The potential impact of the Real Property Valuation Act
The Real Property Valuation and Assessment Reform Act (RPVARA) under Senate Bill No. 2386 was ratified by Congress in March 2024 and is awaiting the President’s signature.
The RPVARA—part of Package 3 of the Department of Finance’s (DOF) Comprehensive Tax Reform Program—aims to promote an objective, standardized valuation of real property based on internationally accepted principles.
What are the implications when it passes into law?
SINGLE VALUE BASE
Real property valuation or appraisal determines the value of real property, and the type of value determined depends on where and how it will be used. In RPVARA, the market value of properties will be determined using internationally accepted valuation methods, for taxation and other real property-related government transactions.
Currently, different government agencies prepare valuations for multiple different purposes, such as taxation, expropriation, road-right-of-way acquisitions, and mortgage lending, among others. Apart from the costs and time allocated by different agencies involved, doing multiple different valuations can cause confusion and disputes in values, their bases, and even in methodologies.
The RPVARA intends to address this by establishing a single value base. It can also bring about other benefits including improved fiscal autonomy of local government units with potential increase in real property tax revenues; updated valuations that meet international standards; accessible centralized real property transactions database; improved ease of doing business; and higher investor confidence.
The Bureau of Local Government Finance (BLGF), under DOF, will lead the implementation of the RPVARA. It will develop and maintain the planned centralized real property transactions database, wherein the offices of the Register of Deeds, Bureau of Internal Revenue, notaries public, officials issuing building permits, and geodetic engineers conducting surveys within a locality are required to electronically submit relevant transactions data quarterly.
IMPACT ON REAL PROPERTY TAXES
How will the RPVARA affect real property taxes then?
Real property taxes (RPT) are computed by multiplying the market value of a property by its assessment level and tax rate (basic RPT). There will also be an additional levy on real property for the Special Education fund at 1 percent of the assessed value, on top of the basic RPT.
Assessors will prepare a schedule of market values (SMV) where they base the market values of properties indicated in tax declarations. Proposed SMVs will be submitted to the BLGF, subjected to mandatory public consultations, and eventually approved by the DOF Secretary.
The SMV will be updated no earlier than every three years—with penal provisions for noncompliance with the periodic updates.
Assessors shall recommend “off-schedule” SMV revisions when there is a material change in property market values because of “...introduction of road right of way or similar infrastructure, in times of
calamities, disasters, whether manmade or natural, during a pandemic or a declared public health emergency, whether national or localized, and other analogous adverse circumstances, or where corrections of errors and inequalities in the SMV is deemed necessary.” (SB 2386, Article III, Chapter 1, Section 19, Paragraph 2).
Assessors may suspend the conduct of revisions in case of a national emergency declared by the president or a local state of calamity declared by the local chief executive.
After the SMV is approved, assessors will then determine the assessment levels and tax rates, subject to the maximum levels identified in the Local Government Code of 1991, Book II (LGC). Since the SMV lists updated market values, the base values for computing assessed values will be higher.
The potential impact of changes in market values on real property taxes can be managed at this stage by regulating assessment levels and tax rates.
At present, valuations are not updated as often as mandated, resulting in lower RPT due from property owners.
With the penal provisions in RPVARA, LGUs will need to ensure that assessed values are updated to reflect current market values no earlier than every three years, or when there is a significant change in market values.
Assessors will then need to propose the assessment levels to be applied to different property types. When determining the assessment levels, LGUs should consider the impact of updated market values on property owners, adjusting assessment levels to ease the strain and facilitate the transition for taxpayers.
EXECUTION IS KEY
The RPVARA will certainly address the years-long issues we have been experiencing.
However, like any other law, we have yet to see if the
Implementing Rules and Regulations are in keeping with the law’s original provisions, will address the objectives of the law, and if the implementation and execution of the provisions will be applied consistently.
Hopefully, moving forward, the new system will foster a more consistent, reliable, equitable, and transparent valuation system that will improve the ease of doing business in the country, making the Philippines even more attractive to potential investors.