Real Property Tax Valuation of Local Government Units A Tool to Improve Tax Collection System
1. Real Property Tax Valuation of
Local Government Units
A Tool to Improve Tax Collection System
Ardel C. Laroya, REA ,REB, EnP, DPA Josefina B. Bitonio, DPA
Presenter Adviser
Paper Presented at Mahidol University
999 Phuttamonthon 4 Road, Salaya, Nakhon Pathom 73170
2. Rationale
The Local Government of the Philippines is conferred with the power
to create its revenue resources subject to limitations set by law.
Section 129 of the LGC of 1991 states that âEach local government
unit shall exercise its power to create its sources of revenue and to
levy taxes, fees, and charges subject to the provisions herein,
consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local government units.â
(Republic of the Philippines, 1991).
3. âą The local assessor prepares the assessment that
contains the list of all the properties in the LGU and their
present market value. Property values are based on the
schedule that the assessor provides for different classes of
properties. The process ideally should be guided by
principles of equity and uniformity. It must be the provincial
legislative council that then enacts the schedule of values
into an ordinance, however, the practice differs in this
respect. The provinces establish both valuations and rates,
and the provincial legislatures determine revaluations
(Real Property Taxation in the Philippines, n.d.)
Rationale
4. Objectives of the study
1. Determine the profiles of the city and municipal government units in terms of
classification, and human resource involved on the valuation, assessment and
collection of real property tax.
2. Identify the method and mode of valuation/ assessment being used by the
LGUs.
3. Determine if there is a significant relationship between the LGU profile and their
method and mode of valuation/assessment.
4. Present the LGUs real property tax target, collection, and percentage of
collection for F.Y. 2019-2021.
5. Determine the significant relationship between the LGU's real property method
and mode of valuation/assessment, and their real property tax collections.
6. Identify the major concerns on real property tax valuation/assessment that the
LGUs are facing in their respective jurisdiction.
7. Create a policy brief based on the results of the study.
5. Research Paradigm
âą Municipality/
City
Classification
âą Human
Resource
involved in the
valuation/
assessment
and collection
Profile of the
Municipal/
City
Government
in Pangasinan
âą Manual
âą Online
âą Both
Method and
Mode of
Valuation/
Assessment
âą Profile
âąMethod
and Mode
of
Valuation/
Assessment
âąRPT
Collection
Significant
relationship
âą Target
âą Actual
Collections
âą Percentage
of Collection
Real
Property Tax
Collections
(2019-2021)
âą Accuracy
âą Method of
valuation and
assessment
âą Effective
statutory rate
âą Behavior of the
Property Tax
Collectors/
Taxpayers
âą Level of
awareness by
property
owners
Challenges
and major
concerns
âą Policy
recommend
ation in the
form of a
POLICY
BRIEF maybe
crafted and
forwarded
to the policy
makers of
the Local
Government
Units
POLICY BRIEF
6. Theoretical
Framework
a. Annual (or rental) value system
- The rationale for utilizing this system is that taxes are
paid based on income rather than means.
b. Capital Value System
- This system is a common valuation method used in most
countries including the Philippines because it offers more
transparency than the annual value system.
c. Site (or land) value system
- The last form of property taxation is proposed in 1879 by
Henry George and is considered a special case of market
value taxation where the property tax applies to the market
value of bare land only.
7. âą To further strengthen the framework of this study, the
researcher also considered the Comprehensive Tax
Reform Program (CTRP) in line with the Capital Value
System followed by the Philippines.
âą The Comprehensive Tax Reform Program (CTRP)
aims to promote the development of a just, equitable,
and efficient real property valuation system. It will
broaden the tax base used for property and property-
related taxes of the national and local governments,
improving tax collections without increasing the existing
tax rates or imposing new taxes.
Theoretical
Framework
8. Conceptual Framework
If the Local
Government Unit
utilizes the proper
valuation/ assessment
methods and has a
minimal challenges
and concerns, then the
LGU are implementing
the laws and rules and
regulations effectively.
If the Local Government
Unit does not utilize the
proper valuation/
assessment methods and
encountered major
challenges and concerns,
then the LGU needs to
improve their process to
achieve its goal to increase
its revenues through real
property taxes.
Valuation/
Assessment
Methods
Challenges
and
major
concerns
The power of taxation is an inherent attribute of sovereignty to impose burdens upon persons,
property, or rights within its jurisdiction to raise revenues to defray the legitimate expenditures of
the government. As inherent, the power of taxation is present from the moment a state exists.
Without taxes, the state cannot exist that is why they are called the lifeblood of the government
(Capuno, 2020).
9. METHODOLOGY
âą This study utilized a Descriptive Correlational Research. It
explores phenomena in real life situations and uses a
survey method such as use of questionnaireâ interviewâ and
observation, aimed to provide a quantitative or numeric
description of trends of a population. It values statistical
descriptions and precise measurements.
âą According to Creswell (2008), correlational research
designs are used by investigators to describe and measure the
degree of relationship between two or more variables or sets of
scores.
âą This study entailed the participation of the Local Chief
Executive, the municipal assessors and treasurers who are
primarily involved in the process and system of real property
taxation in the three (3) Cities, and forty-four (44) 1st, 2nd, 3rd 4th,
and 5th class municipalities in Pangasinan.
10. City and Municipal
Government Units
Frequ
ency
Percent
Component City 3 6.3
First Class Municipality 19 40.6
Second Class Municipality 3 6.3
Third Class Municipality 13 27.7
Fourth Class Municipality 8 17.0
Fifth Class Municipality 1 2.1
Total 47 100
Results and Discussions
SOP No. 1A
Classification of the Cities and Municipalities
11. SOP No. 1B
Human Resources Involved in the
Assessment and Collections of Real Property Tax
Human
Resources
Freque
ncy
Percentage
5-10 employees 26 55.3
11-20 employees 17 36.2
More than 20 4 8.5
Total 47 100
12. SOP No. 2A
Valuation/Assessment Method
Method
Number of LGUs
Implemented
Percent
age
Real properties are appraised at their current
and fair market value by the assessor
45 95.7
Real properties are appraised at their current
and fair market value by the real property
owner
39 82.9
Real properties are classified for
assessment purposes based on their
actual use
47 100
Real properties are assessed based on a
uniform classification within each LGU
44 93.6
The appraisal, assessment, levy, and
collection of RPT do not depend on any
private person
47 100
The appraisal and assessment of real
property are equitable
47 100
13. SOP No. 2B
Mode of Valuation and Assessment
Mode of
Valuation and
Assessment
Freque
ncy
Percentage
Manual 40 85.1
Online 2 4.3
Both 5 10.6
Total 47 100
14. SOP No. 3
Significant relationship between the LGUâs Profile and
their Method and Mode of Valuation/Assessment
Indicators of the Valuation/ Assessment Methods Manual Online Both TOTAL
Real properties are appraised at their current and fair
market value by the assessor
45 45
Real properties are appraised at their current and fair
market value by the real property owner
39 39
Real properties are classified for assessment
purposes based on their actual use
42 2 3 47
Real properties are assessed based on a uniform
classification within each LGU
44 44
The appraisal, assessment, levy, and collection of
RPT do not depend on any private person
47 47
The appraisal and assessment of real property are
equitable
45 2 47
15. SOP No. 4
Significant relationship between LGU Classification and
Actual RPT Collection
Crosstab
2019 Target Collection Total
Below Average Above Average
Class Component Cities 0 3 (100%) 3
First Class 12 7 (36.8%) 19
Second Class 1 2 (66.7%) 3
Third Class 12 1 (7.7%) 13
Fourth Class 8 0 8
Fifth Class 1 0 1
Total 34 13 (27.7%) 47
16. SOP No. 5
Significant relationship between the LGUâs Profile and
Mode of Assessment and Collection
Crosstab
2019 Target Collection Total
Below Average Above Average
Mode of
Assessment and
Collection
Manual 32 8 (25%) 40
Online 0 2 (100%) 2
Both 2 3 (60%) 5
Total 34 13 47
17. SOP No. 6A
Major Concerns on Valuation Method
Accuracy Mean Descriptive Rating*
Time lag in the property valuation process affects tax
collectorsâ works
3.31 Serious
Delay in payment of property tax 3.69 Very Serious
Taxpayers do not know when, where, and how to pay
their taxes.
2.35 Moderately Serious
The LGU takes so long to value due to a lack of
enough equipment to perform valuation in time and
funds from property tax collection are sometimes used
to do other development activities
2.33 Moderately Serious
Some residents are willing to pay tax on time but a
deficiency in the system discourages them
1.63 Moderately Serious
Residents do not get bills from the LGU in time and so
settlement by the customer will be late.
1.38 Not Serious
Overall 2.45 Moderately Serious
18. SOP No. 6B
Major Concerns on Mode of Valuation/Assessment
Efficiency Mean Descriptive Rating*
Different methods of determining the tax base 1.75 Moderately Serious
Inadequacy in property tax administration 1.56 Moderately Serious
Lack of sufficient financial resources and enough
valuers to perform valuation
2.56 Serious
No ongoing identification of new properties not in the
roll and valuing of those that have undergone
changes
2.23 Moderately Serious
Many valuable properties are not taxed at all 2.04 Moderately Serious
Valuation is a one-time process 3.4 Serious
Many newly refurbished buildings have not been re-
valued
2.25 Moderately Serious
Overall 2.26 Moderately Serious
19. SOP No. 6C
Major Concerns on Effective Statutory Rate
Effectiveness Mean Descriptive Rating*
Lack of effective statutory rate 2.04 Moderately Serious
Inconsistency in the valuation process 3.29 Serious
The LGU authorities tend to set tax rates that are
unrealistically low or high and have little regard for the
actual cost of valuation and other areas of
administration.
2.29 Moderately Serious
Inadequate funds to survey and identify new
properties that are not valued and those improved
remains to be a problem in keeping the property
database up to date.
1.58 Moderately Serious
Inadequate land information for property taxation 1.81 Moderately Serious
Overall 1.84 Moderately Serious
20. SOP No. 6D
Major Concerns on Human Resources Involved
A. Behavior of Tax Collectors Mean Descriptive Rating*
The property tax collectors are subjected to corrupt
behavior
1.67 Moderately Serious
Skilled technical staff needed to organize and supervise
valuation work are in short supply
2.52 Moderately Serious
Inadequate follow-up due to the low number of staff 2.60 Serious
Inequitable property taxation due to taxing only the
identified properties spotted in the valuation procedure
2.35 Moderately Serious
Intervention from politicians 2.54 Serious
B. Behavior of Taxpayers
Taxpayers do not feel that they are being treated fairly 1.73 Moderately Serious
There is that mistrust attitude of taxpayers to property
tax system because of unawareness of what is done to
arrive at the figure they pay
2.83 Serious
Overall 2.32 Moderately Serious
21. SOP No. 6E
Major Concerns on Property Ownersâ Awareness of Real Property
Tax Valuation and Assessment Systems
Awareness of the Taxpayers Mean Descriptive Rating*
Taxpayers;â Lack of awareness 2.23 Moderately Serious
Taxpayers do not know how the property
tax is calculated
2.52 Moderately Serious
Taxpayers do not see the connection
between taxes paid and community
improvement
2.29 Moderately Serious
No transparency on the use of property tax 2.29 Moderately Serious
Taxpayers unwilling to pay 2.42 Moderately Serious
Many citizens are unaware of their legal
rights and duties as taxpayers.
2.96 Serious
No awareness campaigns to educate
taxpayers on their rights to services from
their LGU in return for tax collection.
2.02 Moderately Serious
Overall 2.39 Moderately Serious
22. CONCLUSION
Based on the findings, the following conclusions are drawn:
1. Real property taxes are assessed and collected by the cities and municipalities
through several means - manual, online or both manual and online mode. Those
LGUs who used online mode collected more than the average target. Overall,
manual, online, and both users ensure that all the means of assessment and
collection are carried out and taken place.
2. More than half of the respondents have five to ten employees - minimum
requirement, in their assessment and collecting office, that resulted to inadequate
staff to follow-up delinquent taxpayers .
3. Challenges and concerns in the real property tax collection include the area of
accuracy, efficiency, effectiveness, behavior, and level of awareness. This means
that the policymakers need to concentrate on these aspects to eliminate the
problems toward a loop-hole-free implementation of tax valuation, assessment,
and collection.
23. RECOMMENDATIONS
Based on the conclusions, the following points are recommended:
1. The researcher recommends other researchers to conduct a qualitative study on the subject of
this research to know the stories behind the challenges faced by tax collectors and taxpayers.
This will also support the results of this study.
2. The researcher also recommends other researchers to conduct further studies in other
provinces and LGUs to have a comparison if they also experience the same challenges or
other researchers can also look at the best practices of other assessorsâ offices on real
property tax collection.
3. The researcher included the following recommendations for the policymakers incorporated in
the policy brief as an output of this study:
a. Delay in payment of property tax â the policymakers must strengthen the administration of
penalties imposed for failure to pay the tax in the Philippines. Policymakers must revisit or develop
the existing administrative policies such as Section 254 of Republic Act No. 7160 of the LGC.
24. RECOMMENDATIONS
b. Valuation is a one-time process â Policymakers must provide a more thorough process in
property valuation that will ensure fairness, accountability, and transparency.
c. Inconsistency in the valuation process â There is a need for policies that require more
consistency. The policymakers must design and pass laws characterized by equity and uniformity.
d. Inadequate follow-up due to the low number of staff â City/municipal assessorâs office must
be advised to increase the number of experienced and qualified employees in their office to ease
the burden of the currently employed staff.
e. Many citizens are unaware of their legal rights and duties as taxpayers â Policy makers
must conduct seminars or campaigns on how to raise awareness of the taxpayers' legal rights and
duties. They can also create social media ads and campaigns that will briefly educate the
taxpayers.