(The Real Property Valuation Reform Act)
Your Committees on Ways and Means, on Local Government and on Finance, has the honor to report back for the consideration and approval of this august body, Senate Bill No. 3519 under Committee Report No. 740, authored by this representation and Senators Lapid, Angara and Biazon, entitled:
“AN ACT INSTITUTING REFORMS IN REAL PROPERTY VALUATION IN THE PHILIPPINES, ESTABLISHING THE NATIONAL VALUATION AUTHORITY AND APPROPRIATING FUNDS THEREFOR”
The Committee Bill is in substitution of the following measures:
* Senate Bill No. 130, authored by this representation, entitled: “AN ACT AMENDING SECTIONS 472 AND 473 OF REPUBLIC ACT NO. 7160 OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991”
* Senate Bill No. 202, authored by Senator Lapid, entitled: “AN ACT LIMITING THE AUTHORITY GIVEN TO THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR) AND ENCOURAGING THE ACTIVE PARTICIPATION OF STAKEHOLDERS IN PRESCRIBING REAL PROPERTY VALUES, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE OF REPUBLIC ACT NO. 8424 OTHERWISE KNOWN AS THE ‘NATIONAL INTERNAL REVENUE CODE OF THE PHILIPPINES’, AND FOR OTHER PURPOSES”
* Senate Bill No. 898, authored by Senator Angara, entitled: “AN ACT INSTITUTIONALIZING REFORMS IN REAL PROPERTY APPRAISAL AND ASSESSMENT PRACTICES, IN THE PHILIPPINES CREATING FOR THE PURPOSE THE NATIONAL APPRAISAL AUTHORITY AND FOR OTHER PURPOSES” and
* Senate Bill No. 1645, authored by Senator Biazon, entitled: “AN ACT INSTITUTING REFORMS IN THE REAL PROPERTY VALUATION AND ASSESSMENT PRACTICES IN THE PHILIPPINES, AND FOR OTHER PURPOSES”.
This report is a product of extensive public consultations jointly by the Committees on Ways and Means, Local Government and Finance.
During the tenure of our distinguished colleague Senator Escudero as Chairman of the Committee on Ways and Means, one public hearing and two TWG meetings were held:
When this representation took over as Committee Chairman of the Committee on Ways and Means, nine regional consultations, one TWG meeting and a final public hearing were conducted:
Mr. President, in order to know the sentiments of affected and concerned sectors, shown is a profile of the stakeholders who attended the consultative hearings.
Previous consultations were conducted by the Department of Finance (DOF) with key stakeholders in the government, such as the Department of Budget and Management (DBM), the Commission on Audit (COA), the Civil Service Commission (CSC), the Bangko Sentral ng Pilipinas (BSP), the League of Provinces of the Philippines (LPP), the League of Cities of the Philippines (LCP), the League of Municipalities of the Philippines (LMP), the Provincial Board Members League of the Philippines (PBMLP), the Philippine Councilors League (PCL) and the Union of Local Authorities of the Philippines (ULAP), government assessors and treasurers associations, such as the Philippine Association of Local Treasurers and Assessors (PHALTRA), the Philippine Association of Assessing Officers (PAAO), and the Philippine Association of Municipal Assessors (PAMAS), and the nine basic sectors of the National Anti-Poverty Commission (NAPC).
In the private sector, the following were consulted: the Financial Executives of the Philippines (FINEX), the Capital Market Development Council (CMDC), realty service groups, such as the Institute of Philippine Real Estate Appraisers (IPREA), the Philippine Association of Realty Appraisers (PARA), the Chamber of Real Estate Builders Association (CREBA), and the academic community.
Mr. President, for a better understanding of the bill, allow me to explain the concept of real property valuation.
The International Valuation Standards (IVS) defines real property as referring to all the rights, interests, and benefits related to the ownership of real estate.
While Valuation/Appraisal refers to the systematic and analytic determination and recording of property facts, circumstances, investments, and investigation of other relevant data resulting in a supportable estimate and opinion of value, or a professional conclusion based upon supporting data, logical analysis and judgment as of a specific date for a specific purpose.
Mr. President, real property is the country’s most important resource and biggest financial asset. A World Bank study indicated that 50% to 75% of national wealth is contained in land, alone. Real property, therefore, has the largest potential contribution to national income for funding economic and social developments.
Due primarily to our chaotic, ineffective and inequitable real property valuation system, real property contributes only a meager 6.6% to the gross national product (GNP).
Mr. President, based on a five-year study conducted by the Land Administration and Management Project of the DOF, and from actual experience, the following are the problems besetting the country’s real property valuation system:
FIRST, there are multiple valuation systems and standards in use in the Philippines. At least 23 different national government agencies and the 1,712 LGUs perform valuation functions for their own purposes, such as:
* National taxation (BIR);
* Acquisition, disposition or rentals of public lands (DENR);
* Compensation for agrarian reform (DAR);
* Land conversion (DA);
* Mortgage lending, collaterals (GSIS, Land Bank);
* Acquisition, disposition or rentals of real property (HUDCC, NHA, HGC);
* Expropriation of private property (DPWH, Napocor);
* Litigation and garnishment proceedings (LRA, RD);
* Registration and extraction of fees (LRA, RD);
* Financial /transaction audits (COA); and
* Real property taxation (LGUs).
SECOND, there are wide variations or disparities in valuation of the same property by these different agencies. Based on a 2004 Comparative Study of Land Values in Selected 19 Cities & Municipalities conducted by the LAMP-DOF:
* The Schedules of Market Values (SMVs) of LGUs are lower by 13% to 94% than the Zonal Values of the BIR;
* The Zonal Values of the BIR are lower by 5% to 930% than valuations made by private appraisers;
* The SMVs are lower by 187% to 7,474% vis-à-vis the valuation of private appraisers.
The wide disparities create confusion and make valuation susceptible to corruption, as in the case of the C-5 mess, a controversy which is now the subject of an ethics investigation against a member of this august chamber.
THIRD, it is observed that there is rampant and widespread undervaluation of real property for tax purposes. Conversely, there is overvaluation of property for expropriation and other cases where the government pays. In most cases, the situation leads to lengthy court litigation that delays the implementation of vital infrastructure projects that also multiplies its cost and deprives the public of the early enjoyment of the intended benefits of the project, like what happened in the Calaca port expansion project of the Philippine Ports Authority (PPA) which took the Courts more than a decade to resolve the land valuation issue in the case of PPA vs. Rosales-Bondoc, et.al (GR No. 173392, August 24, 2007), resulting in the multiplication of the project cost and deprived the public of the early economic and social benefits of the Project.
FOURTH, more and more LGUs do not comply with the legal requirement for revision of their Schedule of Market Values (SMVs) as mandated by the Local Government Code. Their non-compliance adversely affects the capacity of LGUs to increase revenues from real property, thereby increasing their reliance on the Internal Revenue Allotment (IRA).
FIFTH, there is no complete, current and reliable database of real property transactions. Data are dispersed among agencies performing valuation—LGUs, BIR, banks, registers of deeds, notaries, real estate practitioners—and are not readily accessible to the public. Moreover, these data are generally unreliable as they do not reflect true values of property at the time of transactions. Often they are deliberately understated to reduce the taxes due on them. This is not conducive to transparency and informed decisions relating to real property.
THE OVERALL EFFECT OF THESE PROBLEMS:
Mr. President, if these problems are not immediately addressed, the Government will continue to starve for resources to finance its development programs, especially for the poor, and may have to rely on the adoption of more tax measures, expansion of foreign debts, and will continue to bleed from corruption.
Moreover, taxation will remain inequitable and biased against the poor. The present system has eroded public confidence on real property valuation system; and on government’s land management capability, in general, thus the erosion of public trust in governance.
THE SOLUTION (THE VALUATION REFORM ACT, ITS OBJECTIVES AND FEATURES)
Thus, Mr. President, your Committees propose the immediate enactment of Senate Bill No. 3519, otherwise known as the Real Property Valuation Reform Act of 2009, with the following features:
* Objective: Promote, develop and maintain a just, equitable, nationally consistent real property valuation based on internationally accepted standards, concepts and practices.
* Establish and adopt a set of Philippine Valuation Standards based on international valuation standards to govern valuation of real property in the country.
* Adopt a single real property valuation base for valuing/appraising real property for various real property transactions by all government agencies and for assessment of all real-property related taxes.
* Create a National Valuation Authority, a lean and mean, highly technical agency under the DOF, as primary agency of government on valuation/appraisal of real property in the country to:
– Develop, adopt and maintain valuation standards for real property for tax and other purposes and ensure compliance thereof:
– Provide technical assistance to government agencies and instrumentalities on real property valuation and conduct, when required, special purpose property valuation;
– Regulate valuation/appraisal activities by compliance monitoring;
– Support the professionalization of appraisers and assessors, and the their organization;
– Train government assessors and appraisers;
– Promote valuation profession, training and development;
– Maintain a roster of government appraisers and assessors, and a national database of real property transactions;
– Promote continuing studies, information base on global and country trends and developments in real property transactions
* Separate the technical function of valuation/appraisal from the political function of taxation by transferring the approval of the Schedule of Market Values (SMVs) from the Sanggunian to the national valuation authority.
* The Appointment of Assessors by DOF Secretary from recommendees of local chief executives;
* Phased implementation of regional Offices to ensure most effective operating setup.
For the first year of implementation, the NVA will initially require P43.22 million. In the second year it will need P69.67 million, and P93.938 million in the third year of implementation.
The VRA will enhance local autonomy by strengthening the financial capacity of LGUs as shown in the local autonomy triad. The triad is composed of administrative, service delivery and financial autonomy. Accordingly financial autonomy is based on the triad. Without financial autonomy, the 2 other parts of the triad cannot be achieved. The VRA gives substance to and supports the objectives of the Local Government Code of 1991 which objective is to enable local government to enjoy genuine and meaningful local … autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partner in the achievement of national goals.
Mr. President, the preparatory administrative arrangements for the smooth implementation of Valuation Reform Act are already in place in the DOF, which is implementing the real property valuation and taxation component of the Second Land Administration and Management Project (LAMP2).
The VRA has been endorsed to your Honor, the Senate President, and the Speaker of the House by the Secretary of Finance as priority policy agenda of the Government.
Pilot Study for Valuation Reform
Under LAMP, pilot studies have been made to ensure effective implementation of these reforms, in Naga City, Iloilo City, and lately in Mandaue City. These cities served as LAMP LGU partners in modeling the proposed revision of the Schedule of Market Values (SMVs).
The Naga City Experience
Using the improved valuation systems and procedures including the valuation standards, the SMV which used to be based on 1994 to 1995 prices was updated to reflect current market conditions. The revised SMV which took effect in January 2009 indicated great potential for increased revenues from real property tax. However, using the present assessment levels and tax rates would have meant sudden increase in taxes. Using the new SMVs, the Naga City adopted a tax structure that would strike a balance between the revenue requirements of the city government and the reasonable and acceptable tax burden that can be absorbed by the taxpayers—hence, a staggered implementation and capping of the tax increase were adopted.
The Iloilo pilot study is still ongoing while Mandaue has just started its pilot study.
Policy Reforms: Executive Order No. 833 Creating the Property Valuation Office (PVO) and DOF Order No. 37-09 Adopting the Philippine Valuation Standards.
Mr. President, to facilitate introduction of the reforms under the VRA, Executive Order No. 833 was issued on October 13, 2009 creating the Project Valuation Office (PVO) in the DOF. The PVO will be the transition organization to the National Valuation Authority (NVA).
On October 19, 2009, the Secretary of Finance also approved and issued Department Order No. 37-09 approving the Philippine Valuation Standards to govern real property valuation.
On the part of the legislative department, we passed Republic Act No. 9646 otherwise known as the Real Estate Service Act (RESA). RESA is a twin measure to VRA. It professionalizes the real estate service and organizes and capacitates the real estate service practitioners for the crucial role they will play under the reform envisioned by the VRA.
Mr. President and colleagues of the Senate of the People, the VRA is the answer to our quest for generating more revenues to fund national development programs, without creating new tax measures. Senate Bill No. 3519 will make real property taxation more equitable and will ensure that our largest natural resource and biggest financial asset contribute its fair share to national income.
In view of the foregoing, I urge the immediate passage of this bill. Thank you.