As the government has lowered personal and corporate income tax rates, without a corresponding increase in tax compliance, and more robust economic activity, tax collection will surely decline. Then pair that with significant budget support for COVID-19 interventions, the rising cost of military and police pensions, and a Supreme Court ruling giving local governments a larger share of government-collected revenue. national.
These may yet prove to be the elements of a fiscal disaster, especially with the economy in the doldrums until who knows when. Along these lines, the government cannot be faulted for seeking to urgently streamline nationwide property assessments, and with that, to increase property tax collections. A greater hold of local property taxes can help ease the pressure on the national government to financially support provinces, cities and municipalities.
The problem is timing, however. With just 11 months to go until the 2022 election, I doubt the Senate will act urgently on the real estate assessment and appraisal reform bill, which already passed the House at the end of of 2019. The pandemic can still be blamed for the one-and-a-half-year delay. But the political reality is that any national lawmaker re-elected in 11 months will still be reluctant to support any initiative that imposes a new tax or increases old ones.
The fact is, if the Senate misses the mark at this Congress, which reopens next month for its third and final session, then the bill will have to be reintroduced in the next Congress, and under a new administration. It remains unclear whether such an initiative will still be a priority in 2022. This may be one of the reasons the Finance Department was keen to hire a new publicist, to help champion the remaining priorities on its slate ahead of the end of this administration.
The Ministry of Finance (DoF) is reportedly planning to raise property tax collection nationwide to around 113 billion pesos by 2024. It has even requested assistance from the Asian Development Bank (ADB) to this, through a $31.49 million local governance reform. Project that will help local governments improve their ability to raise their own finances.
Niño Raymond Alvina of the Local Government Finance Office noted that local governments have the potential to increase revenue by around 30%, but 64% of them maintain outdated property assessments. Additionally, in 2019, 98 of 146 cities and 46 of 81 provinces failed to meet their mandate to reassess properties every three years.
But the ADB project is only an administrative calibration. While this may help train municipal assessors on how to improve the efficiency of property tax collection, without the Senate approving the Property Assessment and Valuation Reform Bill real estate, this effort will be unbalanced at best. The reform legislation is long overdue, but its passage carries the obvious and inevitable risk of further burdening taxpayers with higher tax rates.
In a joint press release, the American Chamber of Commerce of the Philippines, Inc., the Australian New Zealand Chamber of Commerce of the Philippines, the Canadian Chamber of Commerce of the Philippines, the European Chamber of Commerce of the Philippines, the Chamber of Commerce Japanese Commerce and Industry of the Philippines, Inc., Korean Chamber of Commerce of the Philippines, Foundation for Economic Freedom, Philippine Chamber of Commerce and Industry, Philippine Institute of Environmental Planners, Bankers Association Rural Philippines and Social Watch Philippines have all expressed strong support for the Senate’s immediate approval of the Property Assessment and Property Assessment Reform Act.
Their statement reads: “We collectively agree with the intent of Package 3 to promote the development of a fair, equitable and efficient property valuation system through the introduction of the following reforms: adoption a uniform valuation standard based on international valuation practices; establishing a single valuation basis for taxation and other purposes; creation of a comprehensive database to support real estate appraisal functions; centralization of the approval of the Scales of Market Values (SMV); and strengthening the evaluation functions of the Local Government Finance Office.
They support the call for a uniform assessment standard and a single assessment basis, to correct multiple and overlapping property assessments that result in conflicting property values; and, the development of a central database of land transactions to update the scale of market values and to support land use planning and zoning. They believe that “broadening” the tax base will increase tax collection without imposing new taxes.
In a webinar in late April, Ma. Pamela P. Quizon also noted that the existing property tax system suffers from overlapping assessments, outdated rates, lack of a single oversight body, and the lack of an electronic property database. “LGUs do not update and revise VMS despite legal requirements because they are unpopular. There is fear of political backlash. They lack technical capacity and [their budgets cannot cover] reassessment costs,” she added.
Undersecretary of Transportation for the Railroads, Timothy John R. Batan, told the same webinar that “the measure of the country’s public wealth lies largely in its land assets, and if we can unlock that, then four to five times more”. [infrastructure] the projects that we have to build can find their financing from (revenues generated internally by) the creation of land value.
There is no doubt that property assessment reform is urgently needed. However, my support for the initiative is limited to its establishment of a uniform, consistent, transparent and accountable system for setting property values and appropriate property taxes. Again, the idea is to broaden the tax base of local government units and thereby improve their tax collection from landowners, rather than increasing property tax rates nationwide. .
Marvin Tort is a former editor of BusinessWorld and a former president of the Philippine Press Council