Real property valuations of local government units (LGUs) are not increasing fast enough to keep up with the market values of land in the country, the Asian Development Bank (ADB) said.

During the virtual Bureau of Local Government Finance (BLGF) webinar Thursday, Oct. 21, Jose Antonio Tan III, ADB director for public management, said that LGUs’ real property tax efficiencies are low.

Citing a recent study, Tan noted that Philippine property prices grew on average 15 percent annually from 2009 to 2018, while real property tax efficiency contracted by more than eight percent per year during that period.

This low real property tax efficiency affected local finance and LGUs’ fiscal sustainability, particularly in shielding the vulnerable against the effects of COVID-19 pandemic, the ADB official said.

“Real property taxes are the most important and most dependable source of LGU own-sourced revenues, making it vital financing for local public services and infrastructure,” Tan said.

For this reason, Tan raised the need for the passage of the Real Property Valuation and Assessment Act so that land valuation in the country will be at closer to market values.

He said the enactment of property valuation reform stands to significantly increase real poverty tax collection of LGUs.

“This enables LGU to mobilize domestically sources for much needed local public services, such as livelihood support, healthcare and education,” Tan said.

The share of real property tax to local tax revenues has been decreasing since the enactment of the Local Government Code, and currently contributes only nine percent as compared to business tax collections that account for 13 percent of total LGU aggregate income.

As of 2019, around 98 out of the 146 cities and 46 out of the 81 provinces in the country are non-compliant with the requirement to revalue properties in their respective jurisdictions once every three years.

Last June, Niño Raymond Alvina, BLGF executive director said that 64 percent of LGUs have outdated property valuations, with the real property tax collection efficiency of provinces and municipalities at 68 percent, and 71 percent, respectively.

As a result, the Philippines lags behind its Asian peers in terms of the share of property tax collections to the gross domestic product (GDP), Alvina said.

The Philippines’ property tax ratio has been decreasing since 2003, settling at only 0.5 percent as of 2019, which is the same as Thailand’s, and way lower than the two-percent average set by the Organization for Economic Cooperation and Development.

Singapore’s property tax-to-GDP ratio is at two percent, while Japan is at 2.5 percent and South Korea, three percent.