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Estate Tax Amnesty: To extend or not to extend?

“To be or not to be” is one of Shakespeare’s most famous lines — the opening of a Hamlet soliloquy in Act 3, Scene 1. Prince Hamlet is speaking it aloud, but none of the characters seem to hear him. Is it possible that the characters have chosen not to listen because the topic is death?

In our culture, death is a topic best avoided in most conversations. In my own family, we seldom talk about our deceased loved ones. We find comfort in knowing that their memories will always be in our hearts and, less poetically, their names etched in land titles that form part of their legacy.

When we speak of estate and inheritance, we think of estate tax and the legal processes that paying such taxes entail. On May 4, 2021, the Senate Committee on Ways and Means conducted a hearing to discuss proposals to extend the estate tax amnesty law for an additional two years. The deadline for the estate tax amnesty law is June 14, 2021 and the Senators need to hurry, as they only have a few session days left to extend the deadline.

During the hearing, it emerged that many individuals are ready to pay estate tax. However, the heirs find it difficult to comply with the requirements of the amnesty, particularly with regard to the submission of proof of settlement. It will be noted that under the Tax Amnesty Act, otherwise known as Republic Act 11213, one of the requirements to avail of the amnesty is proof of settlement of the estate, whether judicial or extrajudicial.

Some of the things that make securing settlement among the heirs difficult are the fact that some heirs reside outside the Philippines, some have been prevented from doing so by the pandemic protocols, and others have unresolved conflicts with regard to the settlement terms.

Hence, one suggestion during the hearing was for the heirs be allowed to pay estate taxes first before the settlement of the estate This suggestion will ultimately make the payment of tax easier. As a gentle reminder, though, the Bureau of Internal Revenue (BIR) may still require proof of settlement after the payment of estate taxes and prior to the release of the Certificate Authorizing Registration.

In addition to proposals geared towards making it easier to avail of the estate tax amnesty, the extension of deadline for payment of such taxes will give more time to ensure that the heirs are interested in undergoing the process to avail of the amnesty.

The estate tax amnesty allows heirs to have the unpaid estate taxes settled at the rate of 6%, without penalty. This applies to estates of decedents who died on or before Dec. 31, 2017. The amnesty also covers “undeclared estates” or properties that were not included in previously filed estate tax returns and were not subjected to estate taxes. The 6% amnesty tax rate is imposed on the net estate of the decedent; and in determining the net estate, deductions are allowed against the value of the gross estate of the decedent at the time of death.

In case the heirs opt not to avail of the estate tax amnesty, the estate will be subjected to a graduated estate tax rate of 5% to 20% (for decedents who died from 1998 to 2017), plus interest, surcharge, and compromise penalty. For estate tax due several years ago, say, 15 years ago or 20 years ago, one can imagine how substantial the interest cost might be.  Considering the graduated tax rate plus penalties, the heirs might be surprised to see large assessments by BIR. Thus, it is obvious that the extension of the deadline to avail of the estate tax amnesty would definitely benefit the heirs.

For heirs whose questions about the settlement of estate usually revolve around who gets to inherit property left by decedents, questions that sometimes reflect selfishness, perhaps it is time that heirs get to be better informed about how to settle estate taxes. The process of inquiry could spur family teamwork.

I always believe that everything that has a beginning has an end, and that endings are just beginnings in disguise. The government’s estate tax amnesty will end soon. I hope lawmakers choose to extend it and make it easier to avail of in a bid to urge more heirs to finally settle their estate taxes.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Lex D. Tabilog is a manager of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

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