Through Property Valuation and Taxation Reforms in the Philippines JOSE ARNOLD M TAN Deputy Executive Director for Operations Bureau of Local Government Finance Department of Finance Philippines ID: 603855
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Improving Fiscal and Land Governance Through Property Valuation and Taxation Reforms in the Philippines
JOSE ARNOLD M. TAN
Deputy 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, 2017Slide2
Outline of Presentation
Background
LAMP as a Solution
Innovations
and
I
nterventions
Benefits and Lessons Learned
Paradigm Shifts and Present InitiativesSlide3
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
BackgroundSlide4
23 national government
agencies; 1,712
local government units doing valuations
Each agency using own systems &
methodologies:
wide
disparities between the zonal
values (ZV),
schedule of market
values (SMV),
& private appraisers’
values
varying
values for the same piece of propertylack of confidence in the land valuation systemNotable disparities noted in 19 sample cities:SMV < ZV by 13% - 94% ZV < Private Valuation by 5%-930%SMV < Private Valuation by 187% -7,474%
BackgroundSlide5
Agency
Purpose
Basis/Methodology
Bureau of Internal Revenue (BIR)
National Taxation
Zonal Valuation
Committee: Gross Selling Price or SMV as basis + appraiser’s opinion + BIR-RDO
Local Government Units (LGUs)
Real Property Taxation, Acquisition, Disposal
Schedule of Market Values
Mass 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 ReformLand ConversionJust compensation procedures; Market ApproachDepartment 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 FunctionsSlide6
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. Approaches
Bureau 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 Fees
Registry of Deeds (RD)
Commission on Audit (COA)
Government Real Property Transactions
Similar to Private Appraisers; Land Rating Grid MethodNational Power Corporation (NPC)Expropriation/Right-of-way Acquisition/RentalsRA 8974, Just Compensation, Market Value, Replacement CostLand 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 FunctionsBackgroundSlide7
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 Lending
Market 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 Lending
Collateral Valuation, Sales, Reproduction Cost, Income Capitalization, PrivatePhilippine Reclamation Authority (PRA)Property Development or DisposalValuation contracted out to private appraisersNational Housing Authority (NHA)Acquisition, Disposition, & Mortgage LendingMarket Data/Economic RentNational Government Agencies Performing Valuation FunctionsBackgroundSlide8
Tax
Rate
Local Governments: Real Property Tax (RPT)Basic RPT
Max
of 1% for Provinces
Max 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 TaxMax of 5% (optional)National GovernmentCapital Gains TaxFixed 6%Documentary Stamp TaxPhp15.00 + Php15.00 for every Php1,000 value in considerationEstate TaxBased on scheduleDonor’s Tax
Value Added Tax
12%
; graduated base on schedule
BackgroundLand Based TaxesSlide9
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 ProjectSlide10
Integrated ApproachSlide11
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 studiesSlide12
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 Mass
Appraisal, tax policy studies
Information drives, roadshows, caravans,
legislative briefings
Broader support to selected LGUs through
Innovation Support Fund, grants, LGU-led rollout, replication of reformsKey Interventions and InnovationsSlide13
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 supportSlide14
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.
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Paradigm Shift and Present InitiativesSlide16
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 InfomercialSlide17
Provinces Forego up to Php 9.4 Billion in Real Property Tax
Due 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 InfomercialSlide18
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 InfomercialSlide19
Cities Miss up Php 20.3 Billion in Real Property Taxes
When they use outdated Schedule of Market Values and not aggressive in tax collection
Php 20.3 Billion can Fund
298 Sanitary
Landfills
451 Transport
Terminals
1,015 Satellite
Health Centers
2,929 Low-cost
Resettlement Houses
Pay Your Real Property Tax.
Make your Local Government Accountable
Sustainable Local Finance Begins with Correct Valuation and Efficient Tax CollectionParadigm Shift and Present InitiativesTax Watch and InfomercialSlide20
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: Php8.03BReal Property Valuation Bill Salient FeaturesSlide21
Tax Rate
Maximum Rate
Basic Tax1% - Province/ Municipality
2% - City
SEF
1% - Province/City
Assessment
Level of Land
Maximum Level
Residential = 20%
Agricultural = 40%
Commercial = 50%
Industrial = 50%
Mineral = 50% ValuationPreparation of Schedule of Market ValueAppraisal and Assessment of Real PropertyReal Property Tax AdministrationPoliticalTechnicalParadigm Shift and Present InitiativesKey Policy Actions of the Real Property Valuation BillSlide22
THANK YOU!
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