Real property tax, or RPT, provides the most stable own-source revenue for local governments and is an important resource to improve service delivery and finance infrastructure projects (ADB, 2017). However, data shows that this source of income for local governments has not been fully maximized. The Department of Finance (2019) reported that local governments are losing P30.5 billion in revenues to outdated real property valuation alone. In particular, cities could have collected as much as P23.1 billion in incremental revenues from real property taxes had their schedule of market values (SMVs) been updated and in sync with international standards.
Reforms have been proposed by concerned government agencies to address the low revenue collection performance of RPT. At the House of Representatives, House Bill No. 6558, or the Real Property Valuation and Assessment Reform Act (Package 3), has already been passed on Third Reading in December 2022 in an effort to reform the country’s valuation system.
This policy brief examines the factors affecting the RPT collections across cities in the Philippines using an annual dataset from the period of 2017 to 2021. The study employs three (3) panel regression models: the Pooled Ordinary Least Square, Random Effects, and the Fixed Effects Models, to analyze the significance and relationships of the factors or variables affecting RPT collection. The policy brief finds that among the factors examined, the outdated real property valuation as measured by the number of overdue revisions in the Schedule of Market Value (SMV) correlates significantly and negatively with RPT collections. This means that non-revision of SMV impacts RPT collections negatively. Furthermore, results show that for every 1-unit decrease in the score of overdue SMV general revisions is associated with an 18.90% increase in RPT collection or an estimated incremental revenue of P25.9 billion, controlling for internal revenue allotment, size of local economy index, and government efficiency index.