Real Estate Tax Expectations Under the New Administration
According to the Bangko Sentral ng Pilipinas, the incoming administration would inherit a "much better" economy, one with continuous gross domestic product (GDP) growth of six to seven percent.
However, the new administration will have obstacles, like guiding the economy out of the pandemic and controlling debts. Implementing tax reform measures is one method for guiding the nation back to growth.
Real property tax (RPT), also known colloquially as "amilyar," is one of the sustainable sources of revenue for local and national governments. Private property owners solely pay RPT, and the rates vary by locality.
There may be modifications to how property values are assessed, but RPT rates will not alter.
The Property Evaluation System of Today
To comprehend the potential changes to property taxes, it is helpful to comprehend how property valuation is conducted.
Real property tax (RPT) assessments and other property-related taxes are based on real property values. The Local Government Code of 1991 requires city and provincial assessors to prepare a schedule of market values (SMVs) for several classifications of real property. Assessors must also reassess the valuation and classification of real property every three years.
When considering real estate taxes, the zonal values of the Bureau of Internal Revenue are also significant and can be utilized to determine taxes. Nevertheless, as disclosed by the Department of Finance (DOF), zonal values and SMVs in certain locations are obsolete, enabling taxpayers to adopt their own assessment system. Consequently, local governments are left with an ineffective tax collection mechanism.
Package 3 of the Comprehensive Tax Reform Program, often known as the Real Property Valuation Reform, addresses this issue.
Enhanced Tax Collection Without Rate Increases
The reform focuses on building a "fair, equitable, and efficient" property assessment system. Once enacted, this will eliminate the complication of having many methods for appraising property values.
In the long term, it is anticipated that the reform will assist local and national governments in broadening their tax base and improve their tax collections without imposing new taxes or raising existing tax rates.
Other beneficial developments that may occur following the reform could include:
Assurances of Consistency and Transparency
The proposed change aims to establish a single valuation basis and eliminate the overlapping property valuations that currently complicate the process. In addition, there will be valuation criteria and a complete, up-to-date database of real estate transactions and the costs of construction materials, machinery, and other structures.
The unified standards and database will increase stakeholder confidence and encourage transparency at every level.
An overvalued property can be detrimental to a taxpayer. Multiple valuation approaches and out-of-date SMVs can have the same impact. But by adopting internationally recognized valuation standards, local governments may assist taxpayers in reducing wasteful expenditures.
Increased Local Government Revenues
The reform will help local governments increase their tax revenues and become more self-sufficient. Due to the obsolescence of SMVs, the RPT contributes an average of 29 percent to LGU income, according to the DOF.
In the meantime, the reform might generate an additional P30,5 billion in LGU revenues without adopting new tax measures. LGUs can provide essential services and revitalize the pandemic-ravaged economy with more locally generated revenue. With stronger economic growth and rising incomes, property demand can increase.
More Nationwide Changes to Come
With the revised valuation system, the "Build, Build, Build" program, which is anticipated to continue under the next administration, might be implemented more quickly. The change will help address the purchase of rights-of-way (ROW) that causes significant delays in infrastructure projects. This is likely to have positive repercussions for companies, commuters, and investors.
In addition, modernizing the valuation system and streamlining the RPT collection would contribute to expanding the national wealth. These steps are intended to boost investor confidence in the real estate market, safeguard the public interest, and improve the professionalism of appraisers and assessors.
Implementing a uniform valuation system will result in modifications to real estate taxes. And with an effective tax collecting system, fairness could be practiced, and property-related decisions could be made with greater knowledge.