Recent BIR Issuances on Property Valuation may affect real estate investors

I can see that the BIR is dead serious in collecting revenues for the government and is exploring all avenues where tax collection can be improved. In fact, the BIR has a string of recent issuances all concentrating on real property valuation, specifically on updating zonal values to be at par with current market values.

Just to refresh your memory, the basis for the power of the Commissioner of Internal Revenue (CIR) to determine the fair market value (FMV) of properties is Section 6(E) of the Tax Code, which provides:

“(E)  Authority of the Commissioner to Prescribe Real Property Values. — The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of:

(1)    the fair market value as determined by the Commissioner; or

(2)    the fair market value as shown in the schedule of values of the Provincial and City Assessors.”

The zonal values can be accessed at http://www.bir.gov.ph/zonalvalues/zonalvalues.htm

It is common knowledge, however, that zonal values are not regularly updated and are usually below market value. And since taxes such as the capital gains tax (CGT) are based on the higher amount between the selling price and the actual market value, which is defined as the zonal value, parties sometimes indicate the selling price as just the same or within the vicinity of the zonal value, resulting in a lower CGT. For more information on CGT, please refer to this article about capital gains tax.

Let me give you a run-down of the latest BIR issuances so that you have an idea of things to come:

1. Revenue Memorandum Circular (RMC) No. 071-09 dated December 16, 2009

The officials of the BIR, the Bureau of Local Government Finance (BLGF), and the Philippine Association of Local Treasurers and Assessors, Inc. (PHALTRA) signed a Memorandum of Agreement (MOA) which was circularized in RMC No. 071-09 which states in part that they will share information with each other. Notably, the PHALTRA will improve its cooperation and coordination with the BIR in updating zonal values of real properties. Click here for a copy of RMC No. 071-09.

2. RMC No. 27-2010 dated March 17, 2010

This RMC circularizes the full text of Department Order No. 6-2010 dated March 12, 2010 which was issued by the Department of Finance. In essence, it creates committees on real property valuation that would determine the zonal values of real properties for purposes of computing internal revenue taxes. Real property appraisers in the Philippines have thus become even more valuable. Click here for a copy of RMC No. 27-2010.

3. RMC No. 34-2010 dated April 22, 2010

This RMC publishes the full text of the MOA between the BIR and Creba Land Services and Title Warranty Corporation (Creba Land). Creba Land has a Geographic Information System (GIS) which the BIR will use in relation to its land valuation duties. The BIR will be testing the system first and is required to purchase a license within sixty days from first use. The BIR will initially get a copy of Creba Land’s spatial database for Quezon City, Pasig City, and Taguig City. Click here for a copy of RMC No. 34-2010.

The first Whereas clause in the MOA is most interesting: “xxx the BIR aims to complete the revision of zonal values nationwide by 30 June 2010 xxx”. Personally, I think this is a very tight schedule. Those who have properties in Quezon City, Pasig City, and Taguig City should brace themselves for an increase in taxes (particularly CGT). Please note that real property taxes (RPT) are not paid to the BIR but to the local government unit (LGU). However, as earlier discussed, the BIR has a MOA with the BLGF and PHALTRA so the zonal values project will have an effect on RPT as well. [I can imagine my husband bugging me about my RPT article which has been pending for so long.]

With regard to Creba Land, I have seen several newspaper articles featuring it and its mapping services. If you want to learn more about it, please see https://www.mapsys.ph. I have not inquired with Creba Land but my guess is that it’s very expensive (if they would be willing to let us checkout the system, that would be great!). I read about it and I thought that the investment is too big to be undertaken by a private company. Of course the site owner is intelligent so he got the government to buy his services (nothing bad about that). The idea is good but I think if there is a government agency who will purchase Creba Land’s services it should be the Registry of Deeds and not the BIR. If my understanding is correct, the main purpose of mapsys is to detect title fraud, so I don’t think this is up the BIR’s alley.

On another note, I wonder how much the BIR is going to pay Creba Land for this? Also, if the fees are high, how will this affect the fees that the BIR will charge for the issuance of the Certificate Authorizing Registration (CAR) and Tax Clearance? If there will be no additional fees, will the BIR require that the taxpayer make use of the services of Creba Land? Someone has to pay for this. I hope the BIR can shed more light on this contract.

4. RMC No. 40-2010 dated April 22, 2010

This RMC is about the policies and guidelines in the recruitment and designation of private appraiser members to the Regional Executive and Technical Committees on real property valuation. Click here for a copy of RMC No. 40-2010.

To summarize, the BIR is taking steps to update the Schedule of Zonal Values and we should all be prepared for their eventual increase. Be on the lookout for the schedule of hearings on the proposed revised schedule so you can give your inputs. If you have bought real property and have not yet executed a Deed of Absolute Sale (DOAS), there is a possibility that by the time you execute it, the zonal values have already increased, possibly resulting in increased tax payable. This may potentially impact your projected profits and turn them into losses (ouch!) so it’s good to be prepared, and this goes out to all real estate investors out there!

Cherry Castillo

Cherry is my wife. She is a certified public accountant (CPA) and lawyer.

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To our success and financial freedom!

Jay Castillo

Real Estate Investor

Real Estate Broker License #: 20056
Blog: https://www.foreclosurephilippines.com
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Text by Jay and Cherry Castillo. Copyright © 2010 All rights reserved.

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