“Per World Bank estimates, the Philippines’ real property taxes account for only 0.37% of the Gross Domestic Product (GDP) with an overall collection efficiency of 71%.”
– OIC-Director Brenda L. Miranda, BLGF Local Fiscal Policy Service
House approves the Real Property Valuation and Assessment Reform Bill (https://blgf.gov.ph)
By Realttorney®
Sometime on April 2-4, 2013, ranking officials of our Department of Finance (DOF) presented “Property Tax Reforms in the Philippines” during the Fourth IMF-Japan High-Level Tax Conference at Hotel Nikko, Tokyo, Japan. During this event, the Philippines identified eight (8) Issues and Challenges regarding our property-related tax administration system.
The eight are as follows: (1) lack of uniform property valuation systems and methodology; (2) outdated real property values; (3) political interference in property valuation; (4) limited use of information technologies in the appraisal process; (5) multiple taxes on property ownership and transfers; (6) relatively high transfer taxes, which discourage formal transactions; (7) weak enforcement of property-related taxes; and (8) no provision for formal education and training of assessors/appraisers
The promulgation and adoption of DOF Department Order No. 37-09 [Philippine Valuation Standards, 1st Edition] on October 19, 2009, continues to address the first item above, while the passage of Rep. Act No. 9646 addressed the last item on the list.
Meanwhile, the various Joint Memoranda of the DOF and the DILG enjoined all Local Government Units (LGUs) regarding the regular preparation of Schedule of Market Values (SMV) and the conduct of general revision of property assessment in their respective jurisdictions.
Way back on May 12, 2012, the House of Representatives passed the Valuation Reform Bill [House Bill No. 6044] to address most of the 8 Issues and Challenges mentioned above. However, the Senate of the Philippines failed to pass the counterpart bill at that time until recently.
In the 2022 State of the Nation Address (SONA), Pres. Marcos, Jr. identified the Real Property Valuation and Assessment Reform Act (RPVARA) as one of his Administration’s priority legislations, and a key tax reform under the Comprehensive Tax Reform Program under the Duterte Administration.
On December 12, 2022, the House of Representatives passed on third and final reading, the Real Property Valuation and Assessment Reform bill [House Bill No. 6558]. Thankfully, this time, the Senate of the Philippines had counterpart bills on hand.
In the Explanatory Note of Senate Bill No. 897, filed by Sen. Pia S. Cayetano on July 26, 2022, she stated that “there are various agencies conducting or requiring property valuation, with each agency using their own system and methodology of valuation” of the economy, including the real estate industry. Understanding these implications is crucial for real estate professionals, investors, and policymakers.
Senate Bill No. 2386 was passed on the third and final reading only last March 11, 2024, via a unanimous vote by all 23 Senators present. Both Houses of Congress ratified the final version of the bill on March 20, 2024. The enrolled bill awaits the signature of the President when he returns from the 1st Philippine-US-Japan Trilateral Summit in Washington, DC.
As a real estate service practitioner (RESP), what do you need to know about this crucial tax reform program that will be signed into law soon?
1. Updated and Fairer Property Valuation: According to RPVARA, it is the policy of the State to promote the development of a just, equitable, and efficient real property valuation system. Thus, it aims to establish uniform appraisal standards and procedures. This should lead to more accurate and consistent valuations across the country, reducing unfair tax burdens on property owners.
According to Ma. Pamela Quizon, Director of the Bureau of Local Government Finance (BLGF), this reform bill will address the current inefficiencies in the system such as overlapping valuation. She stressed that there are currently 23 national government agencies requiring valuations of 1,715 LGUs.
However, each government agency uses its own systems and methodologies which is causing wide disparities between zonal values, market values, and private appraisers’ values. Thus, leading to varying and multiple values for the same parcel of land or real property.
RPVARA strengthened and expanded the powers and functions of the BLGF as the primary or lead implementing agency of this reform bill. The BLGF shall be the agency responsible for ensuring that valuations or revaluations are completed per standards outlined in the RPVARA.
Finally, under the RPVARA, an updated schedule of market values (SMV) will be used as the basis for local and national land and property-related taxes. There shall be only one valuation for a specific real property.
The SMV refers to a table of base unit market values for all kinds of real property, except machinery within an LGU, prepared by assessors according to existing laws, rules and regulations. LGUs are mandated to update SMV and its revision once every 3 years under Section 219 of the Local Government Code of 1991, as amended.
2. Transparency and Efficiency: RPVARA shall develop and maintain the Real Property Information System (RPIS). This is an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declarations in the country and on the cost of construction or renovation of buildings and other structures, and on prices of plant, machinery, and equipment.
For this purpose, the BLGF shall require the mandatory submission of necessary documents from the concerned officials or employees of government agencies and instrumentalities, and LGUs. Towards this end, the BLGF shall establish mechanisms for the electronic submission of the required documents. Upon the creation of the RPIS, the private sector may access the database subject to the guidelines of the BLGF and the payment of a reasonable amount as an administration fee.
This electronic database will centralize data on real estate transactions and shall be an important tool for all valuers – especially private appraisers who can now accurately prepare Appraisal Reports based on actual data of “comparables” in a given property location. No more educated guesses with the aid of Google and real estate listing sites.
3. Streamlined Government Services: The RPVARA mandates all LGUs to automate their real property tax administration operations, such as but not limited to, tax mapping technology, maintaining software-enabled valuation systems, undertaking regular data cleansing, and computerized records management, with the guidance of the BLGF, in coordination with the Department of Information and Communications Technology (DICT). This could benefit the clients of RESPs involved in transactions requiring these services.
Moreover, automating processes through the RPIS could expedite government activities related to property, such as right-of-way acquisition and land transfer tax administration which will redound to the benefit of its stakeholders.
4. Taxpayer Relief: According to multiple press releases regarding RPVARA, the Act offers a two-year amnesty on penalties and interests for unpaid real property taxes. But, this provision is not indicated in SBN 2386 or HBN 6558. However, the amnesty provision is a welcome addition to this important piece of legislation, as it was not included in previous versions of this reform bill since 2012.
This provides an opportunity for clients to settle outstanding tax obligations without extra charges and fend off the levy of the property and its public auction by the concerned LGU. It is a timely relief for landowners as they battle the effects of inflation and high-interest rates from 2021 up to the present.
5. Increase Collection of Real Property Taxes: The reform will broaden the tax base for local and national property and property-related taxes. With a wider tax base, the collection of real property taxes is expected to increase based on updated property values, which is most important to increase collection efficiency, and overall tax revenue by LGUs and the Bureau of Internal Revenue (BIR).
Oftentimes, outdated property values result in unrealized revenues and socio-economic benefits from delayed projects, and conflicting land values which result in right-of-way (ROW) compensation problems, lengthy court litigations arising from valuation disputes, delayed projects, and cost overruns.
With the increased collection efficiency, it is expected that LGUs will be able to translate this into better basic services for its constituents and critical infrastructure projects by the National Government based on the increased revenue-based national real property transfer taxes.
With fairer valuations and a more transparent system, RPVARA would lead to a steady increase in market values of real properties in the Philippines at regular intervals without increasing the tax rates or introducing new taxes. Therefore, it is incumbent on RESPs to advise our clients as to the timing of such increases to take advantage of relatively low prices when they desire to purchase real properties.
In conclusion, the Real Property Valuation and Assessment Reform Act brings several positive changes in the valuation system and the real estate sector in the Philippines in general. The reform bill shall implement a more efficient valuation system and will use a single valuation base, which will eliminate wide disparities caused by overlapping valuations.
This would lead to consistency in real property valuation as well as the predictability of valuation. As such, the adoption of true market-based values for taxation purposes will increase revenues without necessarily adopting new tax measures.
RPVARA endeavors to increase the capacity of the government to generate revenues from real property through the RPT, national government real property transfer taxes, and other related taxes. In addition, RPVARA aims to reduce government costs particularly unnecessary expenses incurred due to conflicting appraisals which lead to court litigations, project delays, and cost overruns.
As RPVARA aims to implement uniform standards and efficient processes in the real property tax system, the government hopes that this will instill more confidence in the country’s real estate industry. In the end, the government desires to motivate and inspire real estate investors and public confidence because the valuation is done professionally, properly, and following current local and international standards.
——-
Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.
Realttorney® 