New laws
The Philippine Stock Exchange(PSE) welcomes the passage of the Real Estate Investment Trust (REIT) Act into law, the fourth landmark legislative reform proposed by the PSE to boost the Philippine capital markets. PSE president and chief executive officer Francis Lim said he received the notice from the Office of the President that the REIT bill lapsed into law as Republic Act No. 9856 entitled, "An Act Providing the Legal Framework for Real Estate Investment Trust and for Other Purposes". "We are extremely grateful to our Congress led by Senator Ed Angara and Congressman Sonny Angara and President Gloria Macapagal-Arroyo for making R.A. No. 9856 or the REIT law a reality. We are getting a lot of interest from many of our property firms for REIT listings. This landmark law will put the Philippines at par with the rest of the world which has had REITs for over 20 years," Mr. Lim said.
The Department of Finance (DOF) recommended presidential veto of the bill basically because of its impact on the tax collection efforts of the Government but the PSE pushed for the bill to become a law. "We worked extremely hard on this piece of legislation for the past three years and we were seriously concerned that our time and efforts would go down the drain when we were informed that the DOF recommended presidential veto of the bill. But we think that Congress had already addressed the concerns of the DOF even up to the bicameral conference committee," Mr. Lim said. In a last-ditch effort to save the bill, the PSE filed position papers with the Office of the President citing various reasons why the bill should become a law. Contrary to fears that the fiscal incentives in the law may undermine the revenues of government, Mr. Lim explained that the REIT law can even help contribute to the government coffers. "The REIT law promotes transparency for tax reporting purposes. Moreover, the new business opportunities that will be created should translate to a broader tax base for government." Mr. Lim further pointed out: "The perceived tax revenue loss is more imaginary than real. There is at present no REIT industry to speak of. Without a REIT law put into place, there will be no REIT transactions and, therefore, there will be no tax revenues. Furthermore, an independent study conducted by a team from the University of Asia and the Pacific concluded that the Government will not only recover every peso of tax incentive but stands to gain between P0.15 to P0.35 more over a 15-year period. This conclusion was made on the basis of the March 28, 2009 version of the bill, which granted far more liberal tax incentives than the enrolled version." The REIT Act has lapsed into law on December 17, 2009 after President Glora Macapagal-Arroyo did not veto it within 30 days from receipt of the enrolled bill by the Office of the President from Congress. "The REIT law will develop the capital markets in the Philippines and provide much needed investment opportunities for institutional and retail investors to increase the wealth of the population through a lower risk instrument. It will also boost the development of real estate in the country by releasing capital for reinvestment into land and buildings, leading to increased productivity and more jobs," Mr. Lim said. "It will attract foreign investment into the country and broaden control of a key sector of the economy, putting it into the hands of investors." Aside from the REIT law, another landmark capital market reform was the law permanently abolishing the documentary stamp tax (DST) which was passed last June 30. The Personal and Equity Retirement Account Law and Credit Information System Law were also enacted last year to further enhance the capital markets. The REIT law will provide the regulatory and tax framework for REITs, which are companies that own and operate income-producing real estate assets. Shares of these REITs are to be listed on and traded at the PSE. To encourage investments in REITs, the REIT law provides certain tax incentives to the REIT. However, in order to enjoy these incentives, the REIT must be listed with a stock exchange and maintain its status as a listed company and annually give out at least 90 percent of its distributable income to shareholders. In the Senate, the REIT law was authored by Senator Edgardo Angara. At the House of Representatives, versions of the REIT law were filed by Representatives Juan Edgardo Angara; Abraham Kahlil Mitra; Paul Daza; Hermilando Mandanas; Ramon Durano VI; Eduardo Nonato Joson; and Roman Romulo. The REIT law was also endorsed to the plenary by Congressman Durano, who chairs the House Committee on Economic Affairs and Congressman Exequiel Javier, the Chairman of the House Committee on Ways and Means.