Cebu City ‘loses‘ billions due to outdated tax code

Cebu City ‘loses‘ billions due to outdated tax code

CEBU City’s failure to regularly update its tax code every three years has allowed property owners to enjoy the lower taxes under the old Real Property Tax (RPT) Code for a long time, depriving the City Hall of revenues as a result of the unadjusted tax ordinance, according to a report from a council committee.

The Presidential Decree 1621 provides for the general revision of the real property assessment every three years to minimize the occurrence of abrupt increases in real property values, the committee report said.

Members of the committee on laws, ordinances, and styling said in their report on the proposed ordinance, “the 2023 Revised Real Property Tax Code,” that the taxpayers “will not be enjoying the beneficent purpose” of the triennial rule on the revision of RPT. They further said the proposed amendment of the RPT Code will be criticized as “excessive, unjust, and confiscatory,” especially as there is no downward adjustment on the tax rate or the assessment level.

The committee, led by Councilor Rey Gealon, endorsed its committee report to the City Council during the regular session on Wednesday, Sept. 27, 2023.

After Cebu City Mayor Michael Rama vetoed the 2022 RPT Code last February, which the Council had approved on Dec. 30, 2022, the Local Finance Committee (LFC) has pushed for another version of the revision entitled the “2023 Real Property Tax Code of Cebu City” to the Council last August.

Real property tax is a major revenue of local government units, being a stable source, locally generated, and accruing entirely to LGUs, a portion of the committee report explains.

New proposal

Based on the new proposal from the executive department, the only revision involves the schedule of fair market values in all residential, commercial, and industrial lots in the city, which will be used as basis for the classification, appraisal and assessments in connection with the 2024 general revision of real property assessments.

With the revision, the market value of properties in some prime locations in Cebu City is expected to increase from 200 to 3,200 percent, enabling the City to collect more in taxes.

The last time the City Government revised its real property assessment was in 2002. This was supposed to take effect on Jan. 1, 2003, but its implementation was postponed to 2006.

Based on the committee report, there was no subsequent revision of the ordinance after 2002, despite the call made by the Department of the Interior and Local Government (DILG) and the Department of Finance (DOF) until 2022, when the Council approved the tax code, but was eventually vetoed.

General revision

The RPT Code was enacted in 1993, and the City Government was supposed to conduct a general revision of the ordinance in 1994, 1997, 2000, 2003, 2006, 2009, 2012, 2015, 2018, and in 2021.

“Although the proposed ordinance does not change the applicable real property tax rate or the existing assessment levels, but only prescribes a revised schedule of market values (SMV), the increase in the SMV is astronomical since 20 years has elapsed from the last revision,” the laws committee wrote on its report.

The committee said that while there will be an increase in the amount of taxes to be paid by real property owners, the same people have already benefited, paying the lower taxes for a long time under the old RPT Code.

Substantial loss

The City claims that its failure to update the RPT Code has resulted in a “substantial” loss in revenue over the past two decades due to the unadjusted schedule, according to the committee report.

SunStar Cebu asked City Budget Officer Jerone Castillo on Sunday, Oct. 1, how much has the City lost due to unadjustment of the RPT Code, and the reason why the City was not able to follow the triennial rule in RPT general revision. Castillo failed to answer the queries, stating in a text message that he had no data on Sunday.

Fair market values

According to Section 33 of the proposed 2023 RPT Code, before any general revision of property assessment is made, there shall be a prepared schedule of fair market values by the city assessor for different classes of real property situated in the city.

Schedule of fair market values, according to the definition of terms in the proposed ordinance, means an approved schedule of unit base market values for different classes of real property used by the provincial, city, or municipal assessors as basis for the appraisal and assessment of real properties in their respective assessment territorial jurisdictions for real property taxation purposes.

By adjusting the market value of real properties in Cebu City, as reflected in the proposed 2023 version of the revised RPT Code, the City targets to raise P10 to P15 billion in revenue.

City Councilor Noel Wenceslao, proponent of the 2023 RPT Code, has scheduled for the public hearing of the proposed ordinance which will be on Oct. 13 and Oct. 19.

Representatives from LFC, developers like Ayala Land Inc., SM Prime Holdings Inc., and other local developers, real estate brokers and appraisers, Association of Barangay Councils representatives, and homeowners associations are invited to appear in the two-day public hearing. 

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