Updating the country’s property valuation system is the correct way to impose a so-called “wealth tax” that local government units (LGUs) can impose on affluent individuals, the Department of Finance (DOF) said.
Finance Secretary Carlos G. Dominguez III said on Monday, April 11, that LGUs can generate tens of billions of pesos in potential revenue once their outdated schedule of market values (SMV) have been updated.
“The current valuation for real property tax purposes of land is outdated and very low as compared to real market value,” Dominguez said. If reformed, he said it “would let LGUs collect the right amount of taxes from estate assets of the rich.”
Dominguez explained that unlike the wealth tax on movable assets that could only lead to capital flight and tax avoidance, properly taxing land ensures that the government gets to collect taxes on the rich because land cannot be hidden nor spirited away.
For instance, the market value of prime commercial areas in Ayala Avenue within the vicinity of San Lorenzo in Makati City, is only about P40,000 per square meter (sq. m.), based on the LGU’s schedule of market values (SMV), when in fact, the real market value ranges from P400,000 to P900,000 per sq. m.,” Dominguez said.
Estimating the total taxable of a 52,640 sq. m commercial land area in that vicinity, its assessed total value is only P842.24 million based on the current SMV, which means that the collectible total real property tax (RPT) would amount to only P25.27 million.
But if the more current zonal values were used to compute the RPT—as what the BIR has set—the assessed value for the sample commercial land area would be P19.79 billion.
“That kind of wealth cannot escape to offshore accounts or anywhere. That is wealth here. The other kind of wealth they want to tax can disappear,” Dominguez said, referring to the proposals of some individuals and legislators on imposing a “wealth” tax on the country’s richest Filipinos.
Dominguez said that because RPTs are local taxes, the LGUs are in the best position to implement this effective form of wealth tax by using updated SMVs and a property valuation system aligned with international standards.
LGU officials, however, are hesitant to impose the RPT based on updated SMVs mainly because of political considerations, although the Local Government Code states that these should be updated every three years.
Property values inevitably appreciate over time and faster in metropolitan areas, but the tax that is rightfully due to government is not appropriately collected, thereby violating the principle of equity in real property taxation.
Dominguez said this is why the DOF has long been pushing the passage of the Real Property Valuation and Assessment Reform Act, which is the third package of the Duterte administration’s comprehensive tax reform program (CTRP).
This proposed tax reform aims to promote the development of a just, equitable, and efficient real property valuation system and broaden the tax base used for property-related taxes imposed by the national and local governments.
The goal is to increase government revenues without increasing the existing tax rates or devising new tax impositions.
Last year, Dominguez already cautioned legislators on imposing a “super-rich” tax on individuals with assets exceeding P1 billion as this would only encourage aggressive tax avoidance schemes and drive badly needed capital and investments out of the Philippines.