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Real Property Valuation Reform

In the assessment of land for real property tax purposes, using the generic land classifications in the Local Government Code – rather than the sub-classifications based on legally permissible uses under the CLUP – often result in distortions in valuation, taxation and pricing in the land markets.

The Real Property Valuation Reform Act (RPVARA) has been passed by the Lower House, while the Senate counterpart Bill is now on its final working draft.

According to the Department of Finance (DOF), the proposed legislation aims to “improve the quality of valuation of local governments by making the revisions frequent, efficient, transparent, reliable and attuned to market developments.” The reforms are also expected “to foster private investors’ confidence, and build the public’s trust in the valuations of government,” the DOF said.

However, an analysis by CREBA’s Advocacy and Legislative Affairs Committee (ALACOM) revealed that the proposed reforms are mostly procedural, and fail to address the fundamental problems that the real property sector and landowners have been contending with for decades.

Consequently, CREBA has recommended some revisions to provide more substance to the intended reforms.

Using CLUPs in setting assessment levels and tax rates for land

The Bill as presently worded provides that in determining assessment levels, the property classifications prescribed in the Local Government Code (LGC) should be used.

CREBA recommends that the land classifications in the Comprehensive Land Use Plan (CLUP) of the local government unit should be used instead.

  • This is because the classifications enumerated in the LGC are generic – i.e. those specified in the Constitution and the Public Land Act. Those classifications do not take into account the various sub-classifications under the approved CLUP. More than anything else, this results in distortions in valuation, taxation and pricing in the land markets.


It is pointed out that the market value of the land is affected primarily by the legally permissible use; the taxpayer is not supposed to use the land for any other purpose other than as prescribed by fiat. Thus, it should logically follow that the land should be assessed and taxed based on the permitted use, regardless of actual use (or nonuse).

In other words, if for instance the land is designated in the CLUP as residential, it should be assessed as such even if there is a commercial structure erected thereon. If the residential land is sub-classified as social housing site, then it should be assessed at a lower level than the other residential lands.

  • Prescribing the use of the CLUP for taxation purposes would not only minimize if not eliminate arbitrariness, but would also serve to synchronize/harmonize taxation with land use regulation.

To effect this paradigm shift, CREBA recommended the following revisions:

  • Reword the definition as follows: Assessment Level refers to the percentage applied to the market value to determine the taxable value of the property based on the land classification or sub-classification in the duly approved comprehensive land use plan (CLUP) of the local government unit and the classification of improvements per the implementing rules and regulations (IRR) of this Act.

  • Replace Sections 215 and 217 of the LGC  as follows: Assessment of real property. – The classification or sub-classification of land in the duly approved comprehensive land use plan (CLUP) of the local government unit, regardless of actual use of the land, shall be used for purposes of tax assessment.

For real property other than land, the Secretary of Finance shall prescribe the system of classification or sub-classification, and assessment thereof shall be based on actual use.

  • Accordingly repeal Section 215 of the LGC which provides that “for purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial, mineral, timberland or special.”

  • Accordingly repeal Section 217 of the LGC which provides that “real property shall be classified, valued and assessed on the basis of its actual use.”

DOF authority to set/modify ceilings of assessment levels and tax rates

The LGC prescribes the ceilings for assessment levels to be applied by LGUs in determining assessed value.

It is CREBA’s view that assessment levels and tax rates should NOT be fixed in the law, as this results in the inability to respond to developmental realities and necessities.

Rather, the Secretary of Finance should be conferred the authority to prescribe ceilings and raise or lower them – on a regional (or even provincial) basis – as exigencies demand.

This would afford not only flexibility, but also a harmonizing macroeconomic perspective.

LGUs should have the power to lower assessment levels and tax rates as the needs of the local constituency may dictate, but NOT to raise them beyond the ceilings prescribed by the DOF.

This should help curb the pernicious practice by many LGUs of arbitrarily increasing assessments and tax rates, to the detriment of not only the taxpayers but also the entire economy in view of the trickle-down effect of tax measures.

To effect the change, and to synchronize revision of assessment levels with the revision of the schedule of market values (SMV), CREBA recommended replacement of Section 218 of the LGC as follows:

“Assessment Levels and Tax Rates. – The assessment levels to be applied to the fair market value of real property to determine its assessed value, as well as the tax rates, shall be fixed by ordinances of the sanggunian concerned, at the rates not exceeding the ceilings prescribed by the Secretary of Finance; provided, that in prescribing the ceilings, the Secretary of Finance shall take into account the income levels of municipalities and cities in each region and the developmental trends therein; provided further, that said ceilings shall be updated not later than six (6) months prior to the prescribed schedule for updating the schedule of market values.”

Using “equitable value” for socialized housing

The Bill prescribes the use of “market value” in all instances. CREBA is of the view that in the case of lands and improvements associated with socialized housing and other socially oriented government programs, the use of “equitable value” should be allowed

 Considering the high cost of land and development inputs, the use of “market value” as defined would further severely constrain the ability of both the government and the private sector to acquire land on which to undertake socially oriented programs, particularly housing within the affordability level of marginalized sectors.

The use of “equitable value” in such cases would enable valuators to take into account vital matters that normally would have to be disregarded in the determination of market value. This is allowed under the International Valuation Standards (IVS) 2020.

Uniform valuation for all purposes

The Bill provides that “the approved SMV shall be used as bases for the determination of real property related taxes of national and local governments.” However, inconsistently, the Bill allows the use of either the SMV or the selling price, whichever is higher, in computing internal revenue and local transfer taxes.

CREBA is of the view that this proviso will simply perpetuate the common malpractice of undervaluing the consideration in property transactions with the intent to avoid a higher tax.

It is of course understood that the real property tax appertains to ownership, whereas internal revenue taxes appertain to transactions.

However, it is argued that if the selling price is greater than or does not reasonably approximate the market value in the SMV, then it could mean that the system for determining market value is faulty to some extent. Thus, a thorough, fine-grained refinement of the entire system may be necessary.

Real property information system

The Bill requires LGUs to adopt technologies and automate operations relating to real property tax administration and valuation.

It also directs the Bureau of Local Government Finance (BLGF) to develop and maintain a real property information system and electronic database to hold all transactional data, tax data and related documents to be submitted by LGUs, various government agencies and private entities required to submit documents to LGUs.

In other words, the contents of the BLGF database will simply be a duplicate of the contents of the databases of LGUS.

CREBA recognizes that the proposed system would be invaluable – especially if both government and private sectors would be allowed access to a certain extent. However, it is of the view that this multiplicative waste of funds may be uncalled for, even as many LGUs may not be able to comply with the requirement due to lack of funds or some other reason.

Thus, CREBA recommended that the BLGF, in collaboration with the Department of Information and Communication Technology (DICT), be required to develop, maintain and operate a single, national GIS-integrated Real Property Tax Administration Portal to which all LGUs will be connected for purposes of performing their RPTA functions.

Such a system would result in tremendous savings due to economies of scale. Equally important, it would considerably improve/speed up coordination between the BLGF, LGUs, BIR and other agencies concerned, by eliminating the processes – and concomitant expenses and delays – involved in the required submission of documents/records by local assessors and the transacting public.

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