Do you still remember the “Personal Equity and Retirement Account (PERA) Act of 2008?” Most probably you do not since it has been more than three years since this Act was passed.
The PERA, which was patterned after the US Individual Retirement Account (IRA), is an economic policy instrument introduced as part of the broad strategy to promote capital market development and savings mobilization. PERA is available to anyone who has the capacity to contract and possesses a Tax Identification Number (TIN) and is a good investment alternative as it provides tax advantages for retirement savings which you cannot get from any other investment instruments/products. If you put your money into PERA, you will get a tax credit certificate which you could use to reduce the income taxes you owe.
PERA investment product could be in a form of a unit investment trust fund (UITF), share of stock of mutual fund, annuity contract, insurance pension product, pre-need pension plan, shares of stock or other securities listed and traded in the local stock exchange, exchange-traded bond, government securities, and any other category of investment product or outlet which the concerned regulatory authority may allow for PERA purposes. To qualify as a PERA Investment Product, each specific product must be approved by the concerned regulatory authority.
PERA was approved more than three years ago and the tax incentives under the said Act should have taken effect on January 1, 2009. Its implementing rules and regulations were issued by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas.
Unfortunately, no one has enjoyed the benefit from it pending the issuance of the revenue rules and regulations on the administration of tax privileges and incentives under the said Act.
Recently, the Bureau of Internal Revenue (BIR) released the latest version of the draft revenue regulations (draft RR) implementing the tax provisions under the PERA for public sector’s comments. Since PERA is a tax eroding measure, it is expected that the guidelines are more stringent.
In the draft RR, it was clarified that if the employer made contribution to the PERA of its employee, the former may claim such contribution as deduction from his gross, but only to the extent of the employer’s contribution that would complete the maximum allowable contribution of an employee. Likewise, such contribution made by the employer shall not form part of the employee’s taxable gross income. Accordingly, it is exempted from withholding on compensation or fringe benefits tax.
The draft RR also elucidated that all income from the investment and reinvestment of the maximum amount allowed (i.e., P100,000 per year for individual other than overseas Filipino worker (OFW), and P200,000 per year for OFW), shall be exempted from the following taxes:
• Regular income tax
• Final withholding tax on interest
• Capital gains tax (CGT) on sale, exchange, retirement or maturity of bonds, debentures or other certificate of indebtedness
• Final tax on dividends
• Capital gains tax on sale, barter or exchange of shares of stock in domestic corporation
However, taxes other than income tax shall be imposed on such income, if applicable. Such taxes include, among others, percentage tax, value-added tax, stock transaction tax (STT) on sale, barter, exchange of shares of stock listed and traded through local stock exchange; and documentary stamp tax.
Accordingly, it would be expedient if PERA account will be invested in share of stock not listed or traded through the local stock exchange than investing on listed shares since the former will be exempt from CGT while the latter will be subject to STT. But why would it favor the non-listed shares? The most logical conclusion is that, its exemption is limited only to income tax. Since STT is an indirect tax, it is not covered by the exemption.
On the other hand, for early withdrawal of PERA (i.e., distribution of PERA assets less than five years and the Contributor is less than 55-years-old, except in case of death), penalties will be imposed. Among the penalties is the imposition of taxes that were previously exempted. The computation of tax on early withdrawal shall reckon from the date the benefits accrue to the contributor (e.g., on the date the tax credit has been claimed in the income tax return).
Interestingly, one of the taxes that may be imposed as penalty upon early withdrawal is the STT. But why would it impose STT as penalty when in the first place, based on the draft RR, investment income of PERA account is not exempted from STT? Or does this mean that the real intention is to exempt it from STT? Hopefully, this is just an oversight and in the final RR this should be addressed.
PERA would benefit ordinary people since this would encourage them to save for their retirement. It is a good retirement savings device which will allow them to look forward to a comfortable and financially secure retirement. Although PERA is a tax-eroding measure, it is a law that must be implemented. Otherwise, the law is useless. The revenue regulations are the last things needed to roll out PERA. We just hope that these will finally be released.
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Source: Business World, November 1, 2011
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