COMPONENT 4

VALUATION SIMULATION and

TAX POLICY STUDY

NAGA CITY EXPERIENCE

LAMP 1 STUDY (2001-2004)

Major Findings:The real property valuation system in the

Philippines is INEFFECTIVE and INEQUITABLE

There are INEFFICIENCIES and age old systematicproblems that have affected the capacity of the realproperty market to effectively mobilize capital andinvestments from the private sector and thegovernment.

There is INEQUITABILITY particularly in ensuring afair sharing of the burden of taxation, and this, hascontributed to the erosion of publics confidence in thesystem.

1. Multiple valuation system and standards.

2. Wide disparities in the valuation of some properties.

3. Rampant and widespread under-valuation of real property/over-valuation for special cases.

4. Rampant Non-compliance with legal requirements for the General Revision of the SMV.

5. Lack of competent, qualified appraisers and assessors particularly in the government sector.

6. Outdated and distorted database.

7. Politicization of the technical function of valuation.

Establish Valuation Standards and guidelines for realproperty valuation;

Adopt market value as the single base;

Harmonize valuation systems of Central and LocalGovernment;

Separate the Technical Function of appraisal/valuationfrom the political functions of tax policy andadministration (thru the VRA Bill);

Ensure reliable, up to date, and accessible database onreal property transactions;

Depoliticize and strengthen the valuation process (VRABill)

1. OPENNESS to reform

2. COMMITMENT and INTEREST to undertake reform

3. GOOD WORKING RELATIONSHIP

4. GOOD FINANCIAL MANAGEMENT

5. GOOD COLLECTION PERFORMANCE

6. CAPACITY TO IMPLEMENT valuation procedure within a limited time (right time)

7. Others. . .

Political Will of Local Leaders

People’s Participation

Technical Support

1. CAPABILITY BUILDING/TRAININGS

2. PREPARATION OF STUDY SMV (Schedule of Market Value)

a. Data Gathering

- Document Analysis

- Fieldwork/Inspection

b. Analysis

- Market/Sales Analysis

- Income Capitalization

- Reproduction/Replenishment (new)

- Other Techniques

c. Database

- RESAS Data Base

3. PREPARATION OF FINAL STUDY SMV

4. PREPARATION OF TAX IMPACT STUDY

5. PREPARATION OF DIFFERENT OPTIONS TO MITIGATE POSSIBLE INCREASE ON TAX

6. SUBMISSION OF SMV TO SANGGUNIANG PANLUNGSOD

7. PUBLICATION OF PROPOSED SMV

8. PUBLIC HEARING

- Meeting/Conference with the Champions and actors

- Social Marketing Program

9. ENACTMENT OF ORDINANCE ADOPTING THE NEW SMV

10. PUBLICATION OF ENACTED ORDINANCE

11. GENERAL REVISION OF ASSESSMENT

- Preparation of FAAS, Tax Declarations, Notice of Assessment (eFAAS)

- Mailing and delivery of Notices and Tax Declarations to property owners

12. POST GENERAL REVISION

- Updating of Assessment Records, ORF, PRF, etc.

- Prepare completion report

13. PREPARE POST GENERAL REVISION TAX IMPACT STUDY (NTRC)

Failure to review values since 1994 has resulted in:

LANDS:

Large increases in values

Wide variations in increases across and within land classification

Changes in the classification due to revision (82% of market areas reclassified)

Unfair spread of the tax burden

Class/Type Percent Increase

Residential 150% - 900%

Commercial 16% - 171%

Agricultural 42% - 209%

BUILDINGS:

Large increases in value in some sectors with decreases in others

Previous Depreciation Rates does not reflect the true depreciation of structure in the community, thus, penalizes older properties relative to newer buildings

Class/Type Percent IncreaseRESI DENTI AL

Type V 81% - 83%Type IV 85%Type III 43% - 56%Type II 25%Type I 3%

COMMERCI ALType V 134% - 149%Type IV 126% - 131%

The increase in value of real property will be directly proportional to the Real Property Tax. . . On the assumption that assessment levels and tax rates is at constant.

YES . . . WE CAN!!!This is where political function comes in, the realm of

decisions by the elected local officials and policy makers based on:

a. Taxpayer’s capacity to pay

b. Amount of money to generate to sustain LGU’s financial requirements.

c. Percentage requirements to be absorbed by RPT

d. Other considerations

1. Reduction of the Final SMV by 10-15 percent (practices acceptable to international valuation standards).

2. Reduce the Assessment Levels for land and Buildings.

3. Reduce the Basic Tax Rate.

4. Capping the tax increase.

5. Gradual implementation of tax increases.

1. Extensive public dissemination and conduct of social marketing program

2. Formulate an LGU’s plan of programs and activities which will be supported from the implementation of the revised SMV

3. Tax Impact Study (before & after) should be undertaken to determine the revenue impact of the revised SMV both on the taxpayers and on the LGU

4. Sustain the Valuation process thru regular preparation of SMV and conduct of General Revision (3-5 years)

LGU-Naga had piloted the following related studies:

Tax Compliance Study

Tax Perception Study

Transitional Policy Option Study

Field Testing of eFAAS (Electronic Field Appraisal & Assessment Sheet) and RESAS (Real Estate Sales Analysis System)

For the next two years, LGU-Naga has envisioned the following:

Strengthening its Land Administration and Management System in cooperation with the WorldBank - AusAID thru the LAMP 2 – ISF Grant Project.

Cluster Training Center for Valuation Reform in South Luzon

Capable Assessment staff in the Appraisal/ Assessment of Real Properties.