Modernizing property valuation

Whether you are an individual looking to purchase a house, an entrepreneur about to lease a place for your next business venture, or a corporation considering acquiring equipment, it is important to ensure that you are getting a fair deal on your target property.

At present, there are three bases for the valuation of real property for tax purposes: (1) the Bureau of Internal Revenue’s (BIR) Schedule of Zonal Values (SZVs), (2) Local Government Units’ (LGU) Schedule of Market Values (SMVs), and (3) the market values from the highest selling price from recent sales of property in the vicinity, whichever is higher. This rule is usually the root of disagreement between taxpayers and the government.

Based on studies conducted by the Department of Finance (DoF), SMVs are significantly lower than the values from private valuation. In 2021, data shows that 60% of SMVs and 38% of SZVs are outdated, or were not revised in the last three years. Because of this, legislators found an opportunity for a potential incremental revenue of P30.5 billion from the Real Estate sector by updating the SMVs and reflecting current market conditions.

With such considerations, Republic Act (RA) No. 12001, or the Real Property Valuation and Assessment Reform Act (RPVARA) was signed on June 13 and took effect on July 3.

This new law aims to set strict rules on updating the SMVs every three years and depoliticizing valuation through the establishment of the Real Property Valuation Service (RPVS) and Real Property Valuation Unit (RPVU) under the Bureau of Local Government Finance (BLGF); to create a single valuation base for real property taxation and benchmark for other purposes (e.g., right-of-way acquisition, expropriation and lease); and to promote transparency through a Real Property Information System (RPIS) that will ensure that everyone has access to accurate property valuations, reducing discrepancies and confusion.

STRICT REGULAR UPDATING OF SMVS

The LGUs will be required to update their SMVs, in accordance with the latest Philippine Valuation Standards (PVS), within two years from the effectivity of the RPVARA, and conduct general revisions of property assessments and classifications every three years thereafter.

The BLGF, through the RPVS, is to review the PVS every three years to ensure they align with globally accepted principles and definitions in real property valuation, with due consideration for the prevailing economic conditions. As a result, this refreshed system will create a more reliable basis of valuation for taxpayers that minimizes overpricing on the side of the buyer or lessee in terms of sale and leasing of real property, among other real estate transactions.

SINGLE VALUATION BASE FOR REAL PROPERTY TAXATION

The approved SMVs will be the basis for determining real property-related taxes of national and local governments, and used by all appraisers and assessors in the LGUs and other stakeholders in the appraisal/valuation of land, buildings, machinery and other real property, whether taxable or exempt.

In every BLGF regional office, there is to be a counterpart for the RPVS; every LGU, on the other hand, will create an RPVU under the Office of the Local Assessor. As such, the SMVs approved by the BLGF will be the basis for the LGU’s real property assessments, enabling taxpayers to easily determine their Real Property Tax (RPT) due, as well as transfer taxes (e.g., Capital Gains Tax, Value-Added Tax, Documentary Stamp Tax).

This repeals previous rules on property valuation referring to the BIR’s SZV, the LGU’s SMV, and the recent selling price of property sold within an area, whichever is higher.

AUTOMATION OF RPT ADMINISTRATION

To maintain efficient RPT administration, the BLGF is to develop and maintain an up-to-date electronic database (the RPIS) on the sale, exchange, lease, mortgage, donation, transfer of property, and all other real property transactions and declarations, as well as the cost of construction or renovation of buildings and other structures, and the price of machinery and equipment.

The RPIS is to have mechanisms for the electronic submission of necessary documents and information by concerned National Government offices or instrumentalities and LGUs, subject to the provisions of the Data Privacy Act. The RPIS may also be accessed by the private sector to seek data on the latest real property valuation. Through this automated and transparent system, the government and the private sector would have easy access to updated SMVs any time, resulting in more efficient real estate transactions.

In order to transition to this new regime, taxpayers are given a chance to avail of a real property tax amnesty (one-time or installment payment). The SZVs and existing SMVs will continue to be in force until repealed by BLGF-approved SMVs within two years from the effectivity of the RPVARA. Further, any increase in Real Property Tax in the first year of approved SMVs is limited to 6% of properties assessed prior to the effective date of the RPVARA.

Pending the implementing guidelines of this law, I hope there will be a systematic approach to ensuring that values will consistently be up to date. Similar to AMLA’s registration procedure, the BLGF could require registration to the RPIS of all LGUs, real estate professionals, engineers, architects, and other stakeholders who are sources of information on real estate transactions.

Meanwhile, on the compliance side, while not required under the law, along with the automation of the RPT administration, the implementing rules could also require LGUs to offer online payment options for easy settlement of RPT dues by taxpayers.

Going by the model of the Inland Revenue Authority of Singapore (IRAS), the RPIS could also be developed to provide comprehensive information on real property taxation and a user-friendly feature that allows taxpayers to inquire about their specific property’s valuation.

With the establishment of the RPVU, newly fledged Real Estate Appraisers have the opportunity to be part of the administration’s historic initiative and contribute their expertise to improve the valuation system.

Indeed, the RPVARA has opened doors for the LGUs to increase their revenue, which, hopefully, could be effectively used for the benefit of our fellow citizens through their current and prospective social projects.

Source: Business World

Can tax declaration be proof of possession?

What are the requirements for land registration, and what other evidence can one present to comply with the required years of possession?

The new requirements for land registration are now governed by Section 6 of Republic Act (RA) 11573 or An Act Improving the Confirmation Process for Imperfect Land Titles, Amending for the Purpose Commonwealth Act 141, as amended, otherwise known as The Public Land Act, and Presidential Decree 1529, as amended, otherwise known as the Property Registration Decree:

"Section 6. Section 14 of Presidential Decree No. 1529 is hereby amended to read as follows:

"SECTION 14. Who may apply. The following persons may file at any time, in the proper Regional Trial Court in the province where the land is located, an application for registration of title to land, not exceeding twelve (12) hectares, whether personally or through their duly authorized representatives:

"(1) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain not covered by existing certificates of title or patents under a bona fide claim of ownership for at least twenty (20) years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. They shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under this section.

"(2) Those who have acquired ownership of private lands or abandoned riverbeds by right of accession or accretion under the provisions of existing laws.

"(3) Those who have acquired ownership of land in any other manner provided for by law. xxx"

Generally, tax declarations are proofs of payment of real property tax, but they are also indications of possession. This was reiterated in the case of Republic of the Philippines vs. Spouses Tan, GR 232778, Aug. 23, 2023, where Associate Justice Samuel Gaerlan said that:

"Although tax declarations and realty tax payment of property are not conclusive evidence of ownership, nevertheless, they are good indicia of the possession in the concept of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. They constitute al least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only one's sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the government. Such an act strengthens one's bonafide claim of acquisition of ownership."

In Arlo Aluminum Co., Inc. vs. Republic of the Philippines, GR 254433, April 17, 2024, the Supreme Court, speaking through Associate Justice Ramon Paul Hernando, also stated that:

"In addition, Arlo may present other competent witnesses or documentary or object evidence to prove overt acts of possession and occupation by them and their predecessors-in-interest as held in the case of Spouses Tan:

"Accordingly, respondents may present anew other competent witnesses or other documentary or object evidence that show the overt acts of possession and occupation by their predecessors-in-interest, such as duly authenticated photographs of structures on the subject property built or erected by the said predecessors-in-interest predating March 11, 1989, but to speculate or suggest further would be to preempt the action of the CA in its reception and consideration of future evidence that may come before as a result of the remand of the instant petition."

Thus, the tax declarations may be used as additional proof of possession, but one must still present competent witnesses or other documentary or object evidence to show overt acts of possession through the predecessor-in-interest so as to comply with the 20-year occupation requirement as provided under Section 6 of RA 11573.

Source: Manila Times

SEC data-sharing deal will help BIR go after tax evaders

The Bureau of Internal Revenue (BIR) vowed to run after big-time corporate tax evaders as the agency can now access documents filed with the Securities and Exchange Commission (SEC).

“The BIR will maximize our partnership with the SEC by running after big-time corporate tax evaders. This sharing of information between the agencies will be used to investigate large-scale tax fraud activities perpetrated by companies such as that of ghost receipts and corporate tax evasion,” BIR Commissioner Romeo D. Lumagui, Jr. said in a statement.

Under a data-sharing deal, the BIR will have access to the SEC’s Swift Corporate and Other Records Exchange protocol where it can check all the corporate documents of any SEC-registered taxpayer in real time.

The BIR can look into the documents, such as articles of incorporation and annual financial statements, that are crucial to corporate tax fraud investigation or audit.

For its part, the BIR will provide SEC with a tax identification number verification for the latter’s online digital services to enhance its monitoring of the capital market.

Analysts said the new data-sharing deal between the BIR and SEC will help boost state revenues as the former ramps up its efforts to go after tax evaders.

“By granting the BIR access to essential documents such as articles of incorporation and audited financial statements, this initiative aims to streamline tax assessments and combat tax evasion. Companies will face stricter compliance requirements, while the SEC’s digital platforms simplify document submission and authentication,” Globalinks Securities and Stocks, Inc. Trader Mark V. Santarina said.

“The ease of data access for regulatory bodies necessitates accurate filings to avoid penalties,” he added.

AP Securities, Inc. Senior Research Analyst Francis Ferdinand D. Subido said this will result in increased transparency in the corporate sector.

“Company financials will better reflect the impact of taxes paid to their assets, especially to their cash,” he told BusinessWorld in a Viber message.

“Before, since companies submit another copy of their financial statements to the tax collectors, there is a misalignment in the timing of taxes paid to authorities versus the income tax expense recorded during the financial reporting period. This is why we get deferred tax assets and liabilities,” he said.

COL Financial Group, Inc. Chief Equity Strategist April Lynn Lee-Tan said in a Viber message that the data-sharing agreement makes it easier for the BIR to identify which companies are not paying the correct taxes.

“The BIR would need to look at a company’s financials to know how much taxes need to be paid,” she added.

The government loses around P500 billion annually due to tax evasion, the BIR said last year.

“This (data-sharing deal) can boost government revenue and promote fairer competition within the Philippine economy, but both agencies need to address data security, standardization, and staff training to ensure its effectiveness,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

Mr. Subido said the data-sharing agreement will also support the government’s push to improve tax administration.

“Gaining access to the financial statements will allow regulators to better understand the accounting methods that companies use. They can better get a gauge of what the true taxable income amount should be,” he said.

“This might even attract more businesses to the Philippines, because as we know, the amount of red tape here is something that has been keeping businesses away,” he added.

Mr. Santarina said the data-sharing initiative will also increase confidence in the local capital market.

“The SEC’s collaboration with other agencies underscores the importance of adhering to regulatory standards, enhancing comprehensive business activity monitoring and potentially boosting investor confidence in the capital markets industry,” he said.

Ensuring the ease of making tax payments would boost compliance among taxpayers, said Benedicta Du-Baladad, founding partner and chief executive officer of Du-Baladad and Associates.

“When taxpayers feel that taxes are fair, clear, easy to comply with and consistent in its application, there is a natural attraction for taxpayers to voluntarily comply without the BIR going after them,” she said.

The passage of Republic Act No. 11976 or the Ease of Paying Taxes law would also help improve the digitalization and taxpayer services of the BIR.

Source: Business World