Death and taxes

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The House of Representatives recently approved a bill that would extend the estate tax amnesty period until Dec. 31, 2028.

This would cover the estate of decedents who died on or before Dec. 31, 2024, with or without assessments issued, whose estate taxes have remained unpaid or have accrued as of the same date.

This estate tax is a one-time payment for the legal transfer of ownership of a deceased person’s assets to their lawful heirs and beneficiaries.

House Bill 6614 also provides that payment by installment shall be allowed within two years from the statutory date for its payment without penalty and interest and the minimum initial payment shall be at least 25 percent of the total amount due.

According to the Department of Finance, it supports the estate tax amnesty bill since this would give more Filipino families the opportunity to settle obligations on inherited properties and grant relief to families who are unable to formalize inheritance because of financial and other constraints.

At present, the government imposes a flat estate tax rate of six percent on the net value of the estate of the decedent as per the Tax Reform for Acceleration and Inclusion or TRAIN Law, effective 2018.

As Benjamin Franklin once said, “in this world, nothing is certain except death and taxes.” Even after one’s death, the government will tax whatever properties that the decedent will pass on to his lawful heirs or beneficiaries.

Interestingly, there is another bill, House Bill 6563 introduced by 1 Tahanan Party-List Rep. Nathaniel Oducado and filed just last Dec. 2, which this time, wants to have the estate tax abolished.

It noted that the imposition of the estate tax under the National Internal Revenue Code (NIRC) has long been identified as one of the most administratively burdensome taxes in the country and that despite multiple reforms, including the reduction of the rate to six percent under the TRAIN Law, estate tax collections remain negligible relative to total government revenues.

Oducado pointed out that the properties subject to estate tax have already been subjected to income tax, real property tax and capital gains tax, further questioning the necessity of this additional levy.

He revealed that while last year, total national government revenues reached a record P4.419 trillion, the government was only able to collect P7.41 billion from 133,860 beneficiaries who availed themselves of the amnesty from the start of the program in 2019 until March 31, 2023. On the average, estate tax collections under regular compliance plus amnesty proceeds amount to only P7 billion a year, representing about 0.15 percent of the 2024 revenue haul.

Such negligible returns, he said, raise serious doubts about the continued utility of the estate tax, especially when balanced against its administrative and social costs.

Oducado also emphasized that many cannot afford to pay estate tax, resulting in untitled or frozen properties that cannot be sold, developed, used as collateral or transferred to the next generation.

“This perpetuates poverty by keeping families from unlocking the economic value of their own assets. In many communities, heirs live on the land of their parents or grandparents but remain unable to secure legal ownership simply because they cannot shoulder the tax,” he added.

The bill seeks to repeal Section 84 of the NIRC and all other provisions imposing estate tax on the transfer of the net estate of every decedent, whether resident or non-resident. Transfer shall require only proof of death, proof of heirship, settlement instrument and payment of the appropriate documentary stamp tax, capital gains tax and other applicable taxes, except estate tax.

Albay Rep. Raymond Adrian Salceda has also recently filed a bill to abolish the estate tax and shift the taxation of inherited property to the point of sale through the capital gains tax system.

Salceda, who authored House Bill 6553, explained that the estate tax no longer reflects the way wealth is structured today, saying the rich can easily escape paying taxes since most of their wealth is placed in corporations while the ordinary Filipino family has no way of restructuring their assets.

Under the bill, heirs will not pay estate taxes but the inherited property will be taxed only when it is sold.

Southern Leyte Rep. Christopherson Yap has also filed House Bill 6702 also proposing to abolish the estate tax. The bill aims to help families make better use of the properties left by their loved ones by removing the burden of paying estate taxes.

Yap explained that estate tax remains confusing, costly and burdensome for many Filipinos.

Law expert Atty. Mel Sta. Maria earlier recommended the abolition of the estate tax, calling it largely ineffective and burdensome. He said that most Asian countries have already removed such tax.

Countries that do not impose estate taxes include Singapore, Malaysia, Indonesia, India, Thailand, Laos, Myanmar, Mongolia, Bhutan, Cambodia, Pakistan, Bangladesh, East Timor, Australia, New Zealand, Micronesia, Papua New Guinea and Guam, Sta. Maria said.

It is said that Australia removed the estate tax, also known as death duties or inheritance tax, back in 1979. One of the reasons for this is that this tax was considered a voluntary tax for the wealthy who could easily avoid it through sophisticated estate planning such as using trusts, making the tax system inequitable as it primarily impacted those who died unexpectedly or lacked proper advice.

Inherited assets, however, may be subject to capital gains tax when sold while income tax applies to any dividends, interest or rental income generated from inherited shares or property.

Instead of an amnesty bill, why not just abolish the estate tax altogether? At this time when Filipinos feel that the taxes that they are paying are not being spent by the government properly, easing the burden especially of those who had just lost their loved ones by abolishing this death tax is one way of sending a message that the government still cares.

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