As the government lowered income tax rates for individuals and corporations, without a corresponding increase in tax compliance, and more robust economic activity, tax collection will surely dwindle. Then couple this with a large budgetary support for COVID-19 interventions, rising cost of military and police pension, and a Supreme Court ruling giving local governments a bigger share in revenues collected by the National Government.
These may yet turn out to be the elements of a fiscal disaster, especially with the economy in the doldrums until who knows when. In this line, one cannot blame the government for looking at urgently rationalizing real property valuations nationwide, and with this, increase real property tax collections. A bigger take from local land taxes can help ease the pressure on the National Government to financially support provinces, cities, and municipalities.
The issue is timing, however. With the 2022 elections just 11 months away, I doubt if the Senate will urgently move on the proposed Real Property Valuation and Assessment Reform Act, which was already passed by the House in late 2019. One can always blame the pandemic for the delay of one-and-a-half years. But the political reality is that any national legislator up for reelection in 11 months will always be hesitant to support any initiative that will either impose a new tax or raise old ones.
The thing is, if the Senate misses the boat this Congress, which reopens next month for its third and final session, then the bill will have to be refiled in the next Congress, and under a new administration. It remains uncertain whether such an initiative will still be a priority in 2022. Perhaps this was one of the reasons why the Finance department was keen on hiring a new publicist, to help advocate the remaining priorities in its list before this administration ends.
The Department of Finance (DoF) is reportedly looking at boosting to about P113 billion the real property tax collection nationwide by 2024. It has even sought the assistance of the Asian Development Bank (ADB) for this, through a $31.49-million Local Governance Reform Project that will help local governments improve their capacity to raise their own finances.
Nino Raymond Alvina of the Bureau of Local Government Finance has noted that local governments have the potential to increase their revenues by around 30%, but 64% of them maintain outdated property valuations. Also, in 2019, 98 out of 146 cities and 46 out of the 81 provinces failed to comply with their mandate to revalue properties every three years.
But the ADB project is just an administrative calibration. While it can help train city assessors on how to improve property tax collection efficiency, without the Senate approving the proposed Real Property Valuation and Assessment Reform Act, then this effort will be lopsided, at best. The reform legislation is long overdue, but passing it comes with the obvious unavoidable risk of further burdening taxpayers with higher tax rates.
In a joint press statement, the American Chamber of Commerce of the Philippines, Inc., the Australian-New Zealand Chamber of Commerce Philippines, the Canadian Chamber of Commerce of the Philippines, the European Chamber of Commerce of the Philippines, the Japanese Chamber of Commerce and Industry of the Philippines, Inc., the Korean Chamber of Commerce Philippines, the Foundation for Economic Freedom, the Philippine Chamber of Commerce and Industry, the Philippine Institute of Environmental Planners, the Rural Bankers Association of the Philippines, and Social Watch Philippines have all expressed strong support for the Senate’s immediate approval of the Real Property Valuation and Assessment Reform Act.
Their statement read: “We collectively agree with the intent of Package 3 in promoting the development of a just, equitable, and efficient real property valuation system through the introduction of the following reforms: adoption of a uniform valuation standard based on international valuation practices; establishment of a single valuation base for taxation and for other purposes; establishment of a comprehensive database to support real property valuation functions; centralization of the approval of the Schedule of Market Values (SMVs); and strengthening of the valuation functions of the Bureau of Local Government Finance.”
They support the call for a uniform valuation standard and a single valuation base, to correct multiple and overlapping real property valuation that result in conflicting land values; and, the development of a central database of land transactions for updating the Schedule of Market values and to support land use planning and zoning. They believe that “widening” the tax base will increase tax collection without imposing new taxes.
In a webinar in late April, Bureau of Local Government Finance’s Ma. Pamela P. Quizon also noted that the existing real property tax system suffered from overlapping valuations, outdated rates, lack of a single oversight agency, and absence of a real property electronic database. “LGUs fail to update and revise SMVs despite statutory requirement because it is unpopular. There is a fear of political backlash. They lack technical capacity and [their budgets cannot cover] costs of revaluation,” she added.
Transportation Undersecretary for Railways Timothy John R. Batan told the same webinar that “the measure of the public wealth of the country is largely in its land assets, and if we can unlock that, then four to five more times [infrastructure] projects we need to build can find its financing from internally generated (revenues through) land value creation.”
There is no arguing that property valuation reform is urgently necessary. However, my support for the initiative is limited to its establishment of a uniform, consistent, transparent, and accountable system for setting land values and appropriate land taxes. Again, the idea is to widen the tax base of local government units, and improve their tax collection from property owners as a result, rather than raising land tax rates across-the-board nationwide.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council