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Improving Fiscal and Land Governance Through Property Valuation and Taxation Reforms
in the Philippines
JOSE ARNOLD M. TANDeputy Executive Director for OperationsBureau of Local Government FinanceDepartment of Finance, Philippines
Workshop on Land Records Management and Information Systems:Community of Learning Exchange
Bangkok, Thailand, June 12-14, 2017
Outline of Presentation
• Background• LAMP as a Solution • Innovations and Interventions• Benefits and Lessons Learned• Paradigm Shifts and Present Initiatives
Real property as major resource and potentially biggest source of local income
WB: 50% to 75% of the national wealth contained in real properties
Huge foregone revenues: overvaluation when government pays, undervaluation when government collects
BIR zonal values, as basis for national real property-related taxes, also below market value
Background
23 national government agencies; 1,712 local government units doing valuations
Each agency using own systems & methodologies: i. wide disparities between the zonal values (ZV), schedule
of market values (SMV), & private appraisers’ values ii. varying values for the same piece of propertyiii. lack of confidence in the land valuation system
Notable disparities noted in 19 sample cities:i. SMV < ZV by 13% - 94% ii. ZV < Private Valuation by 5%-930%iii. SMV < Private Valuation by 187% -7,474%
Background
Agency Purpose Basis/Methodology
Bureau of Internal Revenue (BIR) National Taxation
Zonal ValuationCommittee: Gross Selling Price or SMV as basis + appraiser’s
opinion + BIR-RDO
Local Government Units (LGUs) Real Property Taxation, Acquisition, Disposal
Schedule of Market ValuesMass Appraisal using Sales,
Income Capitalization, Cost Approaches
Bureau of Local Govt. Finance (BLGF) RPT Administration Technical Assistance only
Land Management Bureau (LMB)Acquisition, Disposal, & Rentals of Public Lands
DENR Committee: Market, Cost, Income ApproachesLand Management Service (LMS)
Forest Management Bureau (FMB) Actual FOB Market Price;
Dept. of Agrarian Reform (DAR)Bureau of Land Acquisition &Dist. BLAD)
Acquisition & Distribution of Land for Agrarian Reform
Land Conversion
Just compensation procedures; Market Approach
Department of Agriculture (DA)
Department of Public Works & Highways (DPWH)
Expropriation/Acquisition of Land for Right-of-way &
Expansion or Condemnation Proceedings
RA 8974, Market Value, Replacement Cost Method
Background
National Government Agencies Performing Valuation Functions
Agency Purpose Basis/Methodology
Department of Public Works & Highways (DPWH)
Expropriation/Acquisition of Land for Right-of-way &
Expansion or Condemnation Proceedings
RA 8974, Market Value, Replacement Cost Method
Board of Investments (BOI)Project Feasibility Studies for Industrial Estates & Export
Processing Zones
Market, Cost, Reproduction Cost, Income Cap.
ApproachesBureau of Trade Regulation & Consumer Protection (BTRCP)
Regulation & licensing of private appraisers
Prescribes USPAP/IVS for use by private appraisers
Land Registration Authority (LRA) Real Property Litigation & Garnishment Proceedings, Registration & Extraction of
FeesRegistry of Deeds (RD)
Commission on Audit (COA) Government Real Property Transactions
Similar to Private Appraisers; Land Rating Grid Method
National Power Corporation (NPC) Expropriation/Right-of-way Acquisition/Rentals
RA 8974, Just Compensation, Market Value,
Replacement Cost
Land Bank of the Philippines (LBP) Mortgage Lending / Securitization
EO 405, DAR AO No. 5, Deeds of Sale, Sales
Offering, Private AppraisersDevt. Bank of the Philippines (DBP)
National Government Agencies Performing Valuation Functions
Background
Agency Purpose Basis/Methodology
National Housing Authority (NHA)Acquisition, Disposition,
& Mortgage Lending
Market Data/Economic Rent
Cost & Market Approaches on (1) Rawland, (2) House (3)
Preliminary Appraisals
Nat’l Home Mortgage Finance Corp. (NHMFC)Home Guaranty Corporation (HGC)
Home Development Mutual Fund (HDMF) Mortgage LendingMarket Data or Sales
Comparison, Unit-In-Place, Cost Approaches
Social Security System (SSS) Mortgage Lending Market Date Approach w/ Value Adjustments
Govt. Service Insurance System (GSIS) Mortgage LendingCollateral Valuation, Sales, Reproduction Cost, Income
Capitalization, Private
Philippine Reclamation Authority (PRA) Property Development or Disposal
Valuation contracted out to private appraisers
National Housing Authority (NHA) Acquisition, Disposition, & Mortgage Lending Market Data/Economic Rent
National Government Agencies Performing Valuation Functions
Background
Tax RateLocal Governments: Real Property Tax (RPT)
Basic RPT Max of 1% for ProvincesMax of 2% for Cities/Municipality in Manila
Special Education Fund (SEF) Fixed 1%
Tax on Transfer of Real Property Ownership Max of 50% of 1% (optional)
Special Levy Fixed 1% (optional)
Idle Land Tax Max of 5% (optional)
National GovernmentCapital Gains Tax Fixed 6%
Documentary Stamp Tax Php15.00 + Php15.00 for every Php1,000 value in consideration
Estate TaxBased on schedule
Donor’s Tax
Value Added Tax 12%; graduated base on schedule
Background
Land Based Taxes
LAMP1 2001-2003Conduct of policy studies & reform proposals.
LAMP1 Extension 2004
LAMP1 Transition 2005
DENR – Department of Environment and Natural ResourcesLRA – Land Registration AuthorityDOF– Department of Finance BLGF – Bureau of Local Government Finance NTRC – National Tax Research Center
Land Administration and Management Project
Improved
Land & Fiscal
Governance
Standardized, harmonized approaches
Depoliticized valuation; make
taxation equitable
Support the widening of
property tax base
Enhanced capacity thru professional
development, and educationComputerization
& information management
Integrated Approach
Key Interventions and Innovations
Policy and Legal Framework• Professionalization of appraisal practice: Real Estate Service Act
of 2009• Administrative issuances as sustainability
measures: Executive Order No. 833, Valuation Reform Act bill, inter-agency circulars
Tools and Systems• Philippine Valuation Standards based on
IVS, Mass Appraisal Guidebook with appropriate training programs
• Prototype information systems: Valuation Database and Information System (VDIS) and electronic Field Appraisal and Assessment Sheet (eFAAS)
• Tax policy research and studies
Capacity Development Piloted implementation of reforms in cities of Naga, Iloilo, Mandaue
Formal land valuation and management courses offered by UP Open University Continuing professional development
courses Diploma, master’s programs
Trainings on PVS, Basic Course on MassAppraisal, tax policy studies
Information drives, roadshows, caravans, legislative briefings
Broader support to selected LGUs through Innovation Support Fund, grants, LGU-led rollout, replication of reforms
Key Interventions and Innovations
Benefits and Lessons Learned
Perpetuating faulty, weak valuation system, neglect of mandate is bad governance: effects are systemic and complex -- incorrect valuation only leads to greater inequity in sharing the tax burden
Valuation and taxation reforms vital for effective decentralization to make LGUs economically viable
Revaluation as a means towards better governance, better public finance, better services for people, transparency
Win public support thru ‘champions’ (requires political will), participatory communication, transparent agenda
Naga Case: Benefits from valuation reforms outweigh political costs
Convergence/collective commitment & cooperation; broad-based multi-stakeholders & whole-of-government support
Conclusions
The quest for good land and fiscal governance is a continuing endeavor and a long process. Positive initial results of reform processes have to be strengthened.
Valuation and taxation issues are land and fiscal governance issues and are development issues that need to be dealt with. The LAM reforms offer opportunity for improving fiscal governance without creating new taxes or increasing the rates of existing ones.
Reforms need to go on, but requires from government more effort, time, resources. Subsequent programs and initiatives are needed in order to sustain the LAM efforts and to keep the momentum in the land sector moving and the wave of reforms unhampered.
62 of 80 Provinces Use Outdated Basis for Collecting Real Property Tax
5 in every 8 of them have property tax contributing only less than 5% to their annual regular income
An Updated Schedule of Market Value Leads to More Revenues from Real Property Tax
More Revenue Means More Social Services
Paradigm Shift and Present Initiatives
Tax Watch and Infomercial
Provinces Forego up to Php 9.4 Billion in Real Property TaxDue to outdated Schedule of Market Values (SMV) and Low Collection Efficiency
Php 9.4 Billion can Fund
700 markets 979 Km of Roads 2,738 Day Care Centers
9,580 Classrooms
Pay Your Real Property Tax.Make your Local Government Accountable
Sustainable Local Finance Begins with Correct Valuation and Efficient Tax Collection
Paradigm Shift and Present Initiatives
Tax Watch and Infomercial
The Cities of Lamitan, Malabon, Navotas and Tanauan are outdated by 19 years
An Updated Schedule of Market Value Leads to More Revenues from Real Property Tax
More Revenue Means More Social Services
4 in every 5 Cities Use Outdated Basis for Collecting Real Property Tax
Paradigm Shift and Present Initiatives
Tax Watch and Infomercial
Cities Miss up Php 20.3 Billion in Real Property TaxesWhen they use outdated Schedule of Market Values and not aggressive in tax collection
Php 20.3 Billion can Fund
298 SanitaryLandfills
451 TransportTerminals
1,015 SatelliteHealth Centers
2,929 Low-costResettlement Houses
Pay Your Real Property Tax.Make your Local Government Accountable
Sustainable Local Finance Begins with Correct Valuation and Efficient Tax Collection
Paradigm Shift and Present Initiatives
Tax Watch and Infomercial
Paradigm Shift and Present Initiatives
• Aims to develop and adopt international standards for use by government and private sector
• Will adopt a single valuation base: Schedule of Market Values (SMV) as basis for local and national taxes, and as reference for other purposes such as for lease, expropriation/ROW, socialized housing, etc.
• Seeks to depoliticize and recentralize the approval of SMVs from the Sanggunian to the Secretary of Finance (upon review by BLGF and BIR); updating of SMV every 3-5 years
• Support the professionalization of the valuation practice (Real Estate Service Act or RA 9646)
• Estimated annual incremental revenues for LGUs: Php8.03B
Real Property Valuation Bill Salient Features
Tax Rate
Maximum Rate
Basic Tax
1% - Province/ Municipality2% - City
SEF
1% - Province/City
Assessment Level of Land
Maximum Level
Residential = 20%Agricultural = 40%Commercial = 50%Industrial = 50%Mineral = 50%
Valuation
Preparation of Schedule of Market Value
Appraisal and Assessment of Real Property
Real Property Tax Administration
PoliticalTechnical
Paradigm Shift and Present Initiatives
Key Policy Actions of the Real Property Valuation Bill