Real estate tax valuation reform

As the clock winds down on the Duterte administration, the chances of the real property tax valuation reform measure proposed by the Department of Finance being enacted into law are looking dim.

The bill aims to broaden the tax base used in ascertaining the property-related taxes of the national and local governments through a just, equitable and efficient valuation system.

The expansion of the tax base would enable the government to increase its revenues without imposing new or additional taxes which ordinary taxpayers would eventually shoulder.

The bill was approved on third and final reading by the House of Representatives in 2019 and is pending at the Senate.

It provides, among others, for the establishment of “a single valuation base for taxation, through the adoption of the SMVs (schedule of market values) of LGUs (local government units), and use the updated values as benchmarks for other purposes, such as right-of-way acquisition, lease, rental, etc.”

With the valuation base already fixed by law, the valuation of real properties in LGUs would be insulated from political considerations or influence. But the responsibility of setting, adjusting and regulating the tax rates and assessment levels of those properties shall remain with them.

The proposed obligatory updating of tax valuation by LGUs assumes significance in light of the devolution to them by the national government of certain public services as a result of the Mandanas ruling.

Under that Supreme Court decision, the national government is obliged to remit to LGUs 40 percent of all collections by the Bureau of Internal Revenue and the Bureau of Customs.

Based on the P5-trillion 2022 national budget, that share is equivalent to P959.04 billion, which will be shared by 81 provinces, 146 cities, 1,488 municipalities and 42,046 barangays.

Unless the LGUs have coffers that are as rich as, for example, those of the cities of Makati and Quezon or the provinces of Cebu and Davao, that revenue allocation would be insufficient to adequately fund, among others, health and social welfare services, infrastructure facilities for residents and mass housing programs.

The periodic updating of the tax valuation and assessment of real properties, whose values are expected to rise through the years and as the LGUs develop, would provide them with additional sources of revenue other than those allowed by the Local Government Code to meet the funding requirements of devolved public services.

That extra income would also help minimize the LGUs running to the national government for assistance (and being subject to political pressure in the process) in case they suffer shortfalls in their revenue collections.

Aside from the funding aspect, the bill gives the LGU executives political cover in the review and adjustment of the tax values of real properties within their territories.

It is common knowledge that raising real property taxes is a politically sensitive issue.

Past experiences have shown that any action to increase those taxes, no matter how urgent or justified it may be or despite the fact that the existing rates have been in place for decades, often draws strong opposition from the LGU’s constituency.

And if that resistance comes from the executives’ family, close associates or supporters whose business or personal interests would be affected by the upward adjustment in taxes, the valuation would hardly get a chance to be included in the agenda of the LGU’s legislative body.

It would take a lot of political will on the part of LGU executives to buck that opposition and undertake a review of real property tax valuation to augment the LGUs’ financial resources.

If that bill is enacted into law, the LGUs can simply say—if their action meets stiff resistance—that their hands are tied because the law requires them to do a periodic updating of that tax.

Whether or not the Senate would make an effort to enact that bill into law after May 9 remains to be seen. INQ

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