Housing sector bats for 10% ceiling on bank lending rates

Housing industry leaders yesterday called on the government to impose a ceiling of not more than 10 percent on bank lending rates and at the same time abolish the various taxes on bank transactions in order to spark economic recovery.

These taxes are the gross receipts tax (GRT), value-added tax (VAT), documentary stamps tax (DST), and the tax on interest income.

The housing leaders also called for the abolition of the 20 percent final tax on depositors’ interest income to generate greater inflow of savings into the banking system.

And to encourage more borrowings for business purposes, housing leaders said, the current bank practice of requiring joint and solidary obligation in case of corporate borrowings should be declared as illegal and contrary to public policy.

Lawyer Manuel Serrano, founder and chairman of the Chamber of Real Estate & Builders’ Association (CREBA), said that the perennially high cost of borrowing and the difficulties in loan availment have been a major disincentive to business creation and expansion, particularly in the case of small and medium scale businesses.

Without these measures, Serrano said, the business sector would continue to starve for reasonably priced capital necessary to rise out of the long-standing economic doldrums, while the banking system continues to remain awash with idle funds that would simply feed the speculative urge.

Serrano pointed out that a tax-exempt fixed lending rate of 10 percent would ensure bank viability and growth when imposed simultaneously with the abolition of the taxes mentioned.

The concomitant loss in government tax revenues would be more than offset by an increase in other tax revenues that business expansion – particularly in the housing sector – would generate, Serrano said, even as the government can always come up with more tenable alternative revenue sources such increased taxes on "sin" products, idle lands, luxury goods, non-essential imports and the like.
More importantly, Serrano said, the reduction in borrowing costs would translate to savings that would provide business firms with sufficient flexibility to comply with legislated wage increases.

By giving business a wider breathing room via a lending rate cap, government would be according itself sufficient justification to legislate an increase in minimum wages of as much as P75 to P100, Serrano said.

The impact of this twin strategies – i.e. bringing down the cost of production via an interest rate cap, which would translate to lower prices of goods and services, and hiking minimum wages to reasonable levels, which would improve purchasing power – would serve to place the economy on course towards speedy recovery and growth, Serrano said.

As the institution of these measures may take time due to the need for legislation, however, Serrano said the BSP can immediately take the initial step of imposing an interest cap by simply revoking CB Circular 905 which lifted the rate ceilings imposed under the Anti-Usury Law.