Tax Articles

Real Property Valuation Law

By: Atty. Irwin C. Nidea, Jr.

Irwin C. Nidea Jr. Senior Partner   +632 8403-2001 loc.330 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Valuation of real property has been a problem since time immemorial. The Bureau of Internal Revenue (BIR) and every local government unit (LGU) have their own independent valuation which most of the time are not same. There is no specialized agency that is responsible for updating valuation according to international standards. Citizens are also confused where to secure data of similar transactions since there is no comprehensive real property electronic database to capture them. Worse, LGUs valuation is dependent on their tax policy and goals, which results in prices that are not dictated by the market. The “Real Property Valuation and Assessment Reform Act" (RA 12001) hopes to address these issues. Salient points and provisions of the law can be found below:

Establish and maintain standards based on the Philippine Valuation Standards (PVS) to govern the valuation of real property in the country

The Bureau of Local Government Finance (BLGF), headed by an Assistant Secretary, is tasked to develop, adopt, maintain, and implement uniform Philippine valuation standards (PVS), which shall be used by all appraisers and assessors in the LGUs. The valuation standards shall conform with the international valuation standards and principles.

The Real Property Valuation Service (RPVS) is established within the BLGF and shall have counterpart personnel in the BLGF Regional Offices.

The BLGF must revise the PVS every three (3) years or as often as may be necessary to ensure that the same is aligned with globally accepted principles and definitions in real property valuation with due consideration of the prevailing economic conditions. For valuation purposes, all real properties, whether taxable or exempt, shall be valued or appraised based on prevailing market values in the locality where the property is situated.

Who is tasked to prepare the schedule of market values (SMV)? The provincial assessors, together with municipal assessors, and city assessors must prepare the SMVs for the different classes of real property situated within their respective LGUs, pursuant to the PVS. The preparation of the SMVs shall be completed within twelve (12) months following the notice from the BLGF to all local assessors to submit their proposed SMVs. (Section 13 of the Act)

Adopt market value as the single real property valuation base for the assessment of real property-related taxes in the country, and for the valuation of real property for various transactions by all government agencies

Market value must be used as basis for the general revision of the assessment and property classification by the local assessor and in the adjustment of assessment level and tax rates of LGUs by the Sanggunian. It must also be used as basis for determining the market value for other property-related taxes such as local transfer tax, sand and gravel tax, community tax, and other fees and charges.

The Commissioner of Internal Revenue (CIR) shall use the SMV or the actual gross selling price in consideration, as stated in real property transaction documents, whichever is higher, in computing any internal revenue tax. It must be emphasized that the CIR may only use the SMV or the gross selling price, whichever is higher, in computing internal revenue tax. (Sections 14 and 15 of the Act)

Separate the function of valuation of real properties from the functions of tax policy formulation and administration of the taxes due thereon

With the creation of the Real Property Valuation Service (RPVS), there is now an independent office that is tasked to determine valuation. The Sanggunian of every municipality cannot unilaterally increase or decrease the value of their land without going through the RPVS and the processes prescribed under the law. (Section 18 of the Act)

Provide a comprehensive and up-to-date electronic database of all real property transactions

The assessors are mandated to update their respective SMVs within two (2) years from the effectivity of the law. LGUs shall update the SMVs and conduct a general revision of property assessments and classifications every three (3) years thereafter. The BLGF shall prepare the schedule for the updating of the SMVs in all provinces and cities. In case of any significant change in market value where the property is located after the SMV has been approved and prior to the next revision, such as introduction of road right of way or similar infrastructure, in times of calamities or disasters, whether man-made or natural, change in SMV may be proposed. (Section 22 of the Act)

Support the development of an information database on valuation through continuing research and monitoring of new developments in the discipline to upgrade the country's valuation system

The BLGF is tasked to develop and maintain an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transaction and declarations in the country and on the cost of construction or renovation of buildings and other structure, and on prices of plant, machinery, and equipment. For this purpose, the BLGF shall require the mandatory submission of necessary documents from the concerned officials or employees of national government offices or instrumentalities, and LGUs.

The updated database shall be made available at no cost to all LGUs, and other national government agencies, without need of prior approval, including the Commissioner of Internal Revenue.

The BLGF shall establish mechanisms for the electronic submission of the required documents. All provinces, cities, and municipalities shall automate their real property tax administration operation such as, but not limited to, tax mapping technology, maintain software-enabled valuation systems, undertake regular data cleansing.

The Register of Deeds shall prepare and submit to the provincial assessors, together with the municipal assessors, and city assessors an abstract of the entire registry every three (3) months and copies of all contracts selling, transferring, or otherwise converting, leasing, or mortgaging real property registered every end of the month free from any fees and charges. (Section 23 of the Act)

Maximum increase of 6% and amnesty

Generally, for the first year of effectivity of the approved SMV, any increase in real property taxes shall be limited to a maximum of six percent (6%) of the real property taxes assessed on such properties prior to the effectivity of the law. (Section 29 of the Act)

Also, to encourage compliance, the law introduced real property tax amnesty which can only be availed within a period of two (2) years after the effectivity of the law, which shall cover penalties, surcharges, and interests from all unpaid real property taxes. (Section 30 of the Act)

The value of real property changes every day since market forces dictate it. It will be a challenge for the government to achieve its goal of having an updated system and database since it needs the cooperation of many offices in government. More importantly, it needs to pay specialized personnel to buy computers and software to achieve its lofty goals.