This is an article repost.
Yes, the title is meant to be a pun, but whether it is pera (Filipino term for “money”) per se or the real subject matter of this article — the Personal Equity and Retirement Account (PERA) — both seem to invariably elude us.
Since the PERA’s introduction in 2008, the Bureau of Internal Revenue (BIR) has remained mum on its tax administration, supposedly through the issuance of a revenue regulation (under PERA Rule 17).
Hence, it came as no surprise when early last week, news came out that the BIR is pushing back once again the issuance of the revenue regulation on PERA until the end of July, instead of June 30, as originally announced.
Prudent Filipinos, then, who want to ensure that they are getting the best deal out of their investments, may have to hold on to their pera for a little longer before investing in PERA.
As a bit of a refresher, PERA is an individually managed retirement account which can be established by any Filipino, whether employed or self-employed, in the Philippines or overseas, with the capacity to contract and who possesses a Taxpayer Identification Number or TIN.
Setting up a PERA typically involves three parties: the contributor, the administrator and the custodian.
Briefly, the role that each party plays is as follows:
• Contributor — the party who establishes and makes contributions to a PERA;
• Administrator — the party who administers, oversees and maintains the records of the individual PERA;
• Custodian — the party that receives the funds and takes custody of the PERA assets. The custodian operates independently from the administrator.
Unlike most retirement plans, PERA allows the contributor to make investment decisions pertaining to his account, either directly or through an investment manager.
That said, the PERA administration might involve a fourth party — the investment manager.
The PERA rules provide for the following aggregate maximum annual contribution limit per individual (in the case of married individuals, they may contribute twice the allowable maximum limit):
• P100,000 for Filipinos living in the Philippines; and
• P200,000 for Filipinos overseas.
The above limits pertain only to the amount that will be eligible for tax incentives.
Thus, strictly speaking, a contributor is allowed to contribute any amount to his PERA without limitation.
However, any amount in excess of the prescribed contribution ceilings shall no longer be entitled to tax incentives.
Under the Rules and Regulations implementing the PERA, a contributor is allowed to create and maintain a maximum of five PERA at any one time, but should have just one administrator for all his PERA accounts.
Other than the potential return on investment, what makes PERA more attractive are the following tax perks that come with establishing one:
• income tax credit of 5% of the total PERA contribution;
• tax exemption of all investment earnings; and
• tax exemption of fund distribution arising from authorized withdrawals, i.e., upon retirement (at least 55 years of age with at least five years of contributions) or death.
As they are written, these tax perks do look good (in fact, too good) on paper.
However, whether they will be as good and straightforward, when implemented, is something that we will find out only when the tax regulations on PERA are finally released.
Then again, that may have to wait.
One of the reasons cited by the BIR for the delay in the issuance of the regulation is the bureau’s concern with regard to identifying and documenting nonresident citizens, perhaps, because they get twice the amount of tax perks than ordinary citizens in the Philippines.
Thus, the BIR needed to be careful in approving the revenue regulation to prevent the incentives from being misused.
While this is a valid excuse, I can’t help but wonder why this has not been addressed — or at the very least, identified — during the early stages of the PERA law’s enactment.
Isn’t it already too late for the BIR to doubt its capability to administer the tax incentives of PERA?
As aptly described by Martin R. Holmer (in his role as short-term pension policy advisor to the Philippine government) in his report on PERA:
“It could be argued that establishing a voluntary, tax-favored individual retirement account, without first establishing a sound mandatory pension system and a sound tax administration system, is like skipping the nutritious meal and eating only the dessert,” Mr. Holmer wrote.
“Most other countries have introduced a voluntary, tax-favored individual retirement account after ensuring that its mandatory pension system was adequate and sound and that its tax administration system was efficient enough to administer voluntary individual retirement accounts.”
So, in the case of the Philippines, have we jumped into PERA too soon?
Possibly.
In fact, with the seemingly long delay in the implementation of the PERA law, it is very easy to be pessimistic about its expected benefits.
However, we can also choose to be optimistic about it.
Who knows? PERA can pave the way for the Philippines to have a better managed public sector pension.
Likewise, this can spur innovation in government offices to accelerate. For instance, to facilitate the identification and documentation of the nonresident citizens, it may be high time for the BIR to consider linking up its database systems with the Overseas Workers Welfare Administration.
Of course, optimism is easier said than done.
However, just knowing that steps are being taken should be enough to give taxpayers a hefty dose of hope for their PERA (again, pardon the pun).
The author, Geraldine C. Esguerra-Longa, is a Director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback via e-mail to [email protected].
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
==============================================================================
Source: Business World, July 21, 2011
To view the original article, click here.
Comment here