What is this estate tax amnesty everyone is talking about? How can this tax amnesty benefit my life? Am I missing out if I don’t do anything?
In this article, we tackle country’s ongoing estate tax amnesty program, how it works and how it can help your family.
We decided to talk about this because we noticed that many still seem oblivious to the estate tax amnesty. This is a very important event in Philippine tax history (think...Halley’s Comet) and it would be such a waste if Filipinos fail to benefit from the estate tax amnesty.
Now some people may think that the estate tax amnesty has nothing to do with them. They may think that since their parents (or grandparents) are still alive, that it’s not their problem. This is not the case. Sooner or later, everyone will have to face estate settlement. And if they did not avail of the estate tax amnesty, estate settlement later on may be very costly.
Tax amnesty in a nutshell
So what is a tax amnesty program? In essence, a tax amnesty is a way for erring taxpayers to wash away their sins (tax-wise) and start fresh. A taxpayer who avails of the amnesty will usually enjoy the following: a. erasing of any penalties and interest; b. simplified computation of the amnesty; and c. exemption from further investigation. A tax amnesty is not a get-out-of-jail-FREE card. Taxpayers who avail of the amnesty will have to pay an “amnesty settlement amount” to be able to enjoy the benefits.
A tax amnesty is usually passed as a law. Then the Bureau of Internal Revenue (BIR) implements it. Now you may be wondering, what’s in it for the government? Why give taxpayers any amnesty at all? Is it from the goodness of the hearts of our legislators, hehe? Probably.
But I’d like to think of the tax amnesty as a beautiful attempt to create positive win-win scenario. Let me explain.
The win-win scenario
The government needs revenue to run its enormous machinery. Generally this revenue comes from taxes, customs duties, and fees. Taxes come from the people. People pay taxes through the mechanism of self-declaration. This means that the taxpayer is responsible for computing, filing, and paying the tax. Since our tax laws are NOT simple, errors are sure to happen. Some taxpayers may try to cheat on their taxes. Some taxpayers may not even know that they had to pay taxes. This leads to lower government revenues. Not good.
To plug this hole, the government will have to go back and conduct tax audits or investigations against taxpayers. But the government cannot audit all taxpayers at once. There’s just too little of them and too many taxpayers. Also these investigations can take a long time. Some investigations may even reach the courts, which may take even more time. The inability to audit everyone and the time it takes to successfully collect from an investigation equates to so much lost government revenue.
In the meantime, taxpayers who made errors in their taxes (or didn’t know that they had to pay taxes) are always on edge and afraid to face what they think might be humongous taxes and penalties.
This is where the tax amnesty creates that “everybody wins” scenario. Through the tax amnesty, the government benefits by immediately collecting revenues through the surge of tax amnesty settlements without having to investigate each and every tax payer or risk going to court and delaying collection. On the other hand, the taxpayers have a chance to erase past errors or transgressions and start anew.
Our current estate tax amnesty
So now that we know a little something about tax amnesties, how does our current estate tax amnesty work?
First of all, our current tax amnesty covers only the estate tax (well it also covers delinquencies too but that’s the subject of another article). It’s a long story but basically, the current amnesty does not cover the other internal revenue taxes such as income tax, VAT, etc. This means that this current tax amnesty is relevant, for the most part, for those who have unpaid or unsettled estate taxes.
Remember, the basic rule is that when a person dies (we call this guy the “decedent”), an estate tax must be paid to the government before any of his properties can be legally transferred to his heirs. Families with unsettled estates due to unpaid estate taxes can benefit from this amnesty program and finally transfer properties to the right heirs.
The basis of the estate tax amnesty is Republic Act (RA) No. 11213 which became effective on April 24, 2019. Then Revenue Regulations (RR) No. 6-2019 implemented it. Taxpayers may take advantage of the Estate Tax Amnesty Program for two (2) years starting from 15 June 2019 until June, 14 2021.
Which estates are qualified and which are not?
The estate tax amnesty program covers estates of decedents who died on or before December 31, 2017. Not all such estates can avail of the estate tax amnesty though. The law and the rules exclude the following from availing of the program:
1. Delinquent estate tax liabilities which have become final and executory and those covered by Tax Amnesty on Delinquencies; and
2. Properties involved in cases pending in appropriate courts which:
a. Fall under the jurisdiction of the Presidential Commission of Good Government;
b. Involve unexplained or unlawfully acquired wealth under RA No. 3019 (Anti-Graft and Corrupt Practices Act) and RA No. 7080 (Act Defining and Penalizing the Crime of Plunder);
c. Involve violations of RA No. 9160 (Anti-Money Laundtering Act);
d. Involve tax evasion and other criminal offenses under Tax Code of 1997; and
e. Involve felonies of frauds, illegal exactions and transactions and malversation of public funds and property under the Revised Penal Code.
So how do we compute the estate tax amnesty settlement amount?
First we get the value of the gross estate. The gross estate is generally all properties and interests which the decedent (the person who died) owns. The properties can be real or personal, tangible or intangible. The value of the gross estate will be based on its value at the time of the decedent’s death. So if the decedent died in 2002 leaving only 1 piece of land, then the heirs will have to figure out the value of that land in 2002.
Next step is to get the value of the allowable deductions applicable at the time the decedent died. These deduction items are specifically enumerated and described by law and the regulations so we can’t just deduct whatever we want to.
The third step is to deduct the allowable deductions from the value of the gross estate to get the net taxable estate. Once we get the net taxable estate we can then multiply it by the estate tax amnesty rate of 6% and viola, we get the settlement amount! Take note that the minimum payment is PhP5,000 so if your computation gave you a settlement amount of PhP200, no dice! You have to pay at least PhP5,000.
What are the benefits?
When paying the tax amnesty settlement amount, you’ll need to use a specific form or return called the Estate Tax Amnesty Return or ETAR. Once you file the ETAR, pay the settlement amount and comply with all the necessary conditions, you get the following benefits:
1. The decedent’s estate tax will be considered finally settled and the heirs can then move on to the next steps of estate settlement;
2. The estate will no longer be required to pay the regular estate tax (on the declared gross estate). The rates under the previous law could go up as high as 20%. So essentially, the heirs got a huge discount on the estate tax by paying only 6% of the net taxable estate (or PhP5,000 whichever is higher).
3. Penalties, interest and surcharges resulting from non-payment of estate tax are waived. This is an awesome benefit because too many times, these penalties far exceed the value of the estate tax because. Seriously, this alone makes the amnesty already super attractive.
4. The estate will be immune from all civil, criminal and administrative cases. In fact, availing of the estate tax amnesty will not in any way be treated as an implied admission of any criminal, civil or administrative liability.
Time is running out
The deadline for availing of the tax amnesty is fast approaching. There are so many benefits to this program. If your family has properties which have not been transferred to the rightful heirs yet, chances are, it’s because the estate taxes have not been settled. If this is the case, it’s really a no-brainer to avail of the amnesty program.
Are you convinced? Awesome!
But now that you’re ready to avail of the amnesty, don’t just run to your nearest BIR office with a check book ready to pay them the settlement amount. You will have to do this intelligently.
How to go about it
First, you’ll want to determine whose estates you want to settle under the amnesty and why? Is it your grandfather’s? Your parents? Sibling? Are you settling it because your family can’t dispose of a property which is still in their name?
Once you’ve determined that, you’ll want to list down all the properties involved. Then you will need to collect all the necessary documents pertaining to the property such as titles, tax declarations, transfer documents, tax receipts, etc.
Now you’re ready to compute the estate tax amnesty. You can always try to do this on your own. The BIR regulations are easy enough to understand...if you know which ones are relevant for the process. You can also make it easier on yourself and consult someone.
Consult consult consult
The easiest way to go about it is consult your nearest BIR Revenue District Office (RDO) on how to get started and how to compute the amnesty settlement amount. The RDOs have a table called the “Officer of the Day”which assists taxpayers pre-evaluate applications. They can provide the necessary forms and coach you on how to go about it. Considering however that the BIR is a frontline government agency, accepting a gazillion applications a day, the lines to be able to talk to someone may be very long. So be prepared to spend at least half a day there.
You may also decide to consult someone. Don’t just get any lawyer. Choose someone with the appropriate experience. You wouldn’t want to consult an skin doctor about a problem with your eyes, right?
Choose an estate settlement professional. These can be lawyers, accountants or even just people who have made a living out of settling estates. Professionals will have the necessary skills and experience to help you determine the overall approach and strategy. They can help you compute the tax and prepare the necessary documents you will need. After that, they can help you prepare the amnesty application.
However which way you want to go about it, just get it done. Get started. Get that amnesty!
Learn the essentials of Estate Settlement in 60 Minutes
When we do talks and consultations, most people have the same questions about Estate Settlement. We’ve collected these questions and created an online course which covers the questions that come up over and over again, including:
- What is an estate
- Who are the heirs
- What is succession
- How does a will work
- What are the kinds of wills
- What is intestate succession
- How is estate tax computed?
- What happens if the estate is not settled
We collated our answers and covered them all in 60 minutes.
If you’re interested in enrolling, head on over to https://legalguideph.teachable.com to find out more.
I hope you enjoyed this article. If you have questions, please let me know in the chat box so I can consider it for future articles. If you want to get in touch with me, use the chat box as well.