The paper evaluates the extent of local government units’ (LGUs) compliance to the mandated SMV revision under the Local Government Code (LGC) and the Department of Finance-Department of Interior and Local Government (DOF-DILG) Joint Memorandum Circular (JMC) No. 2010-01 and the parallel tax policies adopted by various LGUs that undertook the revision.
Prior to the LGC of 1991, Presidential Decree (PD) No. 464 mandated general revision of real property assessments for real property tax (RPT) purposes once every five (5) years. Later, PD 1621 shortened the period of revision to three (3) years to minimize the occurrence of abrupt increases in real property values. The triennial general revision of property assessment was retained under the LGC.
Several studies indicate however, that the mandated triennial appraisal of real property has not been complied with by most LGUs, hence current SMVs used for RPT purposes are generally outdated and do not reflect the prevailing market prices of properties. The failure of LGUs to update property market values greatly affects RPT revenue and negatively impact on the equity of the tax burden as property values do not reflect major physical and economic changes which have occurred in the locality.
To address this problem, the DOF and DILG issued JMC No. 2010-01 in 2010 enjoining all provinces, cities and the municipality of Pateros in Metro Manila to comply with the provisions of the LGC by conducting a regular revision of SMVs for property assessments.
Based on the data from the Bureau of Local Government Finance (BLGF), 62 out of 80 provinces and 116 out of 143 cities have outdated SMVs as of June 2014. In fact, the longest period within which an LGU failed to conduct a reassessment of property is 22 years as in the case of Mandaue City. Likewise, the cities of Lamitan, Malabon, Navotas, and Tanauan have not revised their SMVs for 19 years. LGU compliance to the mandated SMV revision showed a progressively declining trend from the first general revision in 1994 to the scheduled sixth general revision in 2009.
The rapidly declining number of LGUs which conducted general revision of SMVs from 1994 to 2009 may be attributed, among others, to political reasons. In practice, most local assessors actually prepare the SMVs every three years. However, the SMV is not enacted by the Sanggunian nor is it supported by the local chief executive for fear of losing support of property owners during the election. Taxpayers immediately equate the adjustment of values to increase in taxes, hence such is not supported by most sectors.
In the case of the National Capital Region (NCR), no revisions were conducted in any of the cities and municipalities within Metro Manila from 1994 to 2009 because SMV revision is required to be done by district pursuant to PD 921. It became an obstacle because while some LGUs want to revise their SMVs, others are against it. A joint or collective decision is difficult to achieve as some LGUs within the district oppose the revision for various reasons which are mainly political in nature.
The JMC prescribes the use of the Philippine Valuation Standards (PVS) in the SMV preparation of LGUs. The PVS was issued in recognition of the need to promote and maintain high level of public trust in professional appraisal practice. The PVS is an initial step in developing a uniform benchmark in professional appraisal practice in the Philippines. The JMC likewise prescribes LGUs’ compliance with the Mass Appraisal Guidebook in the SMV revision. The guidebook was developed and issued by the BLGF and DOF to enhance the competency of local assessors in performing their appraisal duties and responsibilities.
Pursuant to the said JMC, results of the seventh (7th) general revision in 2012 posted an overall compliance ratio (CR) of 31%, an increase from the 6th general revision with CR of 24%. However, on a regional basis, no significant improvements were noted. By LGU, 73 out of 224 or 32% revised their SMVs for the period 2010 to 2013. These include 32 out of 80 provinces and 41 out of 143 cities. LGUs in Metropolitan Manila have yet to comply with JMC 2010-01. Again, this may be due to the requirement that their SMVs be prepared jointly by all LGUs in each assessment district as per PD 921.
The LGC authorizes the Sanggunians of provinces and cities to determine through a duly enacted ordinance the rates and assessment levels applicable to various classes of real property in their localities. Five sample cities, namely, Cavite, Sta. Rosa, Himamaylan, La Carlota, and Ozamiz, were examined to determine the policies and methods applied in the SMV revision. These cities had their last SMV revision in 2011. All sample cities generally have increases in the unit value of residential, commercial and industrial lands.
The Land Administration and Management Project (LAMP) recommends conducting a study on the tax impact of SMV revisions. Said study can provide information to policymakers and taxpayers on the impact of the adjustment in the values and of the reclassification of properties during the SMV revision and thereby recommends an appropriate tax policy option that will strike a balance between raising revenues that the LGU needs and at the same time not making the RPT burdensome for the property owners. The assessment level and/or tax rates may be adjusted for as long as they do not exceed the prescribed maximum levels and rates. Under LAMP, the study was conducted in a partner LGU (Naga City) which revised its SMV and was used as starting point for formulating tax policy options. It was particularly of big help to explain during public hearing the rationale of revising the SMV and the results of the tax impact study to facilitate its acceptance by the property owners of the proposed SMV and what the LGU did to mitigate the tax impact of the increased property values.
The failure of LGUs to revise its SMV periodically exacerbated by low taxpayer compliance and weak enforcement mechanism substantially affect the revenue productivity of the property tax. The RPT is a stable source of revenue; is locally generated and accrues entirely to the LGU; hence, it is imperative that collection from this type of tax be further improved. Aside from maximizing collection from property taxes, the adjustment of property values to current levels also enhances equity in the distribution of the property tax burden. Unadjusted values means that certain properties are overtaxed or undertaxed relative to others.
The recommendation of the LAMP for LGUs to conduct a tax impact study of any SMV revision is reiterated. Tax collectible under the current system and under various tax options should be calculated and choose therefrom the best tax policy option that will strike a balance between the need of the LGU for more revenue and the property owners’ capacity to pay. In this way, there will be no abrupt increases in the RPT and the revised SMV will becohykome more acceptable to the property owners.
