FROM paying P1,200 in real property tax (RPT), a land owner with a 500-square-meter residential land on Sanson Road, Barangay Lahug, may expect a significant jump of 525 percent in his tax dues once the Cebu City Government approves and implements the proposed Real Property Tax (RPT) Ordinance which, its author said, to some extent is based on “subjective” assessments.
This is just a sample computation presented by the Local Finance Committee (LFC) of Cebu City as the City Council had the first round of public hearings on the 177-page “Ordinance Enacting the 2023 Revised Real Property Tax Code for the Taxing Jurisdiction of the City of Cebu,” on Friday, October 13, 2023.
At the Friday public hearing, Acting City Assessor Maria Teresa Ceballos-Rosell presented the different assessments made on the various real properties in the city, and th computation of the total tax due.
Meanwhile, a property owner asked the City Government to make the measure for Cebu City “affordable,” emphasizing that it’s “okay” to have this kind of measure but it should not be “confiscatory” in the end.
The 80 barangays and representatives of the big real estate developers and brokers in the city were also invited to join the next public hearing set for next week.
Sample computation for total tax due
Under the proposed ordinance, the formula for deriving the total tax due as explained during the public hearing Friday is getting first the market value of the property. This can be determined by multiplying the land area by the fair market value (FMV).
Afterwards, the market value will be multiplied by the assessment level, which will generate the assessed value. Then, the assessed value will be multiplied by the 3 percent tax rate. The result is the total tax due.
For instance, a 1,493-square-meter commercial property in the Cebu IT Park with a current tax due of P26,874 will have a tax due of P895,800 once the updated tax ordinance gets implemented.
(See illustration. The base unit value used in the illustration refers to the fair market value.)
Adjusted Schedule of Market Values (SMV)
According to Section 33 of the proposed ordinance, before any general revision of property assessment is made, there shall be a prepared schedule of fair market values (SMV) by the city assessor for different classes of real property situated in the city.
The proposed SMV in all residential, commercial, and industrial lots in the city was specified as the basis for the classification, appraisal, and assessments in connection with the 2024 general revision of real property assessments.
In the proposed ordinance, the market value of properties in some prime locations in Cebu City is expected to increase from 200 to 3,200 percent.
The market value is the estimated amount for which a property should be exchanged on the date of valuation between a willing buyer and a willing seller “in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”
Rosell said they came up with the SMV by due diligence review, with licensed real estate appraisers, and by the Real Estate Service Act of the Philippines. She said they also invited developers of real estate businesses both listed on the Philippine Stock Exchange and those that are domestically organized by the Corporation Code of the Philippines.
“We applied the mass appraisal technique. We gathered data, primary and secondary. We validate and analyze data in accordance with the provision of the Philippine Valuation of Standards as revised and amended in 2018 and onwards,” she said.
Subjective
Councilor Noel Wenceslao, who sponsored the ordinance, said fair market value is subjective, as it relies on the opinions of appraisers and other stakeholders, considering recent property sales.
Since fair market value depends on the assessments of appraisers, Wenceslao said he expects both negative and positive reactions from various stakeholders, particularly from the business sector regarding the potential tax increase.
He said three commercial areas will show huge tax impacts once the 2023 revised RPT Code is implemented: Cebu IT Park, Ayala, and the South Road Properties (SRP).
Using the formula above, a property in SRP with a tax due of P143,474 will have a total tax due of P11,956,200, registering an approximate tax increase of 8,233 percent.
Retained assessment level
Rosell, however, said updated market values of property do not mean higher taxes as local government units (LGUs) are empowered to adjust their assessment level, tax rates, and RPT policy options.
In the case of Cebu City, with the revised version of the proposed ordinance, the LFC decided that while they will adjust the market value of the property, the assessment levels will remain.
This is a salient difference from the first version of the vetoed ordinance supporting the 2022 version of the revised RPT Code that contained adjustments in both the market value of the property and assessment levels.
As reflected in the first version of the vetoed 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, the vetoed ordinance was further amended and the assessment level was retained at its original rates.
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.
“For the past 20 years, we at the Office of the City Assessor still would like to propose that the assessment levels 20 years prior would still be applicable in our proposed ordinance for the RPT for adoption in 2023,” Rosell said.
Reactions
The call to implement the adjusted tax rates in a staggered manner resurfaced during the public hearing.
Pat Aguilar, a property owner, called on the City Government to “soften the impact” of the implementation of the updated tax code.
“Please soften the impact. I am not saying at the expense of condos and commercial buildings and all of these things, but with business, they will pass it on. But with those residing in the city, they will not. They will lose their land. It will be a problem later on,” he said.
Recalling the previous move of Mandaue and Cebu cities to increase their property tax years ago, he claimed many could not afford the adjusted tax rates and resorted to selling their lands.
“We understand these things from 2003 yet. That’s why the jump is so high. What we are just worried about is that if we jump so high, we may have a lot of opposition to this,” he said.
“I had an experience with this when the mayor of Mandaue was still Teddy Ouano. At that time, I was still the director of San Miguel in Mandaue and they wanted to raise the taxes up to 1,000 percent. ... So, a lot of us really said to Teddy at that time that if you will do that one time, we are not going to be able to afford that... Meaning to say, it is a nice measure really in itself. The only thing is that, make it affordable. So what Mandaue did was spread it out for five years,” he said.
Revenue
By updating Cebu City’s RPT Code, the City targets to raise P10 to P15 billion in revenue.
This amount, according to LFC Budget Officer Jerone Castillo, would fuel and complement the Executive Department’s effort through its “Sayaw para sa Buhis” program to achieve the city’s P50 billion target annual budget for this year.
Castillo reiterated during the public hearing that the revisions to the real property tax code are in compliance with existing law.
Castillo said that for several years, the City had not carried out what was supposed to be the triennial (every three years) revision of the RPT code.
He said that upon their review of the assessment levels in every city, they found that Cebu City had lower assessment levels than cities like Lapu-Lapu City and other well-known cities such as Manila, even though it is already a highly urbanized city.
He said the goal of the revision of the RPT Code is to correct the market value of Cebu City.
Aside from Wenceslao, his fellow councilors Donaldo “Dondon” Hontiveros, Jocelyn Pesquera and Francis Esparis joined the public hearing on Friday.
Another public hearing is scheduled for Oct. 19.
The public hearing will also be broadcast live on the Sangguniang Panlungsod Cebu City-Secretariat Facebook page like the first hearing on Friday.
Once the public hearing is done, they will proceed with the second reading of the ordinance.
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(This story has been updated to change the .3 percent tax rate to three percent tax rate.)