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In pursuit of taxes: BIR sights real estate practitioners

TOP OF MIND By Carissa Ann M. Eñano (The Philippine Star) | Updated July 30, 2013 -
The real estate industry is one of the fastest growing businesses in the country today. One only needs to take a quick stroll around the city to see the new buildings sprouting aplenty amidst several other commercial and residential developments. As a consequence of this growth, agricultural lands are converted into commercial and industrial lots. Indeed, the Philippines appears to be in the midst of a real estate boom. Thus, it is no wonder that the Bureau of Internal Revenue would like to have a slice of the pie, so to speak and collect the proper taxes that may result in the additional income which is a logical consequence of this boom. This is certainly underscored by issuance of the BIR of Revenue Regulations No. 10-2013 (RR 10-13).
Under the BIR regulation, starting June 1, 2013, real estate practitioners are now included as among those professionals falling under Section 2.57.2(A)(1) of RR 2-98, as amended by RR 30-2003. This means that Real Estate Service Practitioners (RESPs), consisting of consultants, appraisers, assessors, brokers and salespersons which are duly-registered and licensed pursuant to Republic Act No. 9646 or known as the “Real Estate Service Act of the Philippines” shall be subject to a creditable withholding tax of 15 percent, if the gross income for the current year exceeds P720,000; and 10 percent, if otherwise.  In order to determine the applicable tax rate, the real estate practitioner shall periodically disclose his gross income for the current year to the BIR by submitting a sworn declaration.
The issuance of the regulation does not mean that real estate practitioners were not subject to withholding tax on income payments before. Prior to RR 10-13, Section 2.57.2 (A) (1) of Revenue Regulation No. 2-98 already has a catch-all phrase – that “…and all professions requiring government licensure examinations and/or regulated by the Professional Regulations Commission (PRC), Supreme Court, etc.”.  Thus, when Republic Act No. 9646 took effect, all licensed real estate practitioners fell squarely on the mentioned provision.
An interesting point, however, lies in Section 3 of RR 10-2013. The said provision states that “Section 2.57.2(G) of RR 2-98, as last amended by RR 14-02, is hereby further amended to read as follows:
Section 2.57.2. – Income payments subject to creditable withholding tax and rates prescribed thereon. – xxx
(G) Income payments to certain brokers and agents. – On gross commissions or service fees of customs, insurance, stock, immigration and commercial brokers, fess of professional entertainers and Real Estate Service Practitioners (RESPS) (i.e. real estate consultants, real estate appraisers and real estate brokers) who failed or did not take up the licensure examination given by and not registered with the Real Estate Service under the Professional Regulations Commission. – 10 percent.”
It appears that the BIR may have sought to clarify what may appear to be an ambiguous provision of Section 2.57.2 (G) where the term “real estate” brokers and agents were not qualified, because Section 2.57.2 (A) (1) covers only  real estate practitioners that have been duly-licensed.
Based on the above, even if the real estate practitioner is not licensed or may have failed the licensure examination, the transaction would still be subject to withholding tax.  This is consistent with the principle that all income is taxable, unless subject to exemption under the law; even income derived from illegal means.
However, one can see what may appear to be an unintentional consequence of the regulations. Note that under these regulations an unlicensed real estate practitioner who earns gross income of more than seven hundred twenty thousand (P720,000) pesos for the current year shall be taxed at only 10 percent as  compared to a licensed real estate practitioner who shall be subject to a higher rate of fifteen percent. In effect, if this ambiguity is left unaddressed, it may discourage real estate practitioners from aspiring to be licensed real estate practitioners in a growing industry that calls for regulation.  The Declaration of Policy of RA 9646 (RESA Law) affirmed the State’s commitment “to develop and nurture through proper and effective regulation and supervision a corps of technically competent, responsible and respected professional real estate practitioners whose standards of practice and service shall be globally competitive…xxx.”  Real estate practitioners play an essential role in nation building.  Their part in the social, political, and economic development of our country is significant because of their sizeable contribution in government income resulting from their real estate transactions.
Nevertheless, the prime consideration of these regulations is essentially the proper collection of taxes.  The Bureau of Internal Revenue is aware of the common practice that any person, even if not duly-licensed under the law could still engage in real estate service.  Thus, to avoid any traces of doubt or uncertainty, the Bureau of Internal Revenue issued these regulations.
Carissa Ann M. Eñano is a supervisor from the tax group of Manabat Sanagutin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com
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KNOWING YOUR BIR REGULATIONS AND ISSUANCES

Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
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