PSE to bat for changes in REIT tax structure

The Philippine Stock Exchange (PSE) is set to bat for further changes in the rules for Real Estate Investment Trusts (REIT) to attract issuers that have been turned off by the high tax rates.

PSE president Hans Sicat said the bourse’s efforts to establish REIT as a new investment vehicle have failed because of high taxes imposed by the Bureau of Internal Revenue (BIR).

“REIT companies are supposed to list on the exchange to raise money. But what happened was the (Department of Finance) and the BIR said the original tax structure was unacceptable,” Sicat told reporters.

“They decided to slap a new tax structure. We capital market players argued that when you have an uncompetitive tax structure, no one will take up the product,” he said.

REITs are property-backed trust instruments that are supposed to pay rental income to their investors. Ideal properties to be listed under the REIT programs are office or retail buildings, among others.

In 2011, the finance department decided to impose a value-added tax on properties that would be transferred to REITs. The government also decided to require a minimum public ownership of 40 percent, which would be expanded to 67 percent three years after listing.

Since the rules were approved in 2011, no real estate developer has come forward to list any of their properties under the REIT program.

“Not one company that wanted to list in the past has done so,” Sicat said, adding that this was proof that the REIT program has failed.

Sicat said the PSE would discuss the possible rule changes at the Capital Market Development Council, which is made up of members from both the government and the private sector.

Sicat said the country’s recent upgrade to investment-grade status by Fitch Ratings and Standard & Poor’s should relieve some fiscal pressures on the government, which he hoped would make the BIR more agreeable to lower taxes for REITs.

He said the government should also consider that it was losing out on foregone tax revenues because no one was using REITs at all.

“It will depend on how fiscal authorities look at it,” he said.