Impact of the New Real Property Valuation Act
By: Atty. Euney Marie J. Mata-Perez on July 11,2024
On 13 June 2024, President Ferdinand R. Marcos, Jr. signed into law Republic Act No. 12001, the Real Property Valuation and Assessment Reform Act (RP-VAR Act), which will change significantly the landscape of our real property valuation (and consequently, their taxation). The RP-VAR Act also mandates an amnesty on real property taxes, and sets caps on subsequent increases in valuation, for the benefit of taxpayers.
Foremost, the RP-VAR Act mandates that all real properties be valued or appraised based on prevailing market values in the locality where they are situated, in conformity with the Philippine Valuation System (PVS). This PVS shall conform to international standards of valuation and be reviewed every three years.
At present, real property valuation for income tax purposes is based on the higher of fair market value or selling price. Fair market value is determined by the higher of another set of values: the fair market value as determined by the local assessors and the zonal values, as determined by the Commissioner of Internal Revenue (CIR).
The RP-VAR Act abolishes these differences in fair market values and aims to set one uniform value to be used by the assessors, the CIR and the general public. This uniform value shall be in accordance with PVS. This would mean that real properties’ fair value will now be determined based on their real market or appraised values.
The RP-VAR Act also mandates the revamp of the system of governing real property valuation in the country, by designating the Bureau of Local Government Finance (“BLGF”) as the primary agency tasked to lead the implementation of the Act. BLGF is tasked to: (a) develop the PVS, and (b) review the schedule of market values (“SMVs”) prepared by assessors. The SMV shall be used as basis for general revision of assessment and property classification of the local assessor in determining market value for other property-related taxes. The CIR shall also use the SMV or the actual gross selling price, whichever is higher, in computing any internal revenue taxes in real property transactions.
The RP-VAR Act sets out the procedure on how the uniform SMV shall be developed: (a) the local assessors shall prepare the SMVs within twelve months after notice from the BLGF, (b) mandatory public consultations of the proposed SMVs shall be conducted, (c) the proposed SMV shall also be published for two (2) weeks prior to the consultation in the official website of the local government unit (“LGU”) and also posted in two conspicuous places in the provincial capitol, city hall, or municipal hall of the LGU, and (d) the BLGF Regional Office shall review and endorse the proposed SMVs to the head of the BLGF within 45 days from receipt thereof.
After all of the foregoing is done, the head of BLGF shall review and endorse the proposed SMVs to the Secretary of Finance, who may certify that the proposed SMVs is in accordance with the latest PVS within 30 days from receipt, or order that the SMVs be remanded for revision, if the SMVs were not in accordance with the latest PVS. The approved SMVs shall take effect fifteen (15) days after their publication in the Official Gazette and in the official website of the LGU and posting in two (2) other conspicuous public places.
The BLGF is also tasked with developing and maintaining an up-to-date electronic database of real property transactions, as well as on the cost of construction or renovation, and on prices of plant, machinery, and equipment. In this regard, it is empowered to require submission of necessary documents from the concerned officials or employees of national government offices or instrumentalities. This database shall be available to all the government and the private sector, subject to the guidelines by BLGF.
In case SMVs are not yet available or updated, the CIR shall adopt existing SMVs, zonal values, or actual price in consideration, whichever is higher, for purposes of computing any internal revenue tax.
For the first year of effectivity of the approved SMV, any increase in real property taxes is limited to a maximum of six percent (6%) of the real property taxes assessed on such properties prior to the effectivity of the act.
The LGUs are also empowered to enact ordinance to impose a cap on the increase for the succeeding years.
The RP-VAR Act also grants a real property tax amnesty which covers penalties, surcharges, and interest from all unpaid real property taxes prior to the Act’s effectivity. It can be availed within two (2) years after the effectivity of act However, the tax amnesty does not extend to: (1) real properties with tax delinquencies which are being paid pursuant to a compromise agreement; (2) real properties subject of a pending case for real property tax delinquency; and (3) delinquent real property disposed of at public auction to satisfy real property tax delinquencies.
The RP-VAR Act in effect simplifies real property valuation in the country. In so doing, it eliminates “arbitrage” or taxpayers’ ability to adopt lower values than what are the real market values of real properties. However, this would also mean that real property transaction and tax costs—whether income tax, capital gains tax, documentary stamp tax, value-added tax and more importantly, real property taxes—will rise.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the Chair of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.