Removing the value added tax (VAT) exemption on housing will only deprive low-income families of the chance to own decent, affordable homes, and may likely worsen the country’s massive housing backlog, estimated at a whopping 6.5 million units.
Consequently, this move will also dampen housing supply, which is already insufficient to meet the total demand, stressed the Subdivision and Housing Developers Association (SHDA) Inc., the country’s largest and leading organization of housing developers, as it underscored the critical importance of VAT exemption in addressing the lingering problems of mass housing.
“Removal of the VAT exemption will increase the selling price which adversely affects the affordability,” the group pointed out in its position paper. “(It) would mean homes priced P3.199 million and below would now be priced 12 percent higher, making it less affordable for Filipinos.”
SHDA took a strong stand to refute claims by some quarters that the VAT exemption on housing is insensitive, can result in foregone revenues, will only benefit the upper classes, and eventually, may stunt the development of the Philippine real estate industry.
To recall, Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law states that starting Jan. 1, 2021, the VAT exemption will only apply to socialized units, house and lots and other types of residential dwellings priced P2 million and below.
SHDA, however, has since pushed for the retention of the current VAT exemption for low-cost housing priced P3.199 million and below, saying this is reasonable and beneficial to homebuyers.
Even Department of Human Settlements and Urban Development (DHSUD) Secretary Eduardo Del Rosario reportedly appealed to Finance Secretary Carlos Dominguez III last July, to retain the prevailing VAT exemption on the sale of low cost housing and house and lots within the P3.199 million threshold. He said this would “keep prices affordable amid a pandemic-induced recession hurting both supply and demand.”
SHDA pointed out that the VAT exemption is not for all segments but only for homes priced P3.199 million and below, which would fall within the low cost housing segment. This is critical as recent studies have shown that 76 percent of both housing backlog and housing need fall within the price range of the VAT exemption—from socialized (priced up to P750,000), economic (P751,000 to P1.7 million), to low cost (P1.701 million to P3 million).
Clearly, the VAT exemption works to the advantage of low-income homebuyers wanting to have a decent shelter they can afford and not the upper classes, SHDA stressed.
“While the VAT exemption does not indeed help the housing developer, it however helps the affordability of (homes), most especially at this time, when the value of owning a home has become a necessity for one to protect a family against the pandemic,” it added.
Social, economic benefits
Looking at the VAT exemption from another perspective, it can also generate innumerable social and economic benefits. For one, a VAT exemption may help entice the development of more low cost housing projects. Beyond addressing a demand, this, in turn, would generate additional job opportunities across several sectors. SHDA said housing is both “an economic pump-primer with a multiplier effect of 3.44 percent on the economy and an employment generating sector.”
In these challenging times, it would seem that housing is well poised to help the government in its efforts to revitalize the economy in a post COVID-19 era.
“There are other added benefits to housing. The provision of security of tenure through housing is directly related to a healthy, orderly and productive population, needed for economic growth and development,” SHDA further stressed.
“While the removal of the VAT exemption can raise taxes, shouldn’t those taxes be used to provide public housing to shelter those who are living in informal settlements and can’t really afford to buy? In the case of developers, we are already doing this through our compliance to the Balanced Housing Law… either by supplying socialized housing units or providing funds through different channels provided by law,” SHDA added.
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