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Bomb wounds Basilan outpost cop

COTABATO CITY — A bomber lobbed a fragmentation grenade at one side of a roadside police detachment in Barangay Sunrise in Isabela City in Basilan late Sunday, hurting a policeman and causing tension among villagers in houses around.

In a report on Monday to the office of Brig. Gen. Prexy D. Tanggawohn, director of the Police Regional Office-Bangsamoro Autonomous Region, the Basilan Provincial Police Office stated that Patrolman Aldimar M. Salahuddin, then on duty, sustained shrapnel wounds in different parts of his body.

The governor of Basilan, Hadjiman H. Salliman, has condemned the bombing and offered an earnest reward for any information leading to the arrest of its perpetrators.

“That is something we will not take sitting down. We are helping the police resolve that grenade attack,” Mr. Salliman, chairman of the Basilan Provincial Peace and Order Council, said.

Talks are spreading around Isabela City, a port city in Basilan, stating that two men were behind the atrocity. One of them acted as a lookout, while the other threw the grenade beside the police checkpoint at an intersection in Barangay Sunrise. The duo escaped after a powerful explosion ripped through the surroundings.

Brig. Gen. Alvin V. Luzon, commander of the Army’s 101st Brigade in Basilan, told reporters on Monday that personnel of their intelligence unit are helping gather information that could help put closure to the incident. — John Felix M. Unson

PSEi drops on profit taking after 4 weeks of rally

REUTERS

By Revin Mikhael D. Ochave, Reporter

PHILIPPINE STOCKS closed lower on Monday as investors booked gains after a four-week rally.

The bellwether Philippine Stock Exchange index (PSEi) fell by 2.09% or 155.65 points to 7,272.65. The broader all-share index lost 1.3% or 51.75 points to 3,918.68.

“The local market plunged as investors continued with their profit-taking,” Japhet Louis O. Tantiangco, senior research analyst at Philstocks Financial, Inc., said in a Viber message. “Investors decided to book gains as the market has already been on a four-week rally.”

The market also took a cautious stance while waiting for September inflation data due this week, he added. Inflation data will be released on Friday.

Philippine inflation eased to a seven-month low of 3.3% in August from 4.4% in July and 5.3% a year earlier.

“Philippine shares fell due to profit–taking ahead of September consumer price index data on Friday,” Luis A. Limlingan, head of sales at Regina Capital Development Corp., said in a Viber message.

He said the September S&P Manufacturing Purchasing Managers’ Index and August producer price index are also due this week.

In the US, key data releases include job openings and labor turnover survey report, ISM Manufacturing Index on Tuesday and the employment report on Friday, aside from speeches from US Federal Reserve Chairman Jerome H. Powell and other officials, he added.

Back home, all of the market’s sectoral indices closed lower, led by holding firms which dropped by 2.84% or 180.06 points to 6,150.15. The property index fell by 1.95% or 58.37 points to 2,930.63, while the financial index lost 1.78% or 41.76 points to 2,297.62.

Services declined by 1.32% or 29.95 points to 2,231.26, while mining and oil retreated by 1.31% or 115.75 points to 8,675.63. The industrial index fell by 1.09% or 107.01 points to 9,710.68.

Value turnover rose to P7.22 billion covering 1.1 billion shares from P6.97 billion involving 1.37 billion shares on Friday.

Decliners beat advancers 115 to 93, while 45 stocks were unchanged. Net foreign buying dropped to P87.71 million from P175.76 million.

Peso tracks dollar’s broad weakness

BW FILE PHOTO

THE PHILIPPINE PESO rose against the dollar on Monday, tracking the greenback’s broad weakness after US personal consumption expenditures for August came out cooler than expected.

It closed at P56.03 a dollar, 4.7 centavos stronger than its P56.077 close on Friday, Bankers Association of the Philippines data showed.

The peso opened at P56.03, appreciated to as much as P55.93 and weakened to as much as P56.075 against the greenback. Dollars exchanged went down to $1.29 billion from $1.47 billion on Friday.

The peso tracked the dollar’s broad dollar weakness at the weekend due to the cooler-than-expected US personal consumption data, a trader said by phone.

The personal consumption expenditures price index, the Fed’s favored inflation measure, rose by 0.1% in August after a 0.2% gain in July.

In the 12 months through August, the index rose 2.2% after rising 2.5% in July, Reuters reported on Friday.

The dollar index was weaker at 100.4, while most Asian currencies gained, led by the Malaysian ringgit and Thai baht, which were both up by 0.5%.

Investors were also cautious as the market awaited the US inflation data later this week, the trader said.

Lower global crude oil prices have also supported the peso, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Brent crude futures for November delivery gained 1.56% or $1.12 to $73.10 a barrel as of 6:11 GMT. That contract was due to expire on Monday, and the more active contract for December delivery climbed by 1.45% or $1.04 to $72.58.

US West Texas Intermediate crude futures advanced 1.36% or 93 cents to $69.11 a barrel. Prices also rose on Friday, though for the week, Brent fell by 3% and WTI fell by 5%.

The trader expects the peso to trade at P55.80 to P56.20 a dollar on Tuesday, while Mr. Ricafort sees it at P55.90 to P56.10. — Aaron Michael C. Sy

PHL identified as priority site for infra investment within IPEF bloc

PHILSTAR FILE PHOTO

THE energy industry could unlock more financing as a result of Philippine membership in the Indo-Pacific Economic Framework (IPEF) after the country was singled out as a priority site for infrastructure investment by a coalition of global investors, according to the Department of Energy (DoE).

In a statement on Monday, the DoE said that the Coalition for Emerging Market Infrastructure Investment (CEMII) has picked the Philippines as its initial focus for infrastructure investment across the IPEF economies.

The Indo-Pacific Partnership for Prosperity (IP3), convenor of the coalition, called the Philippines an “ideal market” for the initiative given its “rapid growth in energy demand and ambitious renewables targets.”

IP3 is a collaboration of public, private, and non-profit organizations dedicated to mobilizing capital and expertise to advance economic growth, sustainability and inclusivity in the 14 IPEF countries.

The Philippines is targeting raising the share of renewable energy in its power generation mix to 35% by 2030 and to 50% by 2040.

The DoE said it welcomes the opportunity to collaborate with CEMII to develop a joint roadmap to accelerate investment in clean energy infrastructure.

“We look forward to working closely with the Coalition to realize our shared vision of a clean energy future for the Philippines and the broader Indo-Pacific region,” Energy Secretary Raphael P.M. Lotilla said.

Private developers will likely benefit from the initiative as they will have access to capital that is expected to be deployed quickly, the DoE said.

According to the DoE, the Philippines is estimated to require around $500 billion in investment between 2024 and 2050 to achieve a successful clean energy transition.

CEMII has announced that it will be launching country platforms dedicated to catalyzing infrastructure investment across IPEF emerging economies.

“In collaboration with the Commerce department and the government of the Philippines, the Coalition will engage in high-level meetings to identify mutual areas of interest and develop a joint roadmap to accelerate investment in clean energy infrastructure,” IP3 said in a separate statement.

CEMII was created to support IPEF economies “in achieving their economic development, human capital, and sustainability goals, through the identification, promotion and development of successful infrastructure projects throughout the region.” — Sheldeen Joy Talavera

Vietnam to remain top rice supplier after India eases restrictions

REUTERS

RICE IMPORTERS are expected to continue relying on Vietnam for their supply even after India eased it export controls on white rice, analysts said.

On Saturday, the India’s Directorate of Foreign Trade announced the lifting of the export ban on non-basmati white rice, citing high inventory levels. The Indian government imposed a minimum export price of $490 per metric ton (MT).

Former Agriculture Undersecretary Fermin D. Adriano said Vietnamese traders are expected to match India’s low export price, pushing prices lower overall.

Vietnam is the Philippines’ top supplier of rice. Both governments signed a supply agreement in January giving the Philippines a quota of 1.5 million MT to 2 million MT of rice annually for five years.

“If that happens, our traders will import from their usual Vietnamese ‘suki’ (trusted sellers) instead of buying from India as they are not familiar with the exporters there,” Mr. Adriano said via Viber.

India, the world’s largest exporter of white rice, suspended exports of non-basmati white rice last year amid concerns over domestic supply, putting upward pressure on international prices.

“We hope that world price of rice will go down a bit,” Agriculture Secretary Francisco P. Tiu Laurel, Jr. said via text message.

Mr. Laurel has said that the ban on Indian rice exports pushed world rice prices higher, elevating the cost of imports which the government is counting on to keep rice affordable.

To lower the price of rice, President Ferdinand R. Marcos, Jr. signed Executive Order No. (EO) 62, which reduced tariffs on imported rice to 15% from 35% until 2028.

The Department of Agriculture (DA) said that EO 62 could bring down rice prices by P6 to P7 per kilogram.

“The lifting of the import ban could increase overall supply in the global rice market and lead to a softening of international rice prices,” Federation of Free Farmers National Director Raul Q. Montemayor said via Viber.

He added that the minimum export price is about 10% less than the $500 per MT export price charged by Vietnam and Thailand.

“It is only a minimum, so actual selling prices could be higher,” Mr. Montemayor said.

He added that importers have not patronized Indian rice despite the low price, citing quality and reliability concerns. “In the past, more rice from Pakistan was imported than from India,” he added.

“This is a big relief globally and particularly the Philippines. With EO 62 in place, the importers will now have a choice as where to source rice, much more affordable rice,” former Agriculture Secretary William D. Dar said in a text message.

The Philippines typically imports about 20% of its rice requirement.

“The Indian rice will be an attraction to importers because it will be cheaper as long as the quality is the same as that those coming from Vietnam and Thailand,” he added.

Rice imports totaled 3.09 million MT as of Sept. 19, according to the Bureau of Plant Industry. Rice imports from Pakistan amounted to 157,044 MT.

The US Department of Agriculture said that Philippine rice imports are expected to hit 4.6 million MT this year. — Adrian H. Halili

Councils to oversee individual farm commodities

BW FILE PHOTO

THE Department of Agriculture (DA) said it hopes to organize councils to oversee each key commodity, which will meet monthly in order to achieve more systematic industry consultation.

“We will be creating councils between the DA and the private sector and the other stakeholders who will meet on a monthly basis,” Agriculture Secretary Francisco P. Tiu Laurel, Jr. told reporters, noting the need to promote and increase farm output.

He added that the DA officials on the council will be tasked with managing specific commodities commonly grown in the Philippines.

“It really needs to be focused; there should be someone assigned to each industry,” he said.

He added that the DA will set short-term goals in addressing the concerns of various industries.

“We are the most complicated department in the country; we have fertilizer, pesticides, various commodities. We need to be creating councils and assigning a person per council,” he said. — Adrian H. Halili

New Cavite economic zones expecting four locators

GATEWAYBUSINESSPARK.COM.PH

THE Philippine Economic Zone Authority (PEZA) said on Monday that four companies are set to locate in the two newly proclaimed economic zones (ecozones) in Cavite.

In a statement, the investment promotion agency said that the ecozones proclaimed through Proclamation Nos. 669 and 677 have an estimated project cost of P723 million.

These are the 2,898-square-meter expansion of Gateway Business Park worth P380 million and the 191,000-square-meter new special ecozone known as NDC Industrial Estate, valued at P343 million.

According to PEZA, Gateway Business Park’s expansion is anticipating the registration of a metalworking company.

The ecozone currently hosts 28 companies, which generated $430 million worth of exports, employing 29,000.

Meanwhile, NDC Industrial Estate is set to welcome three companies engaged in the production of soap and other detergents, renewable energy, and custom electronics.

The National Development Co. industrial estate targets both PEZA-registered exporters and domestic market enterprises.

PEZA Director General Tereso O. Panga said that the two newly proclaimed ecozones are expected to boost economic activity in the region.

“These projects attract more investments and generate high-value jobs,” he said.

“In the long run, this will significantly contribute to industrial development and our goal of becoming a regional hub for manufacturing and innovation,” he added.

With the proclamation of the two Cavite locations in August, President Ferdinand R. Marcos, Jr. has so far proclaimed 24 ecozones, which included expansions, since April 2023.

This year, Mr. Marcos proclaimed 13 ecozones which have a combined cost of P2.74 billion.

To date, PEZA manages 427 operating ecozones, or ecozones with at least one existing and operating PEZA-registered business enterprise.

These ecozones are home to 4,382 locators, PEZA said. — Justine Irish D. Tabile

BIR signals major push against smuggling of farm commodities

PHILSTAR/MIGUEL DE GUZMAN

THE Bureau of Internal Revenue (BIR) said on Monday that it will deploy as many personnel as needed to deter the smuggling of farm commodities.

“The BIR will deploy all revenuers needed to fully enforce the Anti-Agricultural Economic Sabotage Act,” BIR Commissioner Romeo D. Lumagui, Jr. said in a statement.

The recently signed law, which went into the books as Republic Act (RA) No. 12022, expanded the definition of agricultural products to cover livestock, aquatic products, and tobacco.

Under the law, selling tobacco products at 30% below the daily price index will be deemed an act of smuggling.

The law covers both unmanufactured and manufactured tobacco products. It will also include cigarettes, cigars, heated tobacco products, vape, or any form of tobacco product for smoking, heating, puffing, oral or nasal use.

For 2024, the government is expected to forego P33.7 billion in revenue due to the illicit tobacco trade, Mr. Lumagui told a forum last year.

RA 12022 also classifies the smuggling and hoarding of agricultural products as economic sabotage if the value of goods is over P10 million.

The possession of smuggled goods in a warehouse, vessel, vehicle, or other storage area also counts as economic sabotage under the law.

Violators could face a fine worth five times the value of the smuggled or hoarded goods, and face life imprisonment.

The law also empowers BoC to act against corporations or entities involved in acts of economic sabotage.

Finance Secretary Ralph G. Recto last week said the new law will help boost the government’s revenue collections.

“Through a stronger and stricter crackdown on these offenders, we protect our people’s access to affordable goods and boost our revenue collections, which will allow the government to provide more essential public services to Filipinos,” he said in a statement. — Beatriz Marie D. Cruz

Mabuhay Vinyl invests in P630-M expansion of Iligan City plant

MVC.COM.PH

THE Board of Investments (BoI) said Mabuhay Vinyl Corp. (MVC) has invested P630 million to expand production capacity in Iligan City by 68%.

In a statement on Monday, the BoI said that the company, the Philippines’ sole chlor-alkali producer, hopes to service growing demand for caustic soda and chlorine.

Caustic soda and chlorine are used in the production of laundry bleach, soap, and detergents.

“We recognize MVC’s role in nation-building as the prime supplier of organic and inorganic compounds needed by many industries to transform natural raw materials into consumer goods that are important in daily life,” BoI Executive Director for Investments Promotion Services Evariste M. Cagatan said. 

The expansion upgrades the company’s Ion Exchange Membrane Plant 2, which supplies crucial raw materials for consumer goods.

The works include improvements to its marine-tanker capacity and depot facilities to upgrade the facility’s distribution capabilities.

The upgrades include the adoption of energy-efficient technology, which promise to reduce power and steam consumption and carbon emissions, in line with government sustainably goals.

“This upgrade will not only enhance our operational efficiency but also increase our capacity by 68%,” MVC President and Chief Operating Officer Steve Pangilinan said.

“I am excited about the potential for more projects that will enhance MVC’s competitiveness in the industry,” he added.

According to the BoI, MVC is the only company in the Philippines that produces chlorine in commercial quantities. It also supplies over 50% of the country’s sodium hypochlorite needs.

“Our challenges will continue until we meet the growing demand in the Philippines,” MVC Chairman and Chief Executive Officer Yohei Chikamoto said.

“For that to be realized, we need seamless support from our authorities and shareholders, as well as consistent efforts by our dedicated employees,” he added. — Justine Irish D. Tabile

PHL inflation expected to ease further on decline in rice prices

PHILIPPINE STAR/MIGUEL DE GUZMAN

HEADLINE INFLATION is expected to ease further due to the decline in rice prices, ANZ Research said.

“Inflation is set to ease materially over the coming months as the reduced tariffs on rice imports soften food inflation and lower crude oil prices bring down transport inflation,” it said in its Asia Economic Outlook.

ANZ Research said it expects inflation to average 3.4% this year, in line with the Bangko Sentral ng Pilipinas’ (BSP) full-year forecast.

Inflation likely eased to 2.5% in September, based on the median estimate in a BusinessWorld poll of 15 analysts conducted last week. If realized, this would be sharply lower than the 3.3% posted in August and the 6.1% year-earlier reading.

This would also be the lowest monthly result in nearly four years or since the 2.3% reading in October 2020.

The Philippine Statistics Authority (PSA) is scheduled to release September inflation data on Friday, Oct. 4.

ANZ Research noted that easing rice prices will be the primary factor behind the downtrend in inflation, largely due to the tariff cut on rice imports.

In June, President Ferdinand R. Marcos, Jr. slashed tariffs on rice imports to 15% from 35% until 2028.

The PSA has reported that the rice component of inflation eased to 14.7% in August from 20.9% in July.

“Furthermore, lower crude oil prices have also helped ease transport inflation in recent months. Given slowing global demand, crude oil prices are expected to remain subdued in the coming quarters,” ANZ Research said.

“Moreover, rice production in the major rice-exporting countries (India, Vietnam and Pakistan) has turned up amid favorable rainfall on account of the La Niña weather pattern. This will increase the supply of rice in the global market and help lower rice prices.”

ANZ Research said that elevated inflation has “led to increased cost of living for consumers and hindered private consumption growth, while also depleting household savings.”

Household consumption, which accounts for over 70% of the economy, rose 4.6% in the second quarter, against the 5.5% growth from a year earlier.

“This is far below the pre-pandemic five-year annual average growth rate of 6.2%. The slow growth was mainly due to persistently high inflation since 2022 that led to a steep decline in current and future consumer confidence amid rising inflation expectations.”

“Despite softening inflation and lower interest rates, its impact on private consumption in 2024 is expected to be moderate at best,” it added.

Meanwhile, ANZ Research said that it expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates by 25 basis points (bps) in the fourth quarter.

The Monetary Board’s remaining meetings this year are set for Oct. 16 and Dec. 19.

“Given the improving inflation outlook, our forecasts are in line with the BSP’s expectations. In addition, we forecast another 100 bps of rate cuts in 2025 with the terminal rate at 5.00%.”

The central bank in August cut the key rate by 25 bps to 6.25% from the over 17-year high of 6.5%.

ANZ Research also expects the reserve requirement ratio (RRR) to be cut further in the coming years.

“We expect the BSP to deliver one of the deepest rate-cutting cycles in the region and the simultaneous liquidity injection, via three 250 bps RRR cuts each in 2023, 2024 and 2025, should further support risk appetite including banks’ demand for bonds.” — Luisa Maria Jacinta C. Jocson

Energy transition to depend on pace of industry upskilling

BW FILE PHOTO

TRAINING and upskilling of the energy workforce will help determine the pace of the Philippines’ energy transition, the British embassy said.

At a conference organized by Financial Executives Institute of the Philippines on Monday, Deputy Ambassador Alistair White said that getting the support needed for such upskilling is critical if the energy transition is to move forward.

“Upskilling people who have worked in the industry (will) ensure that they (are) able to access the benefit from the new economic opportunities which we are embracing,” Mr. White said.

Meanwhile, renewable energy developers are banking on energy storage systems to enable electricity delivery as the industry decarbonizes.

“One of the key parts of that is energy storage, batteries, pumped hydro — it doesn’t matter how you store it, as long as it’s relatively cheap,” according to Jonathan Back, ACEN Corp.’s group chief finance officer and chief strategy officer.

“All of these technologies have become lower in price as time has moved on and battery storage is also now in that category,” he added.

Mr. Back said that energy storage also needs to be deployed at “a gigantic scale” in order to “move renewables up the chain from being entirely intermittent to being a more dependable source of electricity.”

Vicente S. Pérez, Jr., chairman of Alternergy Holdings Corp. and a former Energy secretary, said the Philippines needs more energy storage systems to help address intermittency of renewables.

“We must have more energy storage — that could be pump storage, pump hydro, it could be flywheel, it could be battery farms — in order to (smooth out) intermittent power,” Mr. Pérez said.

The Department of Energy (DoE) is planning to conduct two green energy auctions this year, one of which involves integrated renewable energy and energy storage systems.

Separately, Swiss engineering company Sulzer said optimizing existing energy infrastructure could play a crucial role in the energy transition and promises a “practical way” to enhance energy security.

“The Philippines can benefit by balancing its energy transition with strategic investments in optimizing existing infrastructure such as rotating equipment to address power supply challenges and support the broader goal of reducing carbon impact,” Wong Chin Hean, Sulzer’s head of services for Southeast Asia, said in an e-mail interview.

Mr. Wong said that the Philippines, particularly the downstream sector, is facing struggles with “aging infrastructure and maintenance issues.”

“To deal with the need for constantly increasing demand, further efficiencies need to be unlocked — particularly in dealing with extending the service life of aging rotating equipment amid supply chain delays, the lack of OEM (original equipment manufacturer) repair services, and long lead times for spare parts,” he said.

Extending the life of current equipment, which may be pursued through retrofits, re-rates, and reverse engineering, offers a practical way to enhance energy security by increasing efficiency, reliability and output, while cutting carbon emissions.

“Instead of acquiring new equipment, extending the lifespan of existing assets has a significantly smaller carbon footprint,” Mr. Wong said.

Sulzer specializes in energy-efficient pumping, agitation, mixing, separation, purification, crystallization and polymerization technologies for fluids of all types. — Sheldeen Joy Talavera

Taxes on the sale of real property

The COVID-19 pandemic is now slowly becoming part of our forgotten history. Also slowly, real estate companies such as developers, dealers and lessors, are now gaining momentum en route to recovery and growth. With the more relaxed movement of people, real property values have risen alongside the enhanced foot traffic at commercial establishments. Having said this, knowing the proper taxes and tax compliance requirements on transactions surrounding real property have become a key business consideration for real estate companies.

In this article, let us tackle the tax rules applicable to sale of real property classified as “ordinary assets.”

DEFINITIONS
Real property under Revenue Regulations (RR) No. 7-2003 follows the definition laid down in Article 415 of the Civil Code of the Philippines which enumerates 10 items of real property, including land, buildings, roads and construction of all kinds adhered to the soil, and everything attached to an immovable object in a fixed manner, in such a way that it cannot be separated therefrom without breaking the materials or causing the deterioration of the object.

On the other hand, a real estate dealer is defined by RR No. 7-2023 as any person engaged in the business of buying and selling or exchanging real property and holding himself out as a full or part-time dealer in real estate. A real estate developer is any person engaged in the business of developing real property into subdivisions, or building houses on subdivided lots, or constructing residential or commercial units, townhouses and the like for his own account and offering them for sale or lease.

VAT-EXEMPT SALE OF REAL PROPERTY
Not all sale of real property is subject to value-added tax (VAT). In RR No. 1-2024, which amended RR No. 8-2021, it provides that the sale of real property not primarily held for sale to customers or held for lease in the ordinary course of trade or business; real property utilized for socialized housing; and house and lot, and other residential dwellings, with a selling price of not more than P3.6 million effective Jan. 1, 2024, is VAT-exempt.

SALE OF REAL PROPERTY SUBJECT TO VAT, TAXABLE BASE AND INVOICING REQUIREMENTS
Revenue Memorandum Circular (RMC) No. 99-2023 provides that generally, sales of real property classified as “ordinary assets” are subject to VAT (except for the transactions mentioned in the preceding part of this article).

Real property considered ordinary assets include the following: (a) Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or (b) Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or (c) Real property used in trade or business (i.e., buildings and/or improvements) of a character which is subject to the allowance for depreciation provided under Sec. 34 (F) of the National Internal Revenue Code (NIRC) of 1997, as amended; or (d) Real property used in trade or business by the taxpayer.

Further, donation by a VAT-registered person of a real property used in the course of business of the donor-taxpayer and donation by a VAT-registered person of a real property originally intended for use in business are deemed sales of real property classified as ordinary assets and hence shall also be subject to VAT.

VAT, which is equivalent to 12%, shall be based on the gross sales. The definition of gross sales under the Ease of Paying Taxes (EoPT) Act means the total amount of money or its equivalent value in money which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or property, excluding VAT. The excise tax, if any, on such goods or property forms part of the gross sales.

RR No. 99-2023, in relation to RR No. 16-2005, provides that the 12% VAT on the sale of real property be based on the gross selling price of the property, which is the consideration stated in the sale document or the fair market value (FMV), whichever is higher. The FMV is the higher of the zonal value and assessed value.

For VAT purposes, the sale of real property is classified into installment sale or deferred sale, which was left unchanged by the EoPT Act. It is considered a sale on installment plan if the initial payment in the year of sale does not exceed 25% of the gross selling price; otherwise, it is considered as having been executed on a deferred-payment basis.

In installment sale, the seller is required to recognize the output VAT on every installment payment, actually and/or constructively received, including interest and penalties. Correspondingly, the buyer can claim the input tax in the same period that the seller recognized the output tax.

In deferred-payment transactions, the sale is considered a cash sale; hence, the seller is required to recognize the output tax on the entire selling price in the month of sale, with the input tax accruing to the buyer at the time of sale. As such, any subsequent payment will no longer be subject to VAT.

The seller of real property classified as “ordinary assets” are required to issue a Sales Invoice. The same applies to a VAT-registered taxpayer engaged solely in the sale of services but sells a real property used in trade or business pursuant to the EoPT Act.

REPORTING OF SALE IN THE ITR
RMC No. 99-2023 states that if the seller’s registered business with the BIR is real estate, the sale forms part of its gross sales reported in the ITR. Otherwise, the sale, despite the issuance of a sales invoice, does not form part of gross sales, but the gain on such sale of real property must be declared as other taxable income in the ITR. The gain is computed by deducting the book value of the real property from the selling price indicated in the SI. Any creditable tax withheld by the purchase may be claimed as a tax credit.

The copy of BIR Form No. 1606 with proof of payment of the Creditable Withholding Tax must be attached to the ITR where the sales were declared by the seller.

OTHER TAX RETURNS TO BE FILED
The buyer of the real property must file BIR Form No. 1606 for the remittance of expanded withholding tax on the purchase of such real property, and BIR Form No. 2000-OT must be filed by either of the parties for the declaration and payment of the documentary stamp tax (DST) due on sale/transfer of real property.

RPVARA (REPUBLIC ACT NO. 12001)
In June, Republic Act No. 12001 or the Real Property Valuation and Assessment Reform Act (RPVARA) was signed into law. As a summary, this Act prioritizes the adoption and implementation of the Philippine Valuation Standard (PVS). The PVS aims to ensure uniformity in valuing real properties for taxation and other purposes. The law also establishes market value as the single valuation base for assessment, eliminating inconsistencies arising from different valuation methods.

With RPVARA, the BIR is no longer in the position of determining the zonal value of real property for internal revenue tax purposes. This function is now transferred to local assessors, who are required to adopt the PVS to ensure uniform valuation of real property. It is thus expected that the valuation of real property will now be uniform and easier, as this will be determined via the PVS. Hence, the computation of Capital Gains Tax and DST on sale of real property now has a uniform basis.

The law also grants a real property tax amnesty for unpaid real property taxes, including penalties, surcharges and interest. Property owners who want to avail of the amnesty may choose either a one-time payment or installment payment of delinquent taxes within two years after the law’s effectivity.

TAKEAWAYS
The sale of real property is considered to have special tax compliance rules. Hence, with the changes introduced by EoPT and RPVARA, we may expect new regulations to be issued by the BIR to ease the processing of related taxes for real properties and assist the real estate industry with its steady growth.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Alexander M. Querido, Jr. is a manager of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

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