Lack of guidelines delays PERA law implementation

MANILA, Philippines - Implementing guidelines of a law seeking to establish voluntary personal retirement plans remain on the drawing board close to five months after President Gloria Macapagal Arroyo signed the measure. Jose Fernando B. Camus, head of the corporate finance and capital market development committee of the Financial Executives Institute of the Philippines (FINEX), said the Bureau of Internal Revenue (BIR) is still setting the rules for administering the law’s tax provisions. "But we have begun discussions with [the BIR] already," he added. A working group composed of representatives of FINEX, the Angara Abello Concepcion Regala and Cruz Law Offices (ACCRALAW) and SGV & Co., as well as central bank officials, have come up with draft implementing rules. These draft rules will be finalized by FINEX members before these are forwarded to the central bank for approval. A central bank source, who requested anonymity, said the central bank will check if inputs from the private sector "correspond with what the law says." He added the central bank will come out with the implementing guidelines within the month. Republic Act 9505 or the Personal Equity and Retirement Account (PERA) Act of 2008 assigns the Bangko Sentral ng Pilipinas (BSP) along with "concerned regulatory authorities" to come up with the criteria for accrediting PERA administrators, custodians and investment managers and for approving PERA investment products, among others. The BIR, on the other hand, "shall issue the implementing rules and regulations regarding all aspects of tax administration relating to PERA." Atty. Eufrocina S. Casasola, BIR director, said the BIR and the Finance department are still discussing the revenue regulations covering the PERA law’s tax provisions. She said these should be finalized within the month. The central bank’s implementing guidelines will also cover the tax treatment of contributions and investment income, among others, she said, but the bureau’s revenue regulations will supplement these in detail. "We will study the BSP’s draft implementing guidelines to check if these correspond with our regulations," she added. A PERA refers to a voluntary retirement account. PERA contributions are invested in investment products that include unit investment trust funds, mutual funds, insurance and pre-need plans, and stocks, among others. Contributors may maintain a maximum of five accounts at any one time. The maximum annual contribution is P100,000 per year. In the case of OFWs, the ceiling is P200,000 per year. A contributor will be entitled to a 5% tax credit. His income from investments will be tax-exempt. Guidelines drafted by FINEX as of December 12 state that PERA administrators, or those who oversee the PERA on behalf of the contributors, need to undergo pre-qualification by the central bank, Securities and Exchange Commission and Insurance Commission before they can be accredited by the BIR. The guidelines also state that PERA investment products must be pre-approved by regulators. Entitled to the 5% tax credit are contributions for the year, which should not exceed the P100,000 or P200,000 maximum. Employers’ contributions are excluded from the computation. Income from bank deposits will be exempted from 20% final tax while those from long-term deposits or investments will be exempted from the applicable tax on interest income. Interest income from funds parked in foreign currency deposit units will be exempted from the 7.5% final tax. The 10% tax on cash and/or property dividends received from domestic firms, joint stock company, insurance or mutual fund company and regional headquarters of multinational companies will be waived, as well as the regular ncome taxes. — from a report by Gerard S. dela Peña, BsuinessWorld