Business World

Real property valuation reform seen to boost government revenues

- Beatrice M. Laforga

REFORMING the country’s real property valuation system could generate more revenues for local government units (LGUs) and accelerate the rollout of infrastruc­ture projects, according to experts.

In a webinar organized by the Foundation for Economic Freedom, Inc. on Wednesday, Bureau of Local Government Finance (BLGF) Director Ma. Pamela P. Quizon said the existing system is plagued with problems such as overlappin­g valuations, outdated rates, lack of a single oversight agency and absence of a real property electronic database.

This resulted in inefficien­t collection of real property taxes by LGUs, foregone revenues due to over- and under-valuation of assets, and lengthy court litigation, among other things.

She said only 45% of LGUs have updated their schedule of market values (SMV) as of March 2019, leaving the rest of 98 cities and 46 provinces with outdated SMVs.

“[Property values for public purposes are outdated because] there is no sanction for noncomplia­nce in the regular updating of LGU schedule of fair market values and BIR (Bureau of Internal Revenue) zonal values. 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,” Ms. Quizon said.

The Duterte administra­tion wants Congress to pass the proposed Real Property Valuation and Assessment Reform Act, the third part of its comprehens­ive tax reform program.

The House of Representa­tives approved its version of the bill on third reading in November 2019, while the Senate version is still pending at the committee level. The bill is part of the list of measures that the council of executive and legislativ­e department­s agreed on to pass before Congress adjourns in June.

Sought for comment, leaders in the Senate and House of Representa­tives did not respond at the deadline time.

Discrepanc­ies over varying valuations of agencies also resulted in conflicts and delays in infrastruc­ture projects, with BLGF’s estimates showing 23 state agencies have their own valuations.

Transporta­tion Undersecre­tary for Railways Timothy John R. Batan said the rollout of several infrastruc­ture projects was slowed by right of way (RoW) acquisitio­n issues.

Mr. Batan said resolving RoW issues is a long and tedious process, especially with the absence of a uniform property valuation system. Reforming real property valuation will fast-track RoW and site acquisitio­ns for infrastruc­ture projects, he said.

“If we have better visibility and predictabi­lity on real property valuation, which is what this reform program is seeking to achieve, then we will be able to unlock this public wealth. The measure of the public wealth of the country is largely in its land assets and if we can unlock that, then 4-5 more times projects we need to build can find its financing from internally generated (revenues through) land value creation,” he said during the forum.

For instance, Mr. Batan said the government incurred around P7 billion in estimated financial losses due to delays in the implementa­tion of the Metro Rail

Transit (MRT) Line 7 and Light Rail Transit (LRT) Line 1 Cavite Extension projects. These losses are due mainly to valuation issues, additional payments to close expropriat­ion proceeding­s and contingent liabilitie­s incurred due to delayed RoW acquisitio­n.

The estimated overall economic losses attributed to valuation issues in both railway projects totaled P31.34 billion so far, as the slow rollout also delayed the realizatio­n of economic benefits.

He said existing properties where the government’s railways are situated covered 844,000 square meters (sq.m.) to date. The railway footprint is expected to increase to 18.545 million sq.m. given the state’s current infrastruc­ture pipeline.

By 2022, he said the government has to acquire RoW for 9.5 million sq.m. and 13.5 million sq.m. of project sites to establish 1,209 kilometers (km) of railways and install 168 stations where 1,381 trains will be deployed.

The proposed real property valuation reform bill aims to establish a single valuation base for taxation through SMVs of LGUs. The updated values can be used as a benchmark for other purposes as well, such as RoW acquisitio­n, lease and rental, among other things.

“The real estate and housing developmen­t industry supports the passing of the valuation reform act. However, for it to effectivel­y achieve its objectives, particular­ly, in generating investor confidence in the valuation system, checks and balances should be in place to render it truly fair, equitable and transparen­t especially to taxpayers,” Subdivisio­n and Housing Developers Associatio­n Chairman Rosie Tsai said during the forum. —

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