On 13 June 2024, President Ferdinand R. Marcos, Jr. signed Republic Act No. 12001, or the Real Property Valuation and Assessment Reform Act (RPVARA), into law. This new piece of legislation aims to upgrade tax collection efficiency in the realm of real property taxation. The new law also aims to reorganize the Bureau of Local Government Finance (BLGF) as the sole agency responsible for streamlining and establishing real property zonal values and their respective tax rates.
The salient features of the law are as follows:
1. Creating and updating a Schedule of Market Values
The main feature of the law will be the establishment of a single Schedule of Market Values (SMV) or a table of base unit market value for all kinds of real property (except machinery within a Local Government Unit or LGU). This schedule will correct the absence of a national standard of real property valuation and assessment, which led to years of court litigation over lands, right-of-way conflicts, and red tape. The provincial, municipal, and city assessors, among others, shall prepare the SMVs for different classes of real property situated within their respective LGUs.
All provincial, city, and municipal assessors are mandated by the new law to update their SMVs within two (2) years of the law’s effectiveness. LGUs are in turn required to update their SMVs and conduct a general revision every three (3) years thereafter.
The use of the SMVs can improve the efficiency of tax collection on the part of the LGUs levying real property taxes, but the frequent updating of such may lead to possible delays in collection or in suits over the changing rates.
For the taxpayer, the frequent updating of SMVs every 3 years can be daunting, especially if there are possible significant changes in real property values and the corresponding real property tax. However, one benefit that can arise from the updating and implementation of a single SMV is the determination of the true value of real assets for property owners, which can guide them in properly setting the prices of their transactions, such as rents, mortgages, leases, and sales.
2. Development of Valuation Standards and Valuation of Real Property
Uniform valuation standards will be developed, which shall be used by all appraisers and assessors in the LGUs, and other persons, entities, or agencies that conduct valuation in the appraisal or valuation of lands, buildings, machinery, and other real properties for taxation and other purposes. The standards are reviewed every three years or as often as may be necessary to ensure that they are globally aligned with the accepted principles and definitions, 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, considering the depreciation.
According to one of the law’s authors, “LGUs are the ones doing their respective SMVs, which lead to conflicting or outdated values that only erode the real property tax base of certain local governments.” Implementing a single SMV can hopefully address this issue with a more consistent and accurate valuation approach.
3. Use of Schedule of Market Values
a. Basis for the revision of assessment and property classification
First among the main uses of SMVs will be the revision of the fair market values and classification of real properties in each LGU. The local assessor’s offices shall be responsible for the adoption of SMVs in revising the schedules of real property taxes and implementing the appropriate tax rate per classification.
The SMVs shall be used by the LGUs for taxation purposes as the basis for the general revision of the assessment and property classification by the local assessor and in the adjustment of the tax assessment rates of LGUs by the Sanggunians.
When the SMVs are released by the LGUs, taxpayers shall expect to pay either greater or lesser real property taxes, depending on the new real property valuation rates reflected in the SMVs.
b. Basis for determining the market value of local real property-related taxes
The SMVs also have another use by the LGUs, and that is to determine market values for other local taxes involving real property. For example, SMVs can be used by the Sangguniang Panlalawigan in determining the appropriate rate for a tax on the transfer of real property in a sale transaction. Other real property taxes that can benefit from proper assessment and use of the SMV could be the gravel and sand tax collected by provinces for businesses extracting pieces of earth.
c. Used by the Commissioner of Internal Revenue in computing internal revenue taxes
The Commissioner of Internal Revenue shall rely on SMVs or the actual gross selling price in consideration, as stated in real property transaction documents, whichever is higher, to compute the rates for national taxes that involve the transfer of real property or the valuation of real property. Taxes involving the determination of market values are capital gains tax, estate tax, documentary stamp tax, and income tax. The Bureau of Internal Revenue can benefit from the use of SMVs in reviewing and updating its tax bases for real property transactions.
On another note, it is the mandate of LGUs to impose real property taxes under Republic Act No. 7160, otherwise known as the Local Government Code (LGC). In any case, the new law may appear to implicitly amend the LGC insofar as the prescribed rates are concerned. For example, the rate of 10% for residential land valued between P175,000 and P300,000 under Sec. 218(b)(1) of the LGC may be overridden by the SMV should there be a new schedule of fair market values for residential land at different prices and different rates. This situation may deem the RPVARA the new law on real property taxes in lieu of the LGC.
If the LGC provisions on real property taxation are not repealed, the new law may govern simultaneously with the LGC, which may lead to legal conflicts and a possible miscalculation of taxes at the expense of the taxpayer.
Taxpayers may not be comfortable with the expected changes laid down by the RPVARA but can still settle any ongoing tax liabilities in a transition period from the time the RPVARA was passed into law. The transition period will cover at least three (3) months from the signing of the law, when the Implementing Rules and Regulations shall be issued, and up to two (2) years, the period of time when real property owners can avail of tax amnesty, which shall cover penalties, surcharges, and interest for all unpaid real property taxes. This means that the government will aid real property owners and taxpayers in settling their due real property taxes and in determining the true value of their real assets for transactional and taxation purposes.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 02 July 2024
