PSE seeks compromise on REITs taxation

MANILA, Philippines - With the market hitting historic highs, the Philippine Stock Exchange (PSE) said it is hoping to work out a compromise with the government to soften rules on taxation of real estate investment trusts (REITs) to pave the way for the listing of these securities.

PSE president Hans Sicat said the exchange is considering going back to the negotiating table with the government with respect to the stringent tax rules for REITs which include a 12 percent value-added tax on transfer of assets and a 30 percent income tax rate.

“We hope to bring it back for discussion. We hope to make it more investor friendly,” Sicat said.

Property firms that earlier expressed interest in listing REITs turned to other funding sources available to them due to the mentioned conditions that will be imposed on REITs.

Sicat said the REIT Law failed to attract issuers after implementation.

Another contentious provision is the requirement that the REIT firms must have a 40 percent minimum public float in the first two years from listing and increase this to 67 percent by the third year. The private sector wanted the requirement brought down to 33.33 percent.

Sicat said the initial levels required in the Philippines are already higher than other REIT frameworks in the region, based on a comparative study that includes Singapore, Malaysia, Hong Kong, Thailand, South Korea and Japan, as well as those in Australia, the US and the UK.

The rules of the Bureau of Internal Revenue state that REITs could avail of tax incentives if they maintain the required minimum public ownership and allocate to shareholders at least 90 percent of their distributable income.

REITs are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses and shopping centers.

Share prices of property firms have been on an upward trend especially after the central bank slashed interest rates in a bid to further fuel the local economy. A rate cut is expected to stimulate more first-time home buyers.