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Framework for the Conduct of a Property Tax Compliance and Distributional Impact Study for a Local Government Unit (LGU), November - December 2010


The study aims to assess compliance in the payment of property taxes to serve as baseline for the introduction of LGU property tax reforms. It examines the extent to which the different classes of properties (residential, commercial, industrial and agricultural) as well as the different levels or strata of said property classes in terms of property values are contributing to total property tax collection. More importantly, the study aims to recommend measures to improve property tax compliance and introduce greater equity in the distribution of the tax burden among taxpayers. The study focuses on compliance in the payment of property taxes of the LGU covering the most recent completed tax year. The focus of analysis is the RPT payments per property classification and per established strata or ranges of property values. It also includes analysis of property tax discounts and tax delinquency. The study will basically use the tax gap approach which compares the actual tax collection with the tax potential to determine the rate of tax compliance. It will involve the following: 1) Review of local legislation, programs and practices that impact on property tax compliance; 2) Analysis of LGU overall performance in RPT collection (actual tax collected) from different types of properties (residential, commercial, industrial and agricultural) for the past five (5) years to provide background and context to the study; 3) Collection and processing of comprehensive data covering the most recent completed tax year for all properties in the LGU; 4) Establishing appropriate strata or ranges of property values to guide analysis of each property type based on market values to facilitate the development of tables for the distributional analysis; 5) Analysis of data to determine: and 6) Analysis of discounts and delinquency payments. The study can point out weaknesses in the current tax enforcement processes and procedures so that they can be properly addressed, thus contributing to improved taxpayer compliance and increased revenue collection. It can also serve as guide to local executives, members of the local council and other local policy-makers in the adoption of an appropriate real property tax policy that would address the issues within the LGU that have impact on property tax compliance. The study could also provide direction in the setting of revenue targets and the corresponding expenditure program, as well as in the formulation of investment incentives policy for legislation purposes.

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