On May 24, 2021, with 23 affirmative votes, the Senate Committee on Ways and Means approved on third and final reading Senate Bill 2208 (SB 2208), which amends Section 6 of Republic Act 11213 (RA 11213), otherwise known as the “Tax Amnesty Act.” The bill sought to extend the estate tax amnesty for two years or until June 14, 2023.
The proposed bill will head to Malacañang directly for President Duterte’s signature without the need to go through the Bicameral Conference Committee after the House of Representatives moved to adopt the Senate’s version of the measure as an amendment to House Bill 7068 (HB 7068), which is the House’s version of estate tax amnesty extension.
On May 18, 2021, during her sponsorship speech, Sen. Pia Cayetano, ways and means committee chairperson, said that the community quarantine imposed in various parts of the country prevented taxpayers from availing of the benefits and privileges under RA 11213. She further said that the Bureau of Internal Revenue (BIR)’s collection from the estate tax amnesty program is only P2.5 billion which is below its expected estimated additional revenue of P6.28 billion. Thus, the committee deems it appropriate to push for the Tax Amnesty Act extension for another two years.
The proposed measure, SB 2208, is essentially identical to HB 7068. The Senate did not deviate from the House’s version, but introduced one new amendment, which is the removal of the requirement of the proof of settlement – citing it as one of the main reasons for non-availment of the estate tax amnesty. Also, under the Law on Succession, ownership is transmitted upon the death of the decedent, whether it has been supported by any judicial or extrajudicial form.
To recapitulate, on Feb. 14, 2019, RA 11213 was signed into law. The law grants taxpayers a one-time opportunity to settle their tax obligations on all unpaid internal revenue taxes imposed by the national government for taxable year 2017 and prior years with respect to estate tax, other internal revenue taxes, and tax on delinquencies with a view of providing the additional revenues to support government projects.
Under Section 6, Title II of the Tax Amnesty Act, the executor or administrator, or if there is no executor or administrator appointed, the legal heirs, transferees or beneficiaries who wish to avail of the estate tax amnesty shall file a sworn Estate Tax Amnesty Return (ETAR) within two years from the effectivity of the Implementing Rules and Regulations (IRR) of this act. On May 30, 2019, The BIR issued Revenue Regulation (RR) 06-2019, the IRR of Tax Amnesty Act which took effect on June 14, 2019. Thus, parties may settle any of their unpaid estate taxes until June 14, 2021. Furthermore, the same section also requires that a proof of settlement of the estate, whether judicial or extrajudicial, shall be attached to the ETAR in order to verify the mode of transfer and the proper recipients.
Pursuant to SB 2208, there are two salient amendments proposed in Section 6, Title II of the Tax Amnesty Act. Firstly, it will extend the period of availment of the benefits and privileges under the estate tax amnesty for another two years or until June 14, 2023 and secondly, to remove the requirement, the proof of settlement of estate, whether judicial or extrajudicial, in order to avail of the estate tax amnesty. These amendments to the Tax Amnesty Act, when approved and becomes a law, is a welcome development in efforts to give reasonable tax relief and simplify the requirements on tax amnesty.
The extension of the period of availment of the estate tax amnesty for another two years will afford Filipinos additional time to settle their outstanding tax liabilities. It will give convenience to those living outside the Philippines or those whose assets and properties are situated in another locality due to easing of travel restrictions. Soon after we transition to the new normal and restrictions are being lifted, they will have ample time to accurately prepare their ETAR. At the same time, this will provide the government with additional revenues. According to the assessment of the National Tax Research Center (NTRC), the grant of estate amnesty will unlock assets still registered under unsettled estates so that these may be used for commercial or economic activities that would create investment, jobs, and taxable transactions. It will promote full economic activity upon the property.
The estate tax amnesty will benefit those who have unsettled estate tax liability as they will only pay either the rate of six percent or the minimum amnesty rate of P5,000 in case there is negative net asset or when the amount of allowable deductions at the time of the death of the decedent exceed the gross estate. The six percent rate of tax amnesty is pursuant to RA 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law. Also, as an added grant, parties who will avail of the tax amnesty program will be spared from all penalties, which is favorable to taxpayers because at times the penalties and surcharges are higher than the basic tax liability.
Also, noteworthy in the proposed amendment is the removal of the requirement of the proof of settlement. Pursuant to Section 6, Title of the Act, the proof of settlement of the estate, whether judicial or extrajudicial, shall likewise be part of the attachment to ETAR in order to verify the mode of transfer and the proper recipients. Under SB 2208, this requirement is removed because it was pointed out by various resource persons during the Senate hearing that this requirement causes hardship from parties to comply. This may be rooted from the fact that not all heirs of the decedent may be amicable in distribution and division of their shares in the assets and properties or the fact that settlement of property, whether judicial or extrajudicial involves tedious process for the heirs and may take time to finish.
During the Senate committee hearing, it was suggested that the heirs be permitted to pay estate taxes first before the settlement of the estate, but does not amount to removal of the requirement. As mentioned by the Senate and provided also in Article 777 of the Civil Code, the rights to the succession are transmitted from the moment of the death of the decedent. This was their justification for such removal. However, prior to securing a Certificate Authorizing Registration, the BIR may still require proof of settlement after the payment of estate taxes.
The Senate, in approving SB 2208, recognized that this piece of legislation will help our economy recover as we shift to the new normal. We have not only lost lives during this pandemic, but we also lost time and opportunity. These amendments will restore to potential taxpayer the opportunity to settle their estate taxes at a reduced rate without penalty.
Renier Aries A. Razon is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co.