Zonal valuation adjustments to hike property taxes, prices

By Prinz P. Magtulis, BusinessWorld

Posted at Jan 25 2011 10:04 AM | Updated as of Jan 26 2011 02:07 AM

MANILA, Philippines - Real estate prices and taxes are bound to go up in most parts of the country once new zonal values are finalized by the Bureau of Internal Revenue (BIR), officials said last week.

"We are updating them (zonal values) again ... Most of them will likely go up because of developments in most areas," BIR Deputy Commissioner Nelson M. Aspe said in a phone interview Sunday last week.

District and regional offices of the BIR all over the country are now conducting public hearings on the proposed zonal values -- the worth of a property for taxation purposes, some of which have not been updated for 10 years.

For the country’s top commercial areas -- Manila, Makati, and Quezon City -- zonal values are expected to rise but those in areas hit by calamities such as Marikina are likely to remain the same or even go down, regional BIR officials said.

Makati and Quezon City revenue district officials declined to say how much the increases would be. For Revenue District Office (RDO) 33 covering Intramuros-Ermita-Malate in Manila, however, data obtained by BusinessWorld showed zonal values could rise by 35-40%.

BIR Commissioner Kim S. Jacinto-Henares, in a telephone interview last week, said zonal values were used to prevent the undervaluation of properties to avoid the payment of higher taxes.

"In selling your property, it has always been the zonal value or the selling price, whichever is higher," that is used as the basis for computing the required capital gains, documentary stamp, estate and income taxes, she explained.

These taxes are paid by the seller of the property. The adjustment in zonal values means the 6% capital gains and 1.5% documentary stamp taxes will have higher base prices -- that is, in case zonal values rise -- resulting in higher taxes to be paid by the seller, Ms. Jacinto-Henares said.

"For the estate tax, transfer of properties will be costlier," she added.

Ma. Victoria A. Villaluz, president of the Tax Management Association of the Philippines, said properties can be sold "lower than the zonal value" but in computing the taxes, the BIR’s "basis will be the zonal value, not the selling price."

Zonal value differs from the market value, or the price on a property agreed on by seller and buyer.

Victor J. Asuncion, executive director for research and consultancy at CB Richard Ellis Philippines, said real estate prices could also be expected to rise in Cebu and in Clark Field in Pampanga where "developments are expected to spur demand in buying properties."

"In Mindanao, of course, you will have to classify where the war is. The war is in Basilan, so there is possibility that zonal values will likely stay there but that is not true for the rest of Mindanao," Mr. Asuncion explained.

"More often than not, BIR does not adjust zonal values downwards. What [it does] is to hold them and wait until inflationary pressures pull them up again."

The BIR’s Mr. Aspe said updating of zonal values should be done "every three years" but "tedious process" prevents the bureau from doing so. In April 2010, then Internal Revenue Commissioner Joel L. Tan-Torres issued Revenue Memorandum Order 41-2010 ordering RDOs to update their zonal values "not later than June 30, 2010."

BIR data showed that out of 115 RDOs nationwide, only 13 were able to comply: Urdaneta, East Pangasinan; Tabuk, Kalinga-Apayao; West Makati; Bacoor, North Cavite; two districts in Calamba, Laguna covering Calamba City and the cities of Los Baños and Sta. Cruz and Victoria and Pila towns; Batangas City; Lucena City; Gumaca, Quezon province; Binalbagan, Negros Occidental; Catbalogan, Western Samar; Zamboanga Sibugay; and Zamboanga City.

Iluminada V. Lucero, officer in charge of the BIR’s Asset Valuation Division, last Tuesday said RDOs in East Makati, South Makati, Las Piñas-Muntinlupa, San Jose, Antique and Kalibo, Aklan, submitted updated zonal values last month but these were returned for a discrepancy check. She did not elaborate.

"It is a continuing program. There’s really no deadline for these RDOs to submit updated zonal values," Ms. Lucero said.

Before reaching the BIR national office, the proposed zonal valuations have to undergo a series of public hearings at both the district and regional levels.

Mary Anne A. Sumpay, secretariat of the technical committee on zonal valuation at the Quezon City regional office, said "public hearings have already been conducted" on the proposed increase in zonal values for Novaliches, Pasig East, Mandaluyong and Cubao.

"Two RDOs in Marikina and Pasig West, meanwhile, asked to retain their zonal values due to the ‘Ondoy’ tragedy," she added.

In 2009, tropical storm Ondoy struck Metro Manila, destroying around P11 billion worth of property, particularly in Marikina, Pasig and Pateros.

Minerva P. Podreo, member of the technical committee on valuation at the BIR regional office, said "most" zonal values in Makati would increase by "different percentage levels". Out of the four districts in Makati, only RDO No. 48 or East Makati was able to revise its zonal values last year.

A hike in zonal valuations would help the BIR collect more taxes although Ms. Jacinto-Henares said "there is no estimated collection target" as far as national property taxes are concerned.

The BIR, which accounts for about 70% of the government’s programmed tax revenues, is behind its 2010 collection goal based on official data, collecting only P753.3 billion as of November against the P783.03-billion target.

Final December and 2010 collection figures are scheduled to be released within the week, although Mr. Aspe earlier this month said the bureau may have missed its P73.78-billion December goal by "more than P1 billion."