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6.1 Fair Tax Regime
6.2 Professional Services
6.3 Capital Markets
In-Country Assessment Information

6. Appropriate Regulation

The Real Estate Service Act requires real estate practitioners (valuers, brokers, and agents) to have several qualifications for licensing, and includes measures for disciplining professionals who engage in misconduct. However, the act does not cover mortgage professionals.

The overall tax rate for entrepreneurs and foreign businesses is high. While the Philippine financial sector remains underdeveloped, capital standards and oversight have improved in recent years.

 

Goal – A comprehensive regulatory regime that is transparent, efficient, simple in its implementation and that leads to accurate reporting of property values and prudent protection from market risks

6.1 Fair Tax Regime

Core Question: Do market participants feel the overall tax rate is fair and participate in formal transactions? Yes – Weak – while taxes involved in property transfers are relatively low, the overall tax rate on businesses is high.

Transfer Tax
6.1.1 What is the total property transfer tax including
all duties and payments? Strong – 4.8%

Overall Tax
6.1.2 What is the overall tax rate on entrepreneurs
(as a percentage of profits)? 46.5% – Ranking
– 136h out of 183, Weak – Trend↓

Divestment
Survey Question
SQ 24: What is the tax on profits for foreign investors when divesting property? 32% top corporate tax rate – Very Weak

Source: Doing Business 2012 – Paying Taxes & Registering Property, World Bank www.doingbusiness.org/data/exploreeconomies/philippines

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6.2 Professional Services

Core Question: Are the professional services necessary for efficient and transparent property markets available, appropriately regulated and supervised? Yes –Weak, the Real Estate Services Act which regulates professional service providers was only signed in June of 2009, so it is still too early to tell its effect.

Asset Valuers
Survey Questions
SQ 25: Are property valuers licensed and/or certified by the government? Yes – Weak, the Professional Regulatory Board of Real Estate Service hasonly recently become active, although private sector associations have been promoting international valuation standards.

Source: Real Estate Services Act,  (no longer available online) http://www.lawphil.net/statutes/repacts/ra2009/ra_9646_2009.html

SQ 26: How effective are mechanisms in place to discipline valuers who engage in misconduct? Weak – although the Professional Regulatory Board has disciplinary powers such as the ability to impose fines and imprisonment, the implementing rules and regulations for the Board have yet to be passed.

Brokers & Agents
Survey Questions
SQ 27: Are real estate brokers and agents licensed and/or certified by the government? Yes – Strong, Brokers are licensed based on exams or other defined criteria, as stipulated in the RESA; sales persons must work under a licensed broker.

Source: Real Estate Services Act, (no longer available online) http://www.lawphil.net/statutes/repacts/ra2009/ra_9646_2009.html

Registered individual brokers: http://prcboardresult.blogspot.com/2011/03/real-estate-brokers-2011-list-of.html

SQ 28: How effective are mechanisms in place to discipline brokers or agents who engage in misconduct? Weak – there are still large numbers of unlicensed brokers.

Mortgage Professionals
Survey Questions
SQ 29: Are mortgage professionals licensed and/or certified by the government? No – Weak, the mortgage market is still underdeveloped in terms of professionals.

SQ 30: How effective are mechanisms in place to discipline mortgage professionals who engage in misconduct? Very Weak – none in place

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6.3 Capital Markets

Core Question: Are capital markets well-regulated and diversified enough to provide financial resources to private sector entrepreneurs and innovators? No – Weak, capital standards and oversight have improved, however.

Capital Flows
6.3.1 How restricted is the flow of capital into and out of the country? Significant restrictions, Weak – Ranking 89th out of 142; Score 4.39 out of 7Security Exchanges

6.3.2 Is the regulation of securities exchanges transparent, effective and free of influence from government and industry? Yes – Strong, Ranking 64th out of 142; Score 4.25 out of 7

Source: The Global Competitiveness Report 2011-2012, World Economic Forum

www.weforum.org/issues/global-competitiveness Securitization

6.3.3 What is the depth of asset-backed securities, mortgagebacked securities, high-yield bonds and highly leveraged
loans? Weak – Ranking 31st out 55, Score 2 out of 7.

Source: The Financial Development Report, World Economic Forum
http://www3.weforum.org/docs/WEF_FinancialDevelopmentReport_2010.pdf

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In-Country Assessment

Taxation
FQ29: What is the level of taxation for small businesses? Are any of those taxes an excessive burden on small businesses? Are any tax discounts provided for small businesses?

Tax rates reflect the real property taxes levied based on location: maximum of 1% for provincial location, and maximum of 2% for locations in Metro Manila (Sec.215, Local Government Code, 1991). Moreover, these taxes are imposed on 20% of the market value for residential areas, 40% for agricultural land areas, and 50% for commercial areas (Sec.233, Local Government Code).The level of taxation for small businesses is similar to that for regular businesses. However, the Magna Carta for Small Entrepreneurs states that through the Micro, Small and Medium Enterprise Development Council, small businesses shall gain “…easier access to tax credits and other tax and duty incentives as provided by the Omnibus Investment Code and other laws” (Sec. 7B, Powers and Laws of the Micro, Small and Medium Enterprise Development Council).

Professional Services
FQ30: What is the experience of small businesses in dealing with professional property market service providers such as real estate agents, brokers and valuers?

There were no problems reported in dealings with private service providers. Most of the conflicts are at the level of dealings with the national government. With the enactment of Real Estate Service Act, dealings with the real estate profession may improve further.Source: Research and interviews conducted by the Institute for Solidarity in Asia in June and July 2011 in Manila and San Fernando, Pampanga.