Package 3 of the Comprehensive Tax Reform Program (CTRP) aims to promote the development of a just, equitable, and efficient real property valuation system. It will broaden the tax base used for property-related taxes of the national and local governments, thereby increasing government revenues without increasing the existing tax rates or devising new tax impositions.
Over the last three years, only 60% of Revenue District Offices (RDOs) under the Bureau of Internal Revenue (BIR) have updated their zonal values. Meanwhile, only 37% of local government units (LGUs) have updated the schedule of market values (SMVs). Apart from outdated valuations, the complexity of the situation is further complicated by the fact that there are various agencies doing or requiring property valuation, with each agency using their own system and methodology for valuation.
Updating the SMVs 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. The adjustment of SMVs does not necessarily equate to increase in tax burden. The two elements, which are the tax rate and assessment levels, are determined by LGUs through the enactment of ordinances.
By improving the quality of valuation of local governments and making the revisions frequent, efficient, transparent, reliable and attuned to market developments, Package 3 impacts favorably on revenue generation and resource mobilization of local governments to fund their service delivery requirements. The reforms are also expected to foster private investors’ confidence and build the public’s trust in the valuations of government.
- House of Representatives: Passed on third and final reading (25 November 2019)
- Senate: Pending in the Committees on Ways and Means, Local Government, and Finance
The reform proposes to:
- Adopt international standards and rationalize the process of valuation;
- Establish a single valuation base for taxation, through the adoption of the SMVs of LGUs, and use the updated values as benchmark for other purposes, such as right-of-way acquisition, lease, rental, etc;
- Insulate valuation at the local level from undue politicization. However, LGUs shall continue to set, adjust, and regulate tax rates and assessment levels;
- Recentralize the approval of the SMVs 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 BIR, and improve oversight function on property valuation and assessment by the Department of Finance-attached BLGF;
- Establish a comprehensive database to support valuation function; and
- Establish the Real Property Valuation Service in the BLGF to oversee and manage valuation related concerns of local governments.
The DOF, through the BLGF, shall be the lead agency responsible for the implementation of the reforms. The BLGF shall have the following powers and functions:
- Develop, adopt, and maintain valuation standards consistent with internationally accepted valuation standards, regulations and specifications for real property appraisal used for tax and other purposes, and ensure compliance therewith by LGUs and other concerned parties;
- In coordination with the BIR, review for compliance with the real property valuation policies and standards and recommend for approval of the Secretary of Finance the SMVs as prepared by the provincial assessors together with municipal assessors, and city assessors, including the municipal assessor in Metropolitan Manila area, for tax, both local and national, and for other purposes.
- Provide technical assistance on real property appraisal matters to government agencies and instrumentalities, and coordinate or conduct the valuation and appraisal of special purpose properties, when requested;
- Provide leadership and policy direction to LGUs on real property valuation and appraisal for taxation and other purposes, including the development and maintenance of valuation standards, the regulation of valuation and appraisal activities and other related matters, and the promotion of valuation and appraisal training and seminars;
- Maintain a roster of licensed local government appraisers and assessors;
- Develop and maintain a comprehensive and up-to-date electronic database of real property transactions and prices of materials for buildings, machinery, and other structures;
- Conduct continuing study and research on valuation and maintain a database of information on global and country trends and developments in real property valuation and appraisal;
- Determine, fix, and collect reasonable amounts to be charged as administration fee, fines, and penalties relative to the implementation of this Act; and
- Perform such other functions as are necessary, proper, and incidental to implement the provisions of this Act.
Benefits of the reform
Consistent real property valuation
Single valuation base will eliminate wide disparities and achieve consistency in real property valuation. The predictability of valuation will have a positive impact for planners.
Uniform standards will improve the integrity of real property appraisal in accordance with internationally accepted valuation standards. This will also ensure transparency at all levels and provide national and local governments, businesses, financial institutions, lenders, and investors with greater confidence in valuation reports.
The establishment of a comprehensive database will also promote greater transparency in land transactions. Ready access to a database will improve the Sanggunian’s decision-making and policymakers’ planning process.
Increased LGU revenues without adopting new tax measures
The adoption of true market-based values for taxation purposes will increase the national and LGU revenues without adopting new tax measures. Specifically, this will result in an increase in the revenue generating capacity of real property through RPT, national government’s real property transfer taxes, and other related taxes. The increase in RPT collection could improve the RPT to GDP ratio from 0.36 percent to 0.43 percent. Likewise, its share to local income will increase to 23 percent.
Enhanced LGU financial self-sufficiency
The reform will enhance the LGU’s financial self-sufficiency and local autonomy through improved collection efficiency on real property taxes, as well as other taxes that involve real property.
Increased revenues for the national government through capital gains
In the long-term, land-related transactions, capital inflow, and investments in the economy are expected to increase which will lead to increased revenues for the national government through capital gains and other taxes involving transfer of properties.
Increased private investor’s confidence
The adoption of internationally accepted valuation standards and higher degree of professionalism in real property valuation will foster higher private investor’s confidence.
Ensured higher special education fund
Strengthening the collection of RPT will ensure higher special education fund (SEF) collections – i.e., more funds available for public education. At present, an average of Php 760 is allotted per public school student. Package 3 is expected to increase this amount to Php 1,040 per student.
Reduced unnecessary expenses
The reform will reduce unnecessary expenses due to conflicting appraisals which may lead to lengthy court litigation, project details, and cost overruns.
Stakeholders’ support for Package 3
- Rural Bankers Association of the Philippines: “The Rural Bankers Association of the Philippines (RBAP) is committed to developing rural economies and the Valuation Reform Bill will definitely improve real property valuation and benefit RBAP’s members in the appraisal of real property for mortgage, investment, and sale.”
- Jeffrey Ng, Chairman of SHDA: “There are numerous valuations so it makes life difficult for us [developers] to do business. So, we are in support of a unitary, single, transparent property valuation which would make cost of doing business in the Philippines lower. We are asking government especially Congress to approve as soon as possible the property valuation bill so that it becomes a law. It will help us businessmen especially housing and subdivision developers to do business and provide more houses, build more houses, do our part in lowering the 6.5 million housing backlog in the country.”
- Joshua Gripo, Real Estate Practicioner: “Ang proposed ni government is magbibuild tayo ng electronic database. For example, titingnan na lang ni taxpayer kung ano ýung value ng lupa niya doon. So hindi na siya very subjective kung ano lang ýung gusto niyang presyo o anuman ang say ng community, but mayroon na tayong objective na price. May standard na tayo kung magkano ba talaga ang price ng lupa. As a real estate practitioner, mapaprice na namin yung mga development projects namin in line with the value sa market [with Package 3]. With the electronic database, meron kaming magiging benchmark kung magkano talaga ang value ng mga real properties namin.”
- Jessie Doctolero, Provincial Assessor: “I am one with the DOF in pushing for Package 3 of the Comprehensive Tax Reform Program or the Real Property Valuation Reform. Package 3 will ensure transparency in all real property transactions, thereby protecting the interests of the public. It will also develop confidence in the work of appraisers and assessors.”
- Erwin Tiamson, Land Lawyer: “I believe that the reform will promote transparency in real property transactions and develop investor confidence in the valuation system. It will also help reduce expropriation procedures which arise from conflicts in determining the appropriate price offer due to multiple and conflicting valuations used by appraisers and government.”
- Dr. Arturo Corpuz, Environmental Planner: “A single benchmark valuation will mean better predictability in investment and therefore reduce risks in business.”
CTRP Package 3: Real property valuation reform 1-page briefer Download File
Date Posted: August 1, 2019
House Bill No. 4664: Real property valuation (18th Congress) Download File
Date Posted: February 10, 2020