What is the Tax Reform Package 3: Real Property Valuation?


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what is package 3

Former secretaries of the Department of Finance (DOF) and economists support the urgent passage of the remaining packages of the Comprehensive Tax Reform Program (CTRP) including package 3 and 4  to fulfill the poverty reduction in the Philippines.

The CTRP is needed to accelerate poverty reduction and to sustainably address inequality, in order to attain the President’s promise of tunay na pagbabago. By making the tax system simpler, fairer, and more efficient, additional – and a more sustainable stream of – revenues will be generated to make meaningful investments in our people and infrastructure, which will help achieve our vision for the Philippines.

Package 3 of the Comprehensive Tax Reform Program aims to introduce vital reforms to promote the development of a just, equitable, and efficient real property valuation system.

The reforms will broaden the tax base used for property and property-related taxes of the national and local governments, thereby increasing government revenues without increasing the existing tax rates or devising new tax impositions.

Features of Package 3

Package 3 of the Comprehensive Tax Reform Program proposes to:

  • Adopt international standards and rationalize the process of valuation.
  • Establish a single valuation base for taxation, through the adoption of the Schedule of Market Values (SMVs) of LGUs, and use the updated values as benchmark for other purposes, such as lease, rental, acquisition, ROW, etc.
  • Insulate valuation at the local level from undue politicization. However, LGUs shall continue to set, adjust and regulate tax rates and assessment levels.
  • Recentralize the approval of the SMVs by the local Sanggunian back to the Secretary of Finance – with review functions of the Bureau of Local Government Finance (BLGF), in coordination with the Bureau of Internal Revenue (BIR), and improve oversight function on property valuation and assessment by the Department of Finance (DOF), through the BLGF.
  • Establish a comprehensive database to support valuation function.
  • Establish the Real Property Valuation Service in the BLGF to oversee and manage valuation related concerns of local governments.

Benefits

1. CONSISTENT REAL PROPERTY VALUATION

Single valuation base will eliminate wide disparities and achieve consistency in real property valuation. The predictability of valuation will have a positive impact for planners.

2. ENSURED TRANSPARENCY

Uniform standards will improve the integrity of real property appraisal in accordance with the generally accepted valuation standards. This will also ensure transparency at all levels and provide national and local governments, businesses, financial institutions, lenders, and investors with greater confidence in valuation reports.

The establishment of a comprehensive database will also promote greater transparency in land transactions. Ready access to a database will improve the Sanggunian’s decision-making and policymakers’ planning process.

3. INCREASED LGU REVENUES WITHOUT ADOPTING NEW TAX MEASURES

The adoption of true market-based values for taxation purposes will increase the national and local governments’ revenues without adopting new tax measures. Specifically, this will result in an increase in the revenue generating capacity of real property through real property tax (RPT), national government’s real property transfer taxes, and other related taxes. The increase in RPT collection could improve the RPT to GDP ratio from 0.36 percent to 0.43 percent. Likewise, its share to local income will increase to 23 percent.

4. ENHANCED LGU FINANCIAL SELF-SUFFICIENCY

The reform will enhance the LGU’s financial self-sufficiency and local autonomy through improved collection efficiency on real property taxes, as well as other taxes that involve real property.

5. INCREASED REVENUES FOR THE NATIONAL GOVERNMENT THROUGH CAPITAL GAINS

In the long-term, land-related transactions, capital inflow, and investments in the economy are expected to increase which will lead to increased revenues for the national government through capital gains and other taxes involving transfer of properties.

6. INCREASED PRIVATE INVESTOR’S CONFIDENCE

The adoption of globally benchmarked valuation standards and higher degree of professionalism in real property valuation will foster private investor’s confidence.

7. ENSURED HIGHER SPECIAL EDUCATION FUND

Strengthening the collection of RPT will ensure higher special education fund (SEF) collections – i.e., more funds available for public education. At present, an average of Php 760 is allotted per public school student. Package 3 is expected to increase this amount to Php 1,040 per student.

8. REDUCED UNNECESSARY EXPENSES

The reform will reduce unnecessary expenses due to conflicting appraisals which may lead to court litigations, project details, and cost overruns.


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Nath Mindanao

An Agribusiness economist. I scribble more about agriculture, politics and economics.

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