The Real Property Valuation Assessment and Reform Bill

The Real Property Valuation Assessment and Reform Bill, also known as package three of the Department of Finance’s Comprehensive Tax Reform Program, has just recently cleared the third and final reading in the House of Representatives. The bill now has to make it through the Senate before being signed into law by the president. The Department of Finance hopes to have the bill in effect before the end of 2020.

The bill, once enacted, will revamp and revitalize the country’s severely outdated real property valuation system and will provide the government with a comprehensive, uniform, and up-to-date schedule of real property values. The Department of Finance estimates that — through this initiative, the local government units would be able to boost their real property tax collections by almost ₱30.5 billion annually. In addition, the information generated by the schedule of values can help foster efficiency and liquidity in the country’s real estate market.

Salient features of the Real Property Valuation Assessment and Reform Bill
The ultimate goal of the proposed Real Property Valuation Assessment and Reform bill is to establish a uniform and up-to-date valuation base to be used for the taxation of real property. The bill aims to accomplish this goal through the rationalization of the entire valuation process. The necessary infrastructure will also be created in order to support the entire endeavor. Through these steps, the Department of Finance (DOF) envisions a valuation process which would be up to par with international standards.

Under the current tax laws, the valuation of real property is decentralized. Meaning, the process is left entirely to the local government units (LGUs) through their respective City Assessor’s Offices. The new bill aims to revamp the process by consolidating the entire valuation process under the direction and supervision of the Secretary of Finance. By making everything more centralized, the DOF believes that the process will become more objective and efficient. It is important to note, however, that the power and autonomy of each local government units’ Sanggunian to prescribe real property tax rates will not be touched by the bill.

The Secretary of Finance will manage the real property valuation process through the Department of Finance’s Bureau of Local Government Finance (BLGF). The Bureau — in coordination with the Bureau of Internal Revenue (BIR) — will be primarily in charge of developing or adopting a set of valuation standards. The standards shall be based on the generally accepted valuation standards used internationally. The BLGF shall also provide technical assistance to local government units with regard to concerns on property valuation.
 
In addition to these responsibilities, the BLGF shall establish and maintain the necessary infrastructure in order to properly support the valuation process. This infrastructure will include a comprehensive and up-to-date database containing key information about the status and value of the real property all around the country. The Bureau will also create a Real Property Valuation Service arm, which will coordinate with the various local government units.

The end product of the revamped processes and the new infrastructure will be a comprehensive, uniform, and up-to-date Schedule of Market Values. The schedule shall be uniform. Meaning, it will be used to determine the tax base for all real property related taxes. Most importantly — however, the schedule shall be constantly updated by the DOF in order to account for the appreciation of asset prices through time.

Potential effects of the bill on both the public and private sectors
A uniform and up-to-date Schedule of Market Values for real property can serve as an important tool, for both the public sector and the private sector. On one hand, the government can use the schedule to boost its collections of real property tax and capital gains tax. On the other hand, the improved information provided by the published schedule of values can help foster a more efficient and liquid real estate market.

Currently, the local government units have the most to gain from the adoption of a comprehensive and up-to-date schedule of values due to the fact that the currency of information with regard to real property prices has long been a problem. For example, a parcel of land in a prime location within the Makati Central Business District today can cost anywhere between ₱700,000 per square meter to ₱800,000 per square meter. However, its zonal value is only at around ₱500,000 per square meter — a shortfall of almost 40% to 60%. Meaning, local governments units are losing money due to outdated information. In fact, the Department of Finance estimates that LGUs lose almost ₱30.5 billion in real property taxes annually due to this problem.

Aside from the local government units, the national government can also benefit from the passage of the bill. For one, the schedule of values can be used by the BIR in determining the tax base for the capital gains tax on the sale of domestic real property. Second, the comprehensive database maintained by the BLGF can serve as a valuable tool for the executive branch in the formulation of economic policy.

Finally, the proposed amendments can also help foster a more efficient and liquid real estate market for the country. The comprehensive and up-to-date schedule of values, which will be published in the DOF’s website, provides valuable information to all the market players. For example, the updated assessed values can serve as a baseline for market transactions moving forward.

With all of these potential benefits, it is not a surprise to see that the Department of Finance is pressing hard for the bill to be passed as soon as possible. In fact, the department has even gone as far as to ask President Duterte to certify the bill as urgent in order to expedite the legislative process.

Legislative status
As of the writing of this article, the Real Property Valuation Assessment and Reform Bill has hurdled past the third and final reading in the House of Representatives. It must now go through a similar process in the Senate, afterwhich, the House and Senate versions of the bill will be consolidated in a bicameral meeting. The final bill will then be sent to the President for his signature. The Department of Finance hopes to have the bill signed into law by 2020.