The Department of Finance (DOF) pushes for the reform of property valuation to empower local government units (LGUs) in raising revenues. In a report by Inquirer, DOF mentioned property taxes as a reliable revenue source, removing the need to impose new tax measures.
During the start of 2022, public expenditures went up, partly due to the bigger share of LGUs in the national budget. Data from the Department of Budget and Management (DBM), as reported by Philstar, showed that LGUs would receive approximately P960 billion this year.
Before the Duterte administration ends, DOF urges the passing of the Real Property Valuation Reform Act, which is also expected to increase private investors’ confidence and raise revenues for the national government.
Valuation Reform Preferred Over Wealth Tax
Amid the election season, the proposal of imposing a wealth tax surfaced to help the government generate revenue and fund its recovery plan. Finance Secretary Carlos Dominguez III, however, prefers to reform the property valuation system over imposing the so-called wealth tax.
In a BusinessWorld report, he mentioned that taxes on movable assets can be easily evaded while taxes on properties have a higher probability of collection, further noting that “land cannot be hidden or spirited away.”
Dominguez also added that the wealth tax might lead to capital flight and adverse effects on the economy, citing that only four countries are implementing the tax measure: Belgium, Norway, Spain, and Switzerland.
An Effort to Attract Builders, Developers
DOF said that the proposed tax reform seeks to develop a single valuation base for property-related taxes and a fair and efficient property valuation system. Once enacted, the reform will include regularly updating the schedule of market values (SMVs) on real property, which shall also rev up the real estate sector.
The SMV is the basis for appraising real estate values for taxation. However, the current land valuations are outdated and very low compared to the market value. For example, prime commercial areas in Ayala Avenue, Makati have a market value of around P4,000 per square meter, according to the city’s SMV.
However, the real market value, as shown in a press release by DOF, ranges from P400,000 to P900,000 per square meter. Dominguez then said that the government is losing tens of billions of pesos because such assets are not being taxed properly.
The agency also acknowledges that real estate is among the country’s most valuable assets and biggest financial sources. But the outdated SMVs are getting in the way of these properties contributing to government revenues.
The lack of uniformity in property valuation shall be addressed with the adoption of globally benchmarked valuation standards, which may translate to higher investor confidence. Along with using digital technologies, enacting the tax reform will add more vitality to the real estate market.
Reform’s Salient Features and Other Benefits
Besides following internationally accepted valuation standards, the reform seeks to improve oversight on valuation and assessment, create a comprehensive electronic database to support valuation function, and maintain a roster of licensed local government appraisers and assessors.
The single valuation base will help eliminate inconsistencies with property valuation, while the uniform standards will improve the trust of government units, businesses, financial institutions, lenders, and investors in valuation reports.
On DOF’s website, stakeholders expressed their support for the property valuation reform. Jeffrey Ng of Subdivision and Housing Developers Association (SHDA) said that different valuations make it hard to do business. He also noted that the reform would help housing and subdivision developers provide more houses and do their part in lowering the country’s housing backlog.
Meanwhile, for real estate practitioners, having an electronic database for valuation will help determine property prices better. Value assessment will move from being subjective to objective. In this way, the reform may reduce unnecessary expenses due to conflicting appraisals that could lead to cost overruns and time-consuming court litigations.
The Real Property Valuation Reform has passed the Lower House but remains pending in the Senate. The Congress will only have two sessions after the May 9 elections.
Sources: Inquirer, Philstar, BusinessWorld, Department of Finance