Pera law faces more delay

By VG Cabuag, Business Mirror

Posted at Jul 11 2011 07:36 AM | Updated as of Jul 11 2011 09:44 PM

MANILA, Philippines - The implementation of the Personal Equity Retirement Account (Pera) law is likely to be delayed further because the Bureau of Internal Revenue (BIR) fears unscrupulous people might take advantage of the law and declare themselves overseas Filipino worker (OFW) to claim tax credits.

The Pera law should have taken effect on January 1, 2009, but the BIR had been slow in issuing the implementing order owing to its revenue- eroding provisions.

Internal Revenue Commissioner Kim Henares told reporters that BIR officials were having a hard time defining an OFW—who could be declared as such, or how to document their whereabouts, among other issues.

All Filipino citizens are entitled to the tax credits offered, whether they’re residing here or are abroad. But overseas Filipino workers are entitled to bigger tax credits.

The BIR’s problem is how to determine who are qualified to avail themselves of the bigger credits.

“If we don’t define the nature of OFW, everyone [who works abroad] can declare himself/herself as OFW and get big tax break,” Henares said.

According to the draft of the Revenue Regulation, an OFW is entitled to a 5% tax credit of actual investments of not more than P200,000 a year.

The Pera law aims to uplift the quality of life of Filipino workers receiving minimum wage or ordinary income earners; about 20% or some 6.2 million of the country’s labor force is not covered by any type of retirement plan.

Estela Sales, Internal Revenue deputy commissioner, said the agency is coming up with measures to ensure that only those qualified may enjoy tax relief from the law.

“That’s what we are doing right now. Screen the [Filipino] citizens, either residents or nonresidents, and exclude those who are disqualified, like illegal immigrants, among others,” Sales said.

According to the estimates of the Department of Finance, revenue losses from the law’s implementation may reach P12 billion for its first year of implementation alone.

Under the law, an ordinary contributor is entitled to tax deduction of 5% provided he invests in a unit investment trust fund, share of stock of mutual fund, annuity contract, insurance-pension product, preneed pension plan, shares of stock or other securities listed and traded in the local stock exchange, exchange-traded bond and government securities. The investment shall not exceed P100,000 a year. If married, each spouse may invest up to P100,000 a year.

In the case of an OFW, however, a higher investment cap of P200,000 is imposed every year. If married and both spouses are overseas workers, each spouse is entitled to a maximum investment of P200,000 per year to qualify for tax credits.