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 In 2021, data shows that 60% of SMVs and 38% of SZVs are outdated, or were not revised in the last three years.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

Real property valuations to change

At present, determining the value of real properties is required for various transactions. Local and national government agencies use different real property valuation standards when assessing these transactions. Hence, the absence of a uniform set of standards for real properties in the Philippines has led to the existence of multiple, overlapping and outdated valuations.

In view of the situation, President Ferdinand Marcos Jr. signed into law Republic Act (RA) 12001, or the Real Property Valuation and Assessment Reform Act (RPVARA), on June 13, 2024, which takes effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation. The law aims to encourage tax compliance and the sustainable development and maintenance of a just, equitable and uniform real property valuation aligned with international standards.

The Bureau of Local Government Finance (BLGF) of the Department of Finance (DoF) will be the primary implementing agency to develop, maintain and apply uniform valuation standards, which should be used by all appraisers and assessors in local government units (LGUs) and different agencies.

What can we expect when the RPVARA takes effect?

At this point, the Bureau of Internal Revenue (BIR) uses zonal valuation for various national real properties transactions like capital gains tax, donor's tax, documentary stamp tax and estate tax. LGUs likewise prepare and implement their own schedules of market value (SMVs) that govern real property tax, also known as assessed value. As a result, the same real property may have different valuations. In most cases, the zonal value of the BIR is often higher than the assessed values of provincial or city assessors.

The valuations used by both the BIR and LGUs for taxation purposes are likewise outdated. In 2021, the BLGF reported that nearly 40 percent of the SMVs from Revenue District Offices and 60 percent of those from LGUs had not been revised. This is despite Section 219 of RA 7160, or the Local Government Code of 1991, which requires LGUs to revise their SMVs every three years.

In the same vein, zonal value is also subject to automatic adjustment every three years pursuant to Section (6)(E) of the National Internal Revenue Code of 1997, as amended. The current situation does not provide consistency and fairness in the valuation of real properties, which could be under or overstated.

With the enactment of the RPVARA, it is hoped that these property valuation issues will be resolved as it adopts a single valuation for real properties that is based on international standards.

Essentially, the reform is intended to remove the political aspects that affect local and national taxation and instead rely on technical and international standards of valuation. To standardize property valuation, the approved SMV will be used as the basis for the determination of real property valuation for both national and local governments.

Assessors in LGUs will prepare the SMV for the different classes of real property situated within their areas. This will be approved by the DoF. In order to ensure that the LGUs use technical and international valuation standards, the RPVARA utilizes the Philippine Valuation Standards (PVS), which is based on the International Valuation Standard (IVS) — a principle-based standard that promotes transparency and consistency in valuation practice.

Under the RPVARA, internal revenue taxes such as capital gains tax, donor's tax, documentary stamp tax and estate tax that use the higher zonal value or assessed value to determine the tax base will now use the SMV approved by the DoF.

The new law is expected to have a positive impact on property owners and the government. Using a single system of property valuation, property owners — both individuals and real estate companies — can expect transparency and accuracy in the valuation of their properties. Property owners will now be aware of the actual value of their properties so they can set transaction prices appropriately. At the same time, the RPVARA may result in an increase in revenues from local and national taxes, which, if used properly, will help improve government services and develop more social projects.

In the meantime, during the transition period under the new law, an amnesty on unpaid real property taxes (RPT) and special levies on real property is granted. The amnesty applies to interest, penalties and surcharges from all unpaid real property taxes, including Special Education Fund, idle land tax, and other special levy taxes.

This may be availed of within a period of two years after the effectivity of the RPVARA. The amnesty may be availed of by a delinquent property owner with the option to settle their delinquent RPT through one-time payment or installments. However, the RPVARA amnesty program does not cover delinquent real properties that have been disposed of through a public auction, those with tax delinquencies being paid through a compromise agreement and those involved in a pending court case connected to tax delinquencies.

Moreover, under the RPVARA, a Real Property Information System will be developed and maintained by the BLGF. This is an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declarations in the country.

Following the signing of the law, the DoF is expected to issue the rules and regulations within three months after the effectivity of the RPVARA for further clarifications and guidelines.

In conclusion, the new law is anticipated to improve the valuation system for real property, which may prove beneficial to both property owners and government agencies as they implement a standardized real property valuation system and boost government revenue.

Source: Manila Times

New property valuation law to boost LGU coffers but may raise real estate prices

Finance Secretary Ralph G. Recto praised the new Real Property Valuation and Assessment Reform Act (RA 12001), signed into law by President Ferdinand R. Marcos, Jr. on June 13, 2024, as a significant advancement for the Philippines’ property valuation system.

The law aims to establish a just, equitable, and efficient real property valuation system, enhancing financial self-sufficiency among local government units (LGUs).

“With this milestone DOF priority bill, we are finally fixing the long-outdated system for property valuation in the country and putting an end to inconsistent and unjust costs that hinder our local governments from delivering fast and reliable public service,” Recto stated.

He added, “We can expect our LGUs to be adequately funded and more equipped to attend to the needs of their constituents. Investors and landowners alike can expect one hundred percent transparency and accuracy in the valuation of their properties with this new law.”

The new legislation introduces a single valuation system for real properties aligned with international standards, ensuring consistency and transparency in both local and national taxation processes.

The reform is expected to professionalize assessors and separate technical valuation from the political aspects of taxation, addressing issues of overregulation and overlapping policies.

To standardize property valuation, RA 12001 employs the Philippine Valuation Standards (PVS), based on the International Valuation Standards (IVS).

The implementation includes developing an electronic Real Property Information System (RPIS), a comprehensive database for all real property transactions. This system will transmit data to the Bureau of Local Government Finance (BLGF) to aid in preparing the Schedule of Market Values (SMVs).

Additionally, the law establishes the Real Property Tax Administration Fund (RPTAF) to update SMVs, revise real property assessments, and manage property taxes across all LGUs. The BLGF will oversee the development and maintenance of PVS.

Furthermore, a real property tax amnesty covering penalties, surcharges, and interests from unpaid real property taxes is available for two years post-enactment. The provision aims to encourage compliance and provide financial relief to property owners.

The law is also designed to improve tax collection without increasing tax rates by expanding the tax base.

Updated property values will lead to higher property tax revenues, enabling LGUs to fund better services and infrastructure projects, potentially making urban areas more attractive for investment and living.

While the law promises enhanced funding and service delivery for LGUs, there are concerns that the new valuation system might lead to increased real estate prices, particularly in urban areas.

By standardizing property valuations and making them more transparent, the reform is expected to increase property values, particularly in cities.

More accurate valuations could lead to higher assessed values, which in turn could drive up market prices as property assessments become more aligned with market realities.

The new law is poised to foster investor confidence, increase public trust in the government’s valuation system, and improve LGU revenue generation, enabling them to meet their service delivery requirements effectively.

Source: Daily Guardian