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How outdated are government valuations?

In the last three (3) years, 60 percent of Revenue District Offices (RDOs) under BIR have updated their Zonal Values. On the other hand, 36 percent of LGUs (mainly provinces and cities) have updated SMVs.  

 

SMV Number of LGUs
Provinces Cities
Outdated 48 97
Updated 33 49
TOTAL 81 145

*including the lone municipality in Metro Manila
Source: Bureau of Local Government Finance | March 2019

 

How will the Proposed Valuation Reform Act impact on taxpayers?

Updating the SMV and conducting the general revision of property assessments are necessary components of effective and efficient real property tax administration in any LGU to arrive at a fair and equitable Real Property Tax (RPT). The RPT, being a recurrent tax, is dependent on three elements: (1) market value, (2) assessment level, and (3) tax rate. An increase in the value of a real property would increase the RPT, and conversely, a decrease in the value will lead to a decrease in RPT.

This result, however, could be addressed by LGUs’ authority to push back the resulting increase in tax since they have the power to lower or increase the tax rate and assessment level, according to their budget goals and priorities. In the case of non-recurrent taxes, usually transfer taxes, there will be a proportionate increase in the tax as a result of the increase in values, since there are no adjustment mechanisms to lower CGT, DST, Estate Tax, Donor’s Tax, local transfer tax, etc.

What will be the uses of approved SMVs?

The approved SMV shall be used as basis for the determination of real property-related taxes of national and local governments such as real property tax, internal revenue tax, local transfer tax, tax on sand and gravel, community tax, fees and charges, or as benchmark for real property appraisal of other government agencies.

What are the objectives of Valuation Reform Act?

The Valuation Reform Act (“VRA”), as proposed under Senate Bill No and House Bill No.8453, aims to introduce vital reforms to promote the development of a just, equitable, and efficient real property valuation system. The reforms will broaden the tax base used for property and propertyrelated taxes of the national and local governments, thereby increasing government revenues without increasing the existing tax rates or devising new tax impositions.  

VRA aims to address the following systemic problems: a. rampant outdated valuations used for governmental purposes, especially for national and local taxation; b. cost overruns and foregone revenues due to low valuations used: overvaluation when government pays, undervaluation when government collects; c. valuation as a political issue; d. multiple, overlapping valuations in different government agencies, and there is no single agency responsible for ensuring that valuations are completed in accordance with international standards; and e. absence of a comprehensive real property electronic database.

By improving the quality of valuation of local governments and making the revisions frequent, efficient, transparent, reliable and attuned to market developments, VRA impacts favorably on revenue generation and resource mobilization of local governments to fund their service delivery requirement. The reforms are also expected to foster private investors’ confidence, and build the public’s trust in the valuations of government.

What are the salient features of the valuation reform?

VRA proposes to: a. Adopt international standards and rationalize the process of valuation; b. Establish a single valuation base for taxation, through the adoption of the Schedule of Market Values (SMV) of the local government units (LGU), and use the updated values as benchmark for other purposes, such as lease, rental, acquisition, ROW, etc.; c. Insulate valuation at the local level from undue politicization. However, LGUs shall continue to set, adjust and regulate tax rates and assessment levels; d. Recentralize the approval of the Schedule of arket Values (SMV) by the local Sanggunian back to the Secretary of Finance (with review functions of the Bureau of Local Government Finance (BLGF), in coordination with the Bureau of Internal Revenue (BIR), and improve oversight on property valuation and assessment by the Department of Finance (DOF), through the BLGF; e. Establish a comprehensive database to support valuation function; and f. Establish the Real Property Valuation Service in the BLGF to oversee and manage valuation related concerns of local governments.  

What is the Schedule of Market Values (SMV)?

It is an approved schedule of unit base market values for different classes of real property in the LGU and used by the provincial, city or municipal assessors as basis for the appraisal and assessment of real properties in their respective assessment territorial jurisdictions for real property taxation purposes. Under the VRA, an updated SMV will be used as the basis for local and national land and property-related taxes.

Why should SMVs be revised/revalued?

  1. It is mandated under the Local Government Code (LGC) of 1991 and builds local accountability in the exercise of the taxing powers of local governments.
  2. It will reflect the current market value of real property and update the values of various recorded lands, buildings, and machinery in the city.
  3. It will properly reclassify properties based on highest and best use (HABU). a. It will promote transparency and equity in the property market. b. It will provide a fair and equitable distribution of the real property tax burden.

 

What is the difference between the current SMV from the proposal under the Valuation Reform Act?

The current SMV is being approved by the local Sanggunian through an enactment of ordinance, and the approved SMV is being used as basis for local taxes such as real property tax. While in the VRA proposal, the local assessor will still prepare the SMV, however, it shall be reviewed by both BLGF and BIR, and will be endorsed to DOF for the approval of Secretary of Finance. Moreover, the approved SMV in the proposal may be used by other government agencies as basis to other real property-related taxes.