To boost property tax collection, Cebu City hikes fair market values

Photo by Ivan Rey Tan
Photo by Ivan Rey Tan

THE Cebu City Council has approved the 2022 Real Property Tax (RPT) Code which increased the fair market value of properties within the taxing jurisdiction of the city.

The tax increase which was first sought to support the P50 billion 2023 budget only revised the RPT and did not include any revision on business taxes and permits.

The ordinance was approved in a majority vote with abstentions coming from opposition councilors Nestor Archival, Mary Ann de los Santos and Jose Abellanosa during the council’s special session Friday, Dec. 30, 2022.

Councilor Noel Wenceslao, chairman of the committee on budget and finance, said there is no increase in the assessment levels of real properties in the city.

Wenceslao also explained that the revision did not include business taxes and permits due to the pleading of the business sector after not having been able to fully bounce back from the effects of the Covid-19 pandemic.

In the first version of the ordinance, residential lots were to have an assessment level of 20 percent; commercial lots, 50 percent, industrial lots, 50 percent; agricultural lots, 40 percent; and special lots, 15 percent.

However, due to the possible excessive and oppressive effect on the public, the proposed ordinance was further amended and the assessment level was retained at its original rate.

So residential lots will have an assessment level of two percent, commercial lots at 10 percent, industrial lots at 10 percent, agricultural lots at 4.8 percent, and special lots at 10 percent.

Wenceslao said only a 50 percent increase of the base value as prescribed in the schedule of the fair market value (FMV) will be made the basis for the appraisal and computation of the RPT due.

The formula to get the tax due as explained by Wenceslao is getting first the market value of the property by multiplying the land area and FMV. The market value will then be multiplied by the assessment level which will further generate the assessed value. Lastly, the assessed value will be multiplied by the .03 percent tax rate and the result is the total tax due.

As a sample computation, council members used a 1,000-square-meter residential property with a P2,000 FMV and tax rate of 0.03 percent. The total tax due of the property is only P1,200 per year.

[1,000 sqm (land area) x P2,000 (FMV) = P2 million (market value). P2 million x 2 percent assessment level = P40,000 (assessed value). P40,000 x 0.03 tax rate = P1,200]

It was first reported that the increase in the real property tax could reach up to 7,000 percent, especially in developed areas, but Wenceslao said this is no longer the case with the approved revision.

Only P12 billion

In an interview with SunStar Cebu Friday, Wenceslao divulged that average residential properties in the city may experience an increase in their taxes of only about 160 percent.

With the amount of increase, Wenceslao said the revision can generate only up to P12 billion in revenue, which is P40 billion short to cover the P51.46 billion approved 2023 annual budget.

Minority Floor Leader Councilor Nestor Archival questioned why the council approved the annual budget in the first place when only P12 billion can be generated from the increase in RPT.

Wenceslao answered that the revision of the tax code is not the only way the City can generate funds for its annual budget.

There are more “implementable” things the executive department can do to maximize the collection of taxes and reach the P51 billion budget, said Wenceslao.

The executive department can improve its tax mapping of real properties, implement the idle land policy, and explore the “situs of taxation,” wherein a local government unit (LGU) can impose and collect taxes for transactions that happened in its jurisdiction but the “booking” of the transaction was reported in another LGU, Wenceslao said.

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