Wednesday, October 24, 2007 Osmeña: Tax innovation By Antonio V. Osmeña Estatements
CEBU Gov. Gwendolyn Garcia has made the right decision to recover the real estate properties of the Province to generate income because property owners have become overburdened with the unpopular real estate tax.
Cebu City Mayor Tomas Osmeña, on the other hand, should make the South Road Properties (SRP) profitable to minimize City Hall’s dependence on the annual unpopular property tax.
The equitable distribution of the cost of government is ever a problem and obviously, 87 percent of the money to defray the expense for community civic services comes from annual property taxes.
As basis for taxation, two broad guiding principles are accepted. One is the “benefit received” theory and the other the “ability to pay” theory.
Under the first theory, taxes are imposed in proportion to benefits derived from governmental services. This theory, although fundamentally equitable, is not applicable in practice since those often in greatest need of co-mmunity aid and su-pport are generally less blessed with possession of worldly (property) goods and hence unable to meet their share of the public expense.
For this reason the principle “to each according to his needs” and “from each according to his ability to pay” is guiding and accounts for the widespread use of the ad valorem (according to value) tax system.
Some critics have suggested, however, that an innovative system be introduced to ideally determine the right amount of tax against a particular piece of property.
DETERMINATION OF AMOUNT OF TAX. To ascertain the amount of tax against a particular piece of property, a tax rate must be determined. To arrive at the tax rate, two factors are used: the budget or amount of money to be raised, and the total valuation of taxable property within the district.
The total amount to be raised by taxation divided by the total assessed valuation gives the rate. The rate applied to the value of a particular parcel of real estate gives the amount of taxes chargeable to it.
For example, assume the budget to be P200 million while the assessed value of the property is P8 billion and the amount derived from revenues other than taxes for real estate is P50 million. The tax rate would be determined by deducting P50 million from P200 million which would leave P150 million, which will, in turn, be divided by P8 million. The result would be .01875 or P1,875 per P100 assessed valuation.
ASSESSED VALUATION. Since the tax is apportioned among various properties in proportion to the value of each, it is necessary for the taxing body —acting through its representatives— to examine all taxable property equitably, especially in the mountain barangays where agricultural assessment have been encroached by residential and commercial developments.
The assessor, in valuing the property, frequently separates the values of land and buildings.
It is about time that nongovernment organizations, business and cause-oriented groups demand from the Province of Cebu and from all component cities a statement of probable revenue and expenditure and of financial proposals for the ensuing year as presented to or passed upon by their respective legislative body.
People would want to know what are the revenues derived from sources other than taxation as the budget will show that the remaining amount represents the sum that must be raised through real property taxation.
Unfortunately, the power to tax in the hand of unwise government is tantamount to the power to destroy (property values). However, contrary to common belief, the power to tax is not a “necessary evil” but rather, if wisely used, the most important source of revenue upon which the strength and support of government depends.
What will protect the property owner against political exploitation and possible economic confiscation?
