Real property valuations to change

By: Mary Liz Jolina Mangoba

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a uniform set of standards for real properties in the Philippines has led to the existence of multiple, overlapping and outdated valuations.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The valuations used by both the BIR and LGUs for taxation purposes are likewise outdated.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.

As published in The Manila Times on 1 July 2024. The author is a Senior at the Tax & Corporate Services practice of Deloitte Philippines.