Senate to fast-track estate tax reform

The Senate will fast-track moves to reform the estate tax regime following the Lower House’s passage of a similar measure while the Department of Finance plans an amnesty on unpaid dues.

At a Senate ways and means committee hearing Tuesday, its chair Sen. Sonny Angara noted that estate tax rates have not been adjusted for two decades now such that the tax burden had “led families to delay settling the estate, resulting in huge penalties and surcharges while the use of assets are not maximized.” Under the Tax Code, the tax rates range between 5 percent and 20 percent in four tiers, based on the assets’ value, with an exemption for net estate of up to P200,000.

Angara earlier filed Senate Bill No. 980, which will index estate tax brackets to inflation and raise the minimum taxable net estate to P460,000.

According to Angara, his bill would also “adjust the allowable deductions to make it more realistic and equitable such as funeral expenses (from P200,000 to P500,000), the value of the family home (from P1 million to P2 million), standard deduction (from P1 million to P2 million), medical expenses (from P500,000 to P1 million) and the allowable bank withdrawal (from P20,000 to P200,000).”

Besides SB 980, six other bills were filed in the Senate all aimed at easing heirs’ tax burden from their deceased relatives’ assets.

Angara said the committee would prioritize and fast-track the passage of the counterpart House bills passed last Monday, specifically HB 4814 aimed at granting an estate tax amnesty, as well as HB 4815 that would bring down the levy to a flat rate of 6 percent.

During the hearing, Finance Assistant Secretary Mark Dennis Joven said the Department of Finance already had a draft bill for a proposed abatement law for estate tax, which would be incorporated in the first package of the comprehensive tax reform program.

Joven said an abatement law would remove surcharges, in contrast to an across-the-board amnesty that removes the entire obligation to pay. The Finance official noted that since real estate taxation was computed at the time of the owner’s death, the different rates across previous tax regimes might create confusion.

“The DOF’s position is to create efficiency in the transfer of land and create value in the transaction, so we want to lower estate tax to around 6 percent,” Joven said, adding that they were proposing allowable deductions of up to P4 million, of which P3 million were for family home on top of the P1-million standard deduction.

For the part of the BIR, Commissioner Caesar R. Dulay said the country’s biggest tax-collection agency supported the DOF position.

National Tax Research Center executive director Trinidad Rodriguez said during the hearing that a uniform estate tax rate would “minimize manipulative tax planning in reducing taxes, hence broadening the tax base as more will be encouraged to pay.” Some try to avoid payment of estate taxes by donating land.

As for the planned amnesty, Rodriguez said the NTRC, the country’s tax think tank, supported this move to “encourage settlement and complement the tax collection efforts of the BIR” while also stimulating real estate investments.