DOF agency: Additional tax on real property needed

The government’s tax research arm supports imposing a national surtax on real property, seen as a feasible strategy to source additional revenues for pump priming the economy.

In a study titled “Feasibility of Levying a National Surtax on Real Property,” the National Tax Research Center (NTRC) said the surtax or additional tax on land, building and machinery “was practicable, relative to ease in administration, considering the wide application of property taxation.”

NTRC said owners of real property would find it hard to evade their duties since land, building and machinery were fixed.

The agency expressed confidence the public would support a national surtax, noting how it has accepted local government units’ imposition of the real property tax (RPT). Unlike its local equivalent, the national surtax would be free from political intervention from local officials, which has stunted RPT collections in the past, it added.

“A national surtax on real property would discourage local politicians to interfere in the implementation of the tax. The major obstacle in the implementation of the locally imposed taxes on property was political rather than administrative in nature. The anticipated political repercussions to schedule of market values (SMV) revision makes local officials reluctant to support such move,” the NTRC noted.

Studies cited by the NTRC showed the local RPT, while a top source of LGU revenues, remained underperforming since LGUs tend to delay or postpone revisions to the SMVs—interpreted as an increase in property taxes—for fear of losing their constituents’ support.

Data showed that while RPT collections have increased by an average P38.5 billion between 2010 and 2014, the share to the gross domestic product remained low, averaging only 0.39 percent during the five-year period.

The national government’s property tax effort during the same period, in comparison, was a lower 0.29 percent. This indicated that while the growth of collection from property taxes remained very slow compared with economic growth, there was still room for improvement in collections and consequently, increase in revenues.

Surtax on real property would also be “a tool to redistribute income and wealth” as it would improve tax equity, the NTRC said. Citing the close link between wealth and real property ownership, “those who have more real properties would be taxed more while those who have less would be taxed less” under the proposal, it added.

In line with keeping the “ability to pay” principle, NTRC recommended to exclude from the proposed surtax’s coverage certain real properties below a threshold value or land area.

To easily administer the levy and protect taxpayers from a tax shock, it suggested the base of the surtax be equivalent to the RPT’s tax base.

“The proposed rate would be over and above the current general charges, meaning that this would be in addition to the current basic RPT rates of not exceeding 1 percent for provinces and not exceeding 2 percent for cities and municipalities within Metro Manila,” the NTRC said.

The NTRC also proposed that the surtax be implemented through a new special law, rather than being incorporated in the Tax Code, to avoid confusion with the LGUs’ RPT under the Local Government Code.

To easily administer, monitor and implement such surtax, the NTRC recommended using LGU databases so that the assessment and computation of the additional tax on real property would be simultaneous with the RPT.

Amid a growing economy that needed more revenues to finance higher expenditures intended to support further economic expansion, the NTRC said the surtax “would generate substantial revenues to fund government programs and projects.”