The study discusses the concept, background, structural changes of the Capital Gains Tax (CGT) and the problems besetting its implementation and recommends measures that will make the CGT a viable source of revenue for the government. The study, however, is limited to the taxation of capital gains arising from the sale, exchange or other disposition of real properties
The taxation of capital gains from the sale or exchange of real properties had undergone several amendments from Commonwealth Act (CA) 466, which embodied the original provision on the taxation of said real properties to the present law, Republic Act (RA) No. 8424, which provides that the CGT on the sale or exchange of real property is six percent (6%) based on the gross selling price or fair market value of the property as determined by the Commissioner of Internal Revenue (CIR) pursuant to Section 6(E) of the NIRC.
The reforms made through time somehow reflect the problems and difficulties encountered in the taxation of capital gains. Some of the problems identified are the following: (1) the different bases used in computing the capital gains tax; (2) avoidance or evasion schemes in some instances; and (3) the exemptions granted under special laws [e.g. RA 6657 (Comprehensive Agrarian Reform Law); RA 7279 (Urban Housing and Development Act); RA 9182 (Special Purpose Vehicle Law); and RA 8291 (GSIS Law)].
To address the problems encountered in the taxation of land transactions, this matter has been included in the governments Land Administration and Management Project (LAMP). A major component of LAMP is to study and recommend necessary measures relative to land transaction-related fees and taxes and land valuation problems. Policy studies have been prepared and several policy measures have been recommended to address the identified weaknesses in the system. In line further with the objective to enhance the productivity of the CGT, it is also recommended that the government consider the adoption of a single tax base that is reflective of the current fair market value of real properties. Moreover, frequent audit, detection of fraudulent practices and stricter enforcement of tax laws are necessary to optimize the revenue potential of the tax.
