DOF pins hope for higher LGU tax take on ADB-funded project

MANILA, Philippines—The Department of Finance (DOF) on Tuesday (June 22) said it aims to raise local government units’ (LGUs) take from real property tax to P113.4 billion by 2024 through an ongoing project financed by the Asian Development Bank (ADB) to digitize valuation as well as collection.

The latest fiscal data released by the DOF’s Bureau of Local Government Finance (BLGF) last week showed that in 2020, a total of P70.5 billion in real property taxes were collected by provinces (P10.2 billion), cities (P49.3 billion) and municipalities (P11 billion).

Last year’s collections from real property tax increased from P70.1 billion in 2019.

In a statement, Finance Secretary Carlos Dominguez III said the ADB’s local governance reform project will “help the [LGUs] improve their capacity to raise their own finances.”

The ADB last year extended a $26.53-million loan for the project, while the government will shell out counterpart funding of $4.96 million.

The DOF quoted BLGF executive director Niño Raymond Alvina as saying that the project sought to “have at least 80 percent or 1,372 LGUs achieve 100-percent efficiency in real property tax collection and valuation by 2024, which is expected to increase by 30 percent the total own-source revenues of local governments.”

“The share of real property tax to local tax revenues has been decreasing since the enactment of the Local Government Code,” Alvina said.

Real property tax, Alvina added, “currently contributes only 9 percent as compared to business tax collections that account for 13 percent of total LGU aggregate income.”

“As of 2019, around 98 out of the 146 cities and 46 out of the 81 provinces in the country are non-compliant with the requirement to revalue properties in their respective jurisdictions once every three years,” Alvina said.

According to Alvina, “64 percent of LGUs have outdated property valuations.”

Realty tax collection efficiency of provinces and municipalities was only 68 percent and provinces only 71 percent, said the BLFG chief.

“The Philippines lags behind its Asian peers in terms of the share of property tax collections to gross domestic product,” Alvina said.

He said in the Philippines, property tax-to-GDP ratio was falling since 2003 and settled at just 0.5 percent in 2019, the same as Thailand’s but lower than the average, 2 percent, set by Organization for Economic Cooperation and Development (OECD).

Singapore’s average realty tax-to-GDP ratio is 2 percent, Japan is 2.5 percent and South Korea is 3 percent, according to Alvina.

To address this, Alvina said the local governance reform project would “correct the following infirmities in property valuation system of LGUs”:

• Absence of integrated and reliable property information and valuation database for transactions showing true market value of properties
• Poor record-keeping and outdated reporting systems
• Weak capacity of local valuation staffs
• Political considerations

Alvina said the project will establish a property valuation office at the BLGF in 2021.

In 2020, LGUs shored up their tax take but non-tax collections declined and pulled down total revenues to P251.65 billion as a result of the pandemic-induced recession.

The BLGF’s latest preliminary 2020 LGUs fiscal data showed that combined locally sourced tax and non-tax revenues of provinces, cities and municipalities declined from P253.82 billion in 2019.

LGUs’ actual revenue collections in 2020 were better than the downscaled target of P193.04 billion in consideration of the COVID-19 pandemic. Pre-pandemic, LGUs had been expected to collect as much as P307.08 billion in 2020.

Tax revenues, which accounted for bulk of LGUs’ collections, rose to P189.86 billion from 2019’s P183.46 billion.

Alvina explained to the Inquirer that the basis of locally sourced taxes — real property tax, tax on business, and other taxes — collected by LGUs in 2020 were 2019 incomes.

“The base of the local taxes does not pertain to the current year [2020], but to the preceding year’s [2019] gross receipts, in the case of local business tax, and date of assessment in the case of real property tax, which were before the COVID-19 pandemic,” Alvina said in a text message last June 16.

On the other hand, LGUs’ non-tax collections last year dropped to P61.79 billion from P70.36 billion in 2019.

“Significant decline can be noted in non-tax revenues, especially from fees and charges which are based on fixed rates or amounts, in 2020,” Alvina said.

Among LGUs’ sources of non-tax collections were regulatory fees like permits and licenses; service or user charges from service income; receipts from economic enterprises’ business income; as well as receipts from other general income.

For 2021, the BLGF had programmed LGU revenue collections to reach at least P223.9 billion. Had the COVID-19 pandemic not happened, LGUs had been expected to generate up to P321.6 billion in revenues in 2021.

TSB