PERA tax rules posted

The long awaited PERA tax rules have been posted.

DRAFT TAX RULES for the long-delayed Personal Equity and Retirement Account (PERA) scheme have been issued by the Bureau of Internal Revenue (BIR), which is seeking final private sector feedback before implementation.

“We published the exposure draft [on our Web site]. We have also had a lot of meetings already with other private sector representatives to incorporate their comments into the tax rules. We don’t expect any major revisions,” Internal Revenue Commissioner Kim S. Jacinto-Henares yesterday said.

The Capital Market Development Council (CMDC) will review the draft rules in the next two weeks and the Department of Finance will approve the final guidelines, CMDC executive director Rescina S. Bhagwani told BusinessWorld.

The tax rules are the last thing needed to roll out the PERA law or Republic Act 9505, which was signed in 2008 to encourage people to save up for retirement. Its implementing rules and regulations were issued in 2009 by the Securities and Exchange Commission and the Bangko Sentral ng Pilipinas.

Similar to the tax rules issued for the Real Estate Investment Trust Act a few months back, the BIR has drawn up stringent guidelines to ensure that the PERA tax exemptions are not abused.

According to the still-unnumbered regulations, a Filipino can contribute a maximum of P100,000 to a PERA account. Overseas Filipino workers (OFWs) are allowed P200,000 in annual contributions. A total of five PERA accounts can be held but they must be maintained by one duly registered administrator.

All PERA contributors are required to submit proof of income for the year to attest that the accounts — and their attendant tax perks — are taken solely from their earnings.

“If they are receiving somebody else’s money, they must be paying donor’s tax,” Ms. Henares said.

The investment income of PERA contributors are exempted from the final withholding tax on interest, capital gains tax on the sale of bonds and shares, 10% tax on cash and property dividends and regular income tax. Non-income taxes such as percentage taxes, value-added taxes and documentary stamp taxes, are still applicable, the draft states.

PERA holders will also be entitled to an annual tax credit equivalent to 5% of all their contributions for the year. Resident Filipinos can charge this tax credit against their income tax liability. OFWs, exempted from income taxes, can charge this against any other national internal revenue tax liability.

“The tax credit arising from PERA contributions shall not be refundable or transferable,” the draft adds.

Moreover, the tax breaks will not be extended to employers who contribute to their employees’ PERA accounts.

“The total of the employer’s and the employee’s contribution to his PERA and all the benefits, including tax incentives and privileges arising therefrom, shall belong to the employee…,” the issuance reads.

“The employee also retains the prerogative to make investment decisions pertaining to his PERA, including the contribution made in his favor by the employer,” it continues.

The employer’s contribution should also be in addition to, and not in lieu of, mandatory Social Security System remittances and retirement benefits required by the Labor Code.

The BIR has proposed a steep penalty system for “any person, natural or juridical, who unduly avails of the tax exemptions and privileges granted herein…”

Those found violating the law will be fined anywhere between P50,000 to P200,000 or imprisoned for six to 12 years. They will also be required to refund the government double the amount of the tax exemptions enjoyed under the PERA Act, plus a 12% interest per annum.

“The PERA Act is a major revenue-eroding measure, but it is a law so we must implement it. The best thing we can do is to ensure that the only exemptions that will be given are those that are granted by the law,” Ms. Henares said.