultural products
  • Senior citizens
  • Persons with Disability (PWD)
  • Cooperatives
  • Tourism
  • Education
  • Renewable energy
  • Health
  • Enterprises and BPOs located in Special Economic Zones
  • Condominium association dues
  • Rentals and leases below P15,000 per month

ALSO:

Socialized housing, or houses priced at P450,000 and below, and low-cost housing,

or those priced at P3 million and below (VAT exemption retained from 2018 to 2020 only)

> https://www.pinoymoneytalk.com/products-exempted-from-vat-tax-reform/

NOTE: P3 million is MORE than the P2.5 million threshold I had been told previously.

But is also below the P3.199Million threshold of 2017 and before

Here are some other Tax-related articles! 

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ING Bank expects another 1% rise in 2018 inflation amid tax reform

MANILA, Philippines – Dutch financial giant ING Bank said the trickle-down effect of the implementation of the 1st package of the comprehensive tax reform program would translate to a 1% rise in inflation in 2018.

Joey Cuyegkeng, senior economist at ING Bank Manila, said the indirect effects of Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law would add another one percentage point to inflation this year, due to higher transport fares, higher wages, and production costs.

Cuyegkeng said this would be on top of the 0.8% to 1% increase in inflation, as a result of the direct impact of the TRAIN-related excise tax rates that took effect on January 1.

President Rodrigo Duterte had signed the TRAIN law last December, representing the 1st package of the government's tax overhaul.

"Tax-reform related price pressures would also add to the price pressures," Cuyegkeng said. (READ: EXPLAINER: How the tax reform law affects Filipino consumers)

He added that inflation would increase further to 3.7% in 2018, after the 3.2% in 2017 and 1.8% in 2016. The faster movement is also being attributed to the sharp rise in global crude oil prices.

. . .

"We believe that inflation pressures in 2018 would be more intense. Production rationalization in major economies of certain products would keep commodity prices high," Cuyegkeng said.

The Asian benchmark crude oil price would rise by another 17% to $60 per barrel this year, according to ING Bank.

> https://www.rappler.com/business/193257-ing-bank-tax-reform-philippines-inflation-2018

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Dr Bubb,

I noticed that Condominium association dues is on your list of "Products, service, or groups that will continue to be VAT-exempt"

I do not know about other buildings but Skyland Plaza & One Central were applying 12% VAT on association dues in 2017. The monthly dues of my unit in One Central for instance was 112 pesos per sqm in 2017 and it's now 100 pesos per sqm starting January 2018.

 

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Yeah, I think you are right.

But in the main article, a little above the excerpt that I posted, it is written differently:

" Included in the tax reform is the updating of VAT-able products and transactions. The list of items that will or won’t be charged the 12% Value Added Tax (VAT) underwent several revisions in Congress in the last few months, but the final version is shown below. "

 

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An interesting website:

> https://philpropertyexpert.com/the-basic-taxes-involved-in-a-sale-of-real-estate-property/

The usual arrangement on which party pays what taxes, in a sale transaction is as follows:

  • Seller’s Responsibility:

    1. Income tax, if the property to be sold is an ordinary asset
    2. Value-added tax/Percentage tax, if the property to be sold is an ordinary asset
    3. Creditable Withholding Tax, for real properties sold by habitually engaged real estate sellers
    4. Capital Gains Tax, if the property to be sold is a capital asset
    5. Documentary Stamp Tax
  • Buyer’s Responsibility:

    1. Transfer Tax
    2. Registration Fee

Now let’s define these things…

EXCERPT:

Value-added tax (VAT)

There shall be imposed a 12% value-added tax (VAT) on real estate sales of those who are engaged in the business of selling, developing, leasing or sub-leasing of real property and those licensed to engage in real estate brokerage business based on their commission. However, in pursuance to RR No. 4-07, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business.

Capital Gains Tax

Capital gains presumed to be realized from the sale of a real property not categorized as ordinary asset is subject to a tax of six percent (6%) based on the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.

Conditionally exempt from paying Capital Gains Tax:

The sale of a principal residence is exempt from capital gains tax... (more)

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