Land is the most valuable resource; and it is globally recognized that land/housing development is the primary catalyst for economic progress and social advancement.
Yet over the decades, the country’s system of land or real property valuation has failed to properly exploit this vital attribute. The system is characterized by multiple, inconsistent, outdated, inaccurate and often arbitrary valuations imposed by the national and local governments.
Since taxes on real property and related transactions are based on the property values determined by the government, and since these taxes eventually form part of property pricing, the system thus creates a situation of pervading, severe price distortions in the real property markets.
This in turn is one of the major factors for the continually escalating prices of land, which impact adversely on affordability levels.
The system also cause unnecessary and costly delays in the implementation of much needed infrastructure projects, due to valuation disputes when determining just compensation in the exercise of eminent domain or in acquiring right of way.
Property owners have also long been complaining of inaccurate classification and valuation not only of residential, commercial or industrial lands, but more particularly of raw lands. More often than not, under the BIR’s valuation schedule, the zonal value of raw lands end up being much higher than actual market price – thus resulting in unjust tax burdens.
Today, relief appears to be in sight, with the filing of the Property Valuation Reform Bill (House Bill No. 4664). Comprising the third package of the government’s Comprehensive Tax Reform Program (CTRP), the bill seeks to introduce reforms in real property valuation and assessment and reorganize the Bureau of Local Government Finance (BLGF) under the Department of Finance.
CREBA welcomes this proposed measure, as it is long overdue.
It is this Chamber’s view, however, that the bill needs further refinement. For instance, it must specify that land parcels shall be classified based on their current actual use, where “raw, undeveloped and under-developed lands of less than 5,000 square meters” shall be considered as “general purpose” and valued lower than other land classifications.
Another issue that the bill should address is the tendency of LGUs to arbitrarily increase real property taxes – in some case, up to 5,000% – despite not having updated schedule of market values (SMV). Statistics show that only 37% of LGUs have updated SMVs. Understandably, LGUs continually need to increase tax collection if they are to effectively serve the growing needs of the constituency. However, in many cases, the motive is more questionable.
To preclude such situations, the bill should include a cap on RPT increases – i.e. not more than 30% from the previous assessment, or a formula based on consumer price index.
Additionally, the lawmakers should take the opportunity offered by HB 4664 to professionalize the entire process of valuation, in order to eliminate arbitrariness and help minimize if not eliminate opportunities for corruption. The BLGF should be given full powers and authority to appoint technically competent local assessors.
Just as importantly, there should be full transparency in the process. For this purpose, a Regional Valuation Review Board should be created to review and endorse the SMV as a prerequisite to its approval. The Board should be comprised of the BLGF Chief, the Provincial Assessor, regional officials from the BIR and DENR, and private sector representatives from the appraisers, bankers and realty business associations.
It cannot be gainsaid that tax collection must be improved, especially in the provinces. Hence, more severe penalties must be imposed on LGUS with low collection efficiency rate. Tax amnesties or condonations must also be minimized or avoided to encourage or even compel business taxpayers and individual homeowners to pay their taxes on time.
More importantly, there is a need to revise the Local Government Code to update the 1991 Fair Market Values schedule of residential and commercial buildings to current market values, and to update every three years using BSP average bank rates.