WHY IS CGT APPLIED TO TCP?

Why is Capital Gains Tax Based on the Full Contract Price Instead of the Actual Gain?

From time to time, foreign clients selling properties in the Philippines are surprised to learn that the Bureau of Internal Revenue (BIR) imposes a 6% Capital Gains Tax (CGT) on the total contract price rather than just the profit earned from the sale. But why is this the case?

In countries like the United States, capital gains tax typically ranges from 15% to 28%, depending on factors such as the taxpayer’s total taxable income. More importantly, it is only applied to the actual gain—the difference between the selling price and the original purchase price.

So why does the Philippines take a different approach?

According to Engineer Enrico Cruz in one of his lectures, the reason is straightforward: the BIR does not have a readily accessible database of acquisition costs. To simplify tax collection, the government opted for a lower tax rate of 6% but applied it to the full selling price instead.

By "readily accessible database," he was likely referring to a centralized digital record of Deeds of Absolute Sale (DOAS) and their declared values. However, with all real estate transactions now encoded in the BIR’s system, wouldn’t it be more equitable to tax only the actual gain?