LGUs hesitate to raise taxes

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Sunday, June 15, 2014


CEBU - While some local government units in Cebu are taking measures to update their schedule of fair market values (SMVs), officials of two component cities in Cebu said they cannot do it yet because of a promise to their constituents not to increase taxes.

“Amo man nang katungod nga di mopataas (That is our right not to raise the taxes),” said City of Naga Mayor Valdemar Chiong, after the Bureau of Internal Revenue (BIR), in its latest tax watch advertisement, reminded some local government units (LGUs) to update their fair market values.

Chiong, mayor of a former town that became a city in April 2011, said there has been no increase in taxes as part of a five-year moratorium.

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Although that moratorium expired last year, the City has not updated its SMV, even after they become a city, he told Sun.Star Cebu in a phone interview.

Chiong said the BIR should concentrate on their mandate, which is efficient tax collection, rather than “interfere” with the SMV of local governments.

Promise

For Carcar City Mayor Nicepuro Apura, BIR’s shame campaign is an eye-opener. He said the LGU will benefit from revising its SMV.

“But we have a commitment to our constituents that there will be no increase until 2017,” he said.

The commitment is embodied in Carcar’s City Charter, written by then congressman Eduardo Gullas of Cebu Province’s first district.

Apura referred to a promise Gullas had made together with other elected officials in 2010 to the Carcaranons that they would suspend an increase in business and real property taxes in the next 10 years—if the majority of its voters would approve the town’s conversion into a city during a plebiscite last July 1 of that year.

Their commitment was meant to allay fears of some residents, mostly business owners, landowners and vendors, that converting the heritage town into a city would only put them at a disadvantage.

Becoming a city, they believed, would mean higher taxes and fees, costlier services, regulation of sidewalk and ambulant vendors, and dismantling of structures occupied by informal settlers.

What law says

Some prospective homeowners also worried that the prices of real properties would rise.

The Local Government Code requires all local governments to regularly update the property values and to conduct a general revision of property assessments and classification once every three years.

BIR, in its advertisement, said that an updated SMV will lead to “more revenues from real property tax.”

More revenues mean more LGU social services, it added.

An increase in the collection of real property tax also means there will be an increase in the Special Education Fund (SEF).

The SEF is one percent of the real property taxes each local government collects that is set aside and used for the operation and maintenance of public schools, among others.

Cebu City Mayor Michael Rama has formed a committee led by Acting City Assessor Ferdinand Cañete to come up with the revised schedule of fair market values.

‘Be realistic’

Though he wanted to come up immediately with the revision, he added that the City cannot be that fast because it also considers the taxpayers’ side.

“It’s long overdue, but we have to be realistic in dealing with the updates,” Rama said.

Cañete presented to the mayor the steps City will take to update the SMV.

Cañete, last March, sought the revision of the assessed values of real property units (RPUs) so the City can collect more revenues and meet the P35-billion target for 2014.

He said there’s a need to revise the tax assessment levels of RPUs, considering that City Hall last revised its tax assessment in 2006 yet.

There have been proposals in the past, but Cañete said the City Council did not approve the proposed ordinance covering the matter because it was afraid of the public backlash.

At present, the tax assessment level for residential properties is two percent and 10 percent for commercial lots and industrial, mineral and timberland properties.

The City collects a 4.5-percent tax on agricultural properties.

Collections

In a separate interview, Cebu City Vice Mayor Edgardo Labella said he wants the City Treasurer’s Office (CTO) to come up with efficient and effective steps in its tax collection effort.

But the vice mayor said it is not advisable for an LGU to implement an abrupt increase.

“With the growing development of the real property population, most of them are not ready to pay higher taxes and it’s not Cebu City alone that is experiencing it but as well as other cities,” Labella said.

Since an outdated SMV would mean less revenue for the City in its real property tax (RPT) collection, Labella said the City might be forced to hasten the revision because it will affect the projects funded by the SEF. 

“In a way, it will really affect the SEF, that is why we are urging CTO to come up with a no-nonsense and efficient tax collection scheme to compensate for the old SMV,” Labella told Sun.Star Cebu.

At present, the City is using its SEF for the repair of school classrooms and the request for additional school needs like chairs, books and other facilities.

It is also the fund source for the salary of locally-hired teachers.

Province did it

On top of these, the City needs to transfer two elementary schools after authorities said that these stand on a high-risk area.

In the Province of Cebu, an updated SMV in 2012 defines the market value of real properties in every town.

Residential properties in Consolacion, Liloan and Minglanilla, for example, are now valued at P900 per square meter, from P610, or an increase of 47.5 percent.

Increasing the SMV may raise real property taxes because the SMV determines how much a real property tax a landowner needs to pay the local government.

The Provincial Government conducted a general revision of real property assessments in 2009 and in 2012.

It was set to implement the following year, 2013, the increase in assessment, ranging from 40 to 50 percent.

Consultations

In another interview, lawyer and Mandaue City Treasurer Regal Oliva said the City Council is set to conduct public consultations for a proposed measure updating the City’s schedule of fair market values this year.

Oliva told Sun.Star Cebu that the council already passed the measure on first reading last year.

If passed, the measure will raise the City’s SMV by 3,000 to 4,000 percent, said Oliva in a phone interview yesterday.

According to a Tax Watch advertisement of the BIR, Mandaue has failed to update its SMV since 1991.

But Oliva pointed out that the City’s SMV has not been updated since 1989. “Our SMV has no integrity anymore,” he lamented.

The City was a beneficiary of the Land Administration and Management Program (Lamp) of the World Bank and the Bureau of Local Government Finance.

The project aims to assist LGUs in amending their SMVs.

The taxes paid by real property owners depend on the City’s SMV. The smaller the SMV, the less taxes real property owners pay.

Council’s help

In Mandaue, the taxes paid by real property owners in a prime location in Barangay Banilad are still based on the 1989 SMV that sets the value of lots there at P200 per square meter.

The lots in the area are valued at P15,000 per square meter based on the latest zonal evaluation by BIR.

Under the Lamp project, the staff of the City Treasurer’s Office and City Assessor’s Office underwent training on how to update SMV and implement real property tax mapping.

The project helped the City Treasurer’s Office and City Assessor’s Office come up with the new SMV, which they endorsed to the City Council.

Oliva said he hopes the City Council will enact the new SMV sooner.

“The executive branch cannot do it alone. We need the City Council to push for it,” he said.

To avoid driving away investors, Oliva said the City will adjust its tax rate and property assessment level.

60 percent higher

“We will decrease the tax rate and assessment level in such a way that we can still increase our real property tax substantially but not too much,” he said.

Oliva estimated the City’s real property tax collection to increase by at least 60 percent once the City’s SMV is updated.

Last year, the City Treasurer’s Office collected almost P400 million in real property taxes, one percent of which went to the City’s SEF.

Although the City’s SEF increases every year, Local School Board member Edgar Espina said the funds can hardly keep up with the schools’ growing needs.

“Every year, the needs of our schools increase also,” he said in a phone interview yesterday.

Espina, also the president of the Public School Teachers’ Association of Mandaue, said he hopes the City could update its SMV sooner, with schools needing more classrooms after the earthquake damaged several school buildings in the city last October.

Published in the Sun.Star Cebu newspaper on June 16, 2014.

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