Are real property taxes set to increase? | Inquirer Business

Are real property taxes set to increase?

/ 02:39 PM June 19, 2024

Republic Act No. 12001 has been signed into law by President Ferdinand Marcos Jr. This new law is called the Real Property Valuation and Assessment Reform Act (RPVARA).

Simply put, the RPVARA seeks to provide a uniform valuation for real properties in the country. It also creates the Real Property Information System, which shall maintain a database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declarations, as well as reorganizes the Real Property Valuation Service under the Bureau of Local Government Finance under the Department of Finance (DOF).

RPT as a significant source of income for LGUs

It is important to note that local government units (LGUs) —the provinces, cities, and municipalities — have several sources of income to fund their programs and budgets.

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Among the main sources of income of LGUs are the Internal Revenue Allotment (IRA), Real Property Taxes (RPT), and Business Tax collections.

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For 2019, revenues of provinces consisted of the IRA at 70 percent, RPT collections at percent, and business tax collections at 2 percent. For the cities, the IRA comprised 39 percent of its revenues, RPT collections at 15 percent, and business tax collections at 29 percent. And, for municipalities, the IRA accounted for 73 percent, RPT, and business tax collections at 4 percent and 6 percent, respectively.

The DOF has noted that local sources of revenues (RPT, business taxes, and others) of LGUs as well as collection have been on a downward trend. This leaves LGUs having to rely more on their IRA from the national government.

Where do RPT payments go?

The Local Government Code of 1991 (Sec. 271) provides that the proceeds of the RPT payments are distributed as follows:

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  • For RPT payments to provinces, 35 percent to the province, 40 percent to the municipality where the property is located, and 25 percent to the barangay where the property is located.
  • For RPT payments to cities, 70 percent shall go to the city and 30 percent to the barangays where half will go to the barangay where the property is located and the other half to the other component barangays in the city.
  • For municipalities within the Metropolitan Manila Area, 35 percent shall go to the Metropolitan Manila Authority, 35 percent to the municipality where the property is located, 30 percent to the component barangays where half will go to the barangay where the property is located, and the remaining half to the other component barangays in the municipality.

Why the need for RPVARA

According to the DOF, 38 percent of the schedule of zonal values by the BIR and 60 percent percent of the Schedule of Market Values (SMV) used by LGUs for the RPT are outdated.

In particular, 137 out of 227 LGUs did not revise their property values in the last three years. As of 2024, about 97 cities and 40 provinces were found to be non-compliant with the requirement to revalue properties once every three years.

Because of this, the DOF found that the share of RPT in local tax revenue sources has been decreasing since the enactment of the Local Government Code.

This is the very reason why the government has made the passage of the RPVARA one of its priority legislations. Some of the reasons given are to (a) address multiple and overlapping valuations from various agencies, (b) allow property owners to unlock the value of their real property, (c) hasten automation with the creation of the Real Property Information System, (d) enhance efficiency of tax collection, (e) promote transparency and enhance investor confidence.

Why it matters - practical effect

Generally, there are two sets of valuation being used - the zonal value maintained by the Bureau of Internal Revenue (BIR) and the SMV of the LGUs.

The zonal values are published by the BIR to determine tax assessments for real property transactions and the SMVs are from the LGUs, which they use for the market values of the properties in tax declarations of properties.

To give a practical example, let’s say there is a property owner with a 300-square-meter residential land located on Santol St., Brgy. Santol, Quezon City. This property is assigned a zonal value of P25,500 per square meter based on the zonal value of the BIR as of April 1, 2016. (as of the Feb 17, 2024 BIR Zonal Value Schedule, the value has been adjusted to P44,000 per square meter or almost double the value in 2016).

This means that based on the BIR zonal values in 2016, the property's value is P7,650,000.

This same property will be covered by a tax declaration issued by the Quezon City local government and its market value is based on the SMV of the LGU.

In 2016, the Quezon City Council proposed an increase in the land values for the computation of the Real Property Taxes and, for the same property on Santol St., Brgy. Santol in Quezon City, the market value was proposed to be increased to P12,000 per square meter. Therefore, the market value of the property for Quezon City is only P3,600,000.

What this means is that for RPT tax purposes, the City Government of Quezon City will value the property at P3,600,000.

To compute the RPT due to be paid by the property owner, Quezon City will apply the assessment level for residential land, which is a maximum of 20 percent, and then multiply that by the city’s real property tax rate.

On the other hand, if the owner sells the property, the BIR zonal value of P7,650,000 will be used as the basis to determine the capital gains and documentary stamp taxes.

Will Real Property Taxes increase?

There have been questions as to whether the RPVARA, specifically, the uniform market values of property, will increase Real Property Tax payments.

The answer is that it is hard to see how RPT payments will not increase the tax to be paid.

The RPVARA provides that the new and updated SMVs will be used for real property transactions involving the national and local governments.

The law specifically provides that the values shall be used as the basis for the revision of the property classification, assessment levels, and tax rates by the local assessors of the LGUs, as a basis for the BIR for the gross selling price in real property transactions, and for real property appraisals in all government agencies and offices including government-owned and -controlled corporations.

Considering that as a general rule, the existing zonal values of the BIR are much higher than the Schedule of Market Values of the LGUs, and the fact that the real estate price index is positive, it is doubtful that the revised Schedule of Market Values resulting from the implementation of the RPVARA will be lower than the existing BIR zonal values for real property.

While there is a more than even chance that Real Property Taxes will increase, this may not be a foregone conclusion.

The RPVARA provides that for the first year of its effectivity, any increase in real property taxes is capped at 6 percent. Moreover, proponents and supporters of the law submit that LGUs may temper higher real property taxes by managing their assessment levels and tax rates in consideration of the impact of higher taxes on their constituents.

Local assessors of LGUs are mandated to update their respective Schedule of Market Values within two years from the effectivity of the RPVARA, and conduct a general revision every three years thereafter. Accordingly, during this time, real property values may have gone down which will result in a lower Schedule of Market Values.

At any rate, should there be an increase in real property tax collections, this could be a good thing, for as long as our LGUs will use the additional funds wisely and for the benefit of their constituents.

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(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)

TAGS: IRA, LGU revenue, real property tax

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