GMA urged to scrap VAT on housing loans

The Chamber of Real Estate and Builders Associations (CREBA) and the banking industry have appealed to President Arroyo and Congress to exempt bank housing loans from the value added tax (VAT).

Lawyer Manuel M. Serrano and Florentino S. Dulalia Jr., respectively CREBA chairman and national president, with representatives of the Bankers Association of the Philippines (BAP), took up the issue during a recent meeting with President at the Dusit Hotel in Makati City.

The BIR in Revenue Regulations 12-2003 has started to apply the previously deferred 10-percent VAT on banks’ interest income under the VAT Law.

CREBA stressed that a VAT on bank housing loans is highly prejudicial to the housing industry, the homeless millions that it serves, and the entire economy and the government itself. The taxes on bank lending are inevitably passed on to the borrowers as there is simply no way by which this could be prevented.

CREBA cited the following grave consequences of imposing VAT on housing loans:

1. It would considerably increase loan amortization which, in turn, means considerable reduction in take-home pay. The government imposition is perceived as highly insensitive at this particular time when most people are already being squeezed dry by high prices of goods and services on the one hand, and low per capita income on the other.

2. It would mean a further contraction of the housing industry which is just now only starting to recover at a snail’s pace. Current buyers with outstanding loans may likely face foreclosure if they do not cover the additional 10-percent VAT. Prospective buyers will be completely discouraged and those who would otherwise qualify for housing loans would be disqualified in view of a lower borrowing or paying capacity resulting from increased loan amortization.

3. The situation would seriously derail the administration’s thrust of stimulating the housing industry not only to resolve the problem of homelessness but, more importantly, to jumpstart the stagnated economy.

4. Any revenue from the VAT on bank housing loans may bring in may not be sufficient to compensate for the billion peso revenues from other indirect taxes, including income tax an other taxes on the housing industry and 65 downstream industries, that will be foregone with the continued dormancy in the housing industry.

5. There is also concern that a VAT on bank housing loans may take on the character of double taxation. The act of borrowing to purchase a housing unit is already subject to VAT, and yet repaying it is again being subjected to VAT. In this case, the constitutionality of the imposition may be subject to judicial challenge.

CREBA also took up with the President the issue of promoting better land access to boost housing production and thus ease the backlog of some five million housing units, especially for the homeless masses. The President was reported to have agreed to address the issue with the developers in the next meeting together with DAR Secretary Roberto Pagdanganan.

Last year, CREBA and four other industry organizations signed in the presence of the President a memorandum of agreement with the Department of Agrarian Reform (DAR) and the Housing and Urban Development Coordinating Council (HUDCC) on the provision of equitable land access for housing and urban development.

DAR agreed to make available at least 200,000 hectares of land for housing and urban development for the next 20 years. But the MOA is still to be fleshed out with a DAR-private sector mechanism. CREBA is asking for continuing discussions and working closely in achieving the constitutional goal of helping both the rural and urban populace in their basic needs.