Finance Secretary Carlos G. Dominguez III says he prefers an asset tax focused on reforming the actual property valuation system because taxes on other forms of assets are more easily avoided.
He said in a statement issued by the Finance Department (DOF) on Monday that if the government stopped targeting the super-rich, it would prefer a system that regularly updates the market value of real estate (SMV).
SMV is the basis for valuing property for tax.
Taxes on immovable property lead to tax avoidance, when there is a high probability of levying property tax because “land cannot be hidden or moved away,” Mr Dominguez said in a statement.
“Such resources cannot escapeffAccount on the shore or anywhere. This is the wealth here. Other types of assets that they want to tax may disappear, ”he added.
He said the current land pricing is outdated compared to the market price.
“The market value of the main commercial area on Ayala Avenue near San Lorenzo in the city of Makati, based on the city’s SMV, is about P40,000 per square meter (sq m), while in reality, the actual market value ranges from P400,000 to P900,000 per sq m,” Mr Dominguez said. “So we’re losing billions of pesos because these kinds of assets are not being properly taxed.”
The DoF found that the actual property tax (RPT), based on current SMVs, was Barangays San Lorenzo and Bel-Air, versus P40,000 per square meter, P940,000 per square meter. The benchmark used by the Bureau of Internal Revenue (BIR) is “to calculate estate, donor and capital gains tax”.
The DoF estimates SMV-based valuation of commercial land in San Lorenzo, covering an area of 52,640 square meters, yields P842.24 million, RPT yields P25.27 million. Bell-Air’s 52,080 sqm. The value of the area is P833.28 million, which means the expected RPT of P25 million.
However, if market value is used, the value of commercial land in Barange San Lorenzo and Bell-Air will be P19.79 billion and P19.58 billion, respectively P593.78 million and P587.46 million RPT or P1. 18 billion combined.
Mr Dominguez said the DOF was a component of a comprehensive tax reform program, pushing for the passage of real estate valuation and valuation reform legislation.
The Real Property Valuation and Assessment Reform Act is currently pending in the House Committee on Wes & Mines, Local Government and Finance.
According to the DoF’s tax reform website, only 62% of revenue district offices under the BIR have updated zonal standards, while only 40% of local government units have updated SMVs.
“The goal of this proposed tax reform is to promote a just, equitable, and e-developmentFExpand the real estate valuation system and the tax base used for property-related taxes imposed by national and local governments, “DoF said.
Mr Dominguez warned legislators last year that imposing “super-rich” taxes “would only encourage aggressive tax avoidance schemes,” adding that it would drive away investment, creating fewer jobs and slowing business growth.
“Capital is at risk flIf the wealth tax is passed in the Philippines, “he said in a letter to House Speaker Lord Alan J. Q. Velasco. “Currently, only four countries are implementing the asset tax – Belgium, Norway, Spain and Switzerland.”
He also cites a German survey which found that the property tax on the extremely rich was unfavorableffWill affect the economy, as these taxes take away accumulated wealth and savings, discouraging taxpayers from investing.
The Tax Reform for Acceleration and Inclusion (Train) Act, and the proposed Assessment Reform Act and the Passive Income Financial Intermediary Taxation Act (PIFITA) adequately address the inequalities of the system.
He said an asset tax would necessitate additional administrative and enforcement efforts and relax the bank privacy law, which in extreme cases prohibits the disclosure of personal bank details without the account holder’s permission.
BIR’s list of largest taxpayers is based on income, not wealth. – Tobias Jared Thomas