Changes and Beginnings: Real Property Tax Expectations in the New Administration

Bangko Sentral ng Pilipinas said that the incoming administration will be inheriting a “much better” economy—one with sustained gross domestic product (GDP) growth of six to seven percent.

However, challenges remain for the next admin, including navigating the economy out of the pandemic and managing debts. One of the ways to steer the country into recovery is to implement tax reform measures. 

Real property tax (RPT), colloquially known as “amilyar,” is one of the viable revenue sources for local and national governments. RPT is only paid for by individuals who own properties, and the rates vary depending on the location. 

RPT rates will remain the same, but there may be changes in how property values are assessed.

Today’s Property Valuation System

To better appreciate the changes that could happen to property taxes, it helps to understand how property valuation is being carried out. 

Real property values are the basis of RPT assessments and other property-related taxes. Under the Local Government Code of 1991, city and provincial assessors are mandated to prepare a schedule of market values (SMVs) for various real property classes. The assessors shall also revise the real property assessment and classification every three years. 

When thinking about real estate taxes, the Bureau of Internal Revenue’s zonal values are likewise important and can be used to compute taxes. But as revealed by the Department of Finance (DOF), zonal values and SMVs in some areas are outdated, leaving taxpayers to employ their own system of valuation. Meanwhile, LGUs are left with an inefficient tax collection system. 

This is where Package 3 of the Comprehensive Tax Reform Program comes in, also known as the Real Property Valuation Reform.

Better Tax Collection Without Increasing Rates 

The property valuation reform focuses on establishing a “just, equitable, and efficient” valuation system. Once signed into law, this will remove the complexity of having different methodologies for assessing property values. 

In the long run, the reform is expected to help local and national governments broaden the tax base and improve collections without imposing new taxes or increasing existing tax rates.

Other positive changes that could happen after the valuation reform include: 

Ensured Consistency and Transparency

The reform proposes to create a single valuation base and seeks to remove the overlapping property valuations that complicate the process. There will also be valuation standards to follow and a comprehensive, updated database of real property transactions and prices of building materials, machinery, and other structures. 

Simply put, the uniform standards and database will promote transparency at every level and boost stakeholders’ confidence. 

Pro-Taxpayer Measure

An over-valuated property can put a taxpayer at a disadvantage. Multiple valuation methods and outdated SMVs can have a similar effect. But with the adoption of internationally accepted valuation standards, LGUs can help taxpayers remove unnecessary expenses.

Increased LGU Revenues

The valuation reform is expected to help LGUs grow their tax collections and become more self-sufficient. According to DOF, RPT contributes an average of 29% to LGU revenues due to SMVs being outdated. 

Meanwhile, the reform could provide P30.5 billion in additional LGU revenues without adopting new tax measures. With more locally raised revenues, LGUs can properly deliver basic services and revive the pandemic-battered economy. With higher economic growth and rising incomes, demand for properties can also go up.

More Nationwide Changes to Come

With the reformed valuation system, the “Build, Build, Build” program that is expected to continue in the next admin might see a speedy implementation. The reform will help address the right-of-way (ROW) acquisitions that cause major delays in infrastructure projects. This will likely have spillover benefits for businesses, commuters, and investors. 

Further, revamping the valuation system and optimizing the RPT collection would be beneficial to growing the national wealth. These measures aim to increase investor confidence in the real estate market, protect the public interest, and enhance the professionalism of appraisers and assessors. 

Changes in real property taxes will be prompted by the establishment of a unified valuation system. And with an efficient tax collection process, fairness could be exercised and property-related decisions would be more informed.

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