A BIG business firm has raised concerns over Cebu City’s proposed ordinance to raise real property taxes, saying the “drastic” increase in fair market values provided for in the ordinance would be “onerous” to property owners.
In a Dec. 6, 2023 letter addressed to the members of the Cebu City Council, Robinsons Land Corp. (RLC) external affairs director Jose Luis Aliling and external affairs director for the Visayas Floramie Adolfo expressed RLC’s stance on issues related to the proposed ordinance, “An Ordinance Enacting the 2023 Revised Real Property Tax (RPT) Code for the Taxing Jurisdiction of the City of Cebu,” emphasizing the potential adverse effects the ordinance might bring upon property owners and the wider community.
RLC believes that a “cap in the effective increase in the RPT due and a gradual implementation of the bill should be put in place to avoid placing such an excessive burden to real property owners.”
RLC is the second major real estate firm to formally raise objections to the proposed “drastic” increase in fair market values of properties in the city, following Ayala Land Inc.
Adverse effects
RLC said the “drastic” escalation in fair market property values could lead to burdensome RPT obligations for property owners, saying it could force property owners to sell their properties due to “unaffordable” and “confiscatory” tax rates.
Moreover, RLC said the increase in the cost of ownership might result in defaults on home loan payments, resulting in the loss of homes for many individuals.
RLC said the increase in the cost of ownership through real property taxes could also deter investment in real estate development, affecting the broader economy.
In addition, RLC said the proposed hike could have widespread effects on rental rates, saying property owners, in an attempt to offset increased taxes, might pass on these expenses to tenants, leading to a surge in rental rates.
RLC said the surge in rental rates could impact the already surging inflation rates, as housing rentals were identified as a key driver of the recent 14-year high inflation rate of 8.7 percent, as announced by the Office of the National Statistician on Feb. 7, 2023.
RLC said businesses, still reeling from the aftershocks of the Covid-19 pandemic, could face further challenges due to increased rental rates. The subsequent impact on the prices of goods and services could affect customers, tenants and the livelihoods of employees.
RLC also highlighted that the increase in market values should not apply to property improvements, as they naturally depreciate over time, saying that applying current costs to these existing improvements could be unjustifiable given that their construction/installation costs were considerably lower.
Lastly, RLC said an increase in the tax amount would not always mean more income because some taxpayers might struggle to pay, affecting how much is actually collected.
Recommendations
RLC requested Cebu City to reassess the proposed increases in the schedule of fair market values (SFMV), considering the city’s and country’s economic situation, saying that the increase would significantly increase property taxes, especially for individuals.
“We are wary that said increase in the SFMV might be too steep for ordinary property owners,” RLC said.
RLC has also requested that Cebu City reconsider maintaining levy and assessment rates, and instead opt to lower them, saying the adjustment would help property owners cope with the current economic challenges and provide a balance for the significant SFMV hike, which would lead to high property taxes for owners.
Regarding the increase in the Base Unit Construction Cost (BUCC) and Base Unit Value (BUV), RLC’s position is that “the increase of the BUCC should not be applied to current buildings because they depreciate over time.”
“In the case of RLC, most of our buildings in Cebu City have been significantly depreciated in our books. Hence, it would be inconsistent if the values of our buildings are suddenly increased. Further, the construction costs of existing buildings were certainly lower at the time of their construction and, hence, it would be improper if current costs are applied to them,” RLC said.
Lastly, RLC suggested that Cebu City introduce any increases gradually over a five-year period, saying it would give property owners time to adjust to higher taxes and fees, especially considering the approaching economic downturn.
Last week, the Philippines lowered its growth target for 2024 to 6.5 to 7.5 percent from the previous 6.5 to eight percent range, citing inflation challenges expected with the onset of drought conditions as the El Niño weather phenomenon hits a projected 65 of the country’s 82 provinces from February to May.
The National Government also cited geopolitical tensions and export bans imposed by other countries as affecting the prices of goods, which could weigh on consumer spending.
Cebu properties
In Cebu City, RLC owns properties such as Robinsons Fuente, Robinsons Cybergate, Robinsons Galleria Cebu, Summit Galleria Cebu (a hotel), and Galleria Residences Cebu.
It also owns Dusit Thani Mactan Cebu and Amisa Private Residences in Lapu-Lapu City, Cebu.
During the executive session on Wednesday, Nov. 29, 2023, RLC resident manager Stephanie Lopez presented before the council the company’s plans to establish two information technology parks: one along Pope John Paul II Avenue in Mabolo, Cebu City and another along the Cebu South Coastal Road in the South Road Properties (SRP).
Pope John Paul II Avenue is close to the Cebu IT Park, where fair market values will surge 3,200 percent if Cebu City’s proposed revision is approved.
In 2006, the land where Cebu IT Park sits had a fair market value (FMV) of P6,000 per square meter. In the proposed revised RPT code, this FMV will soar to P200,000 per square meter because the area is now a highly commercialized area.
A 1,493-square-meter commercial property in the Cebu IT Park with a current tax due of P26,874 would have a tax due of P895,800 once the updated tax ordinance gets implemented.
A property in SRP with a current tax due of P143,474 would have an 8,233 percent hike in tax due to P11,956,200.
Cebu City has not revised its RPT code in nearly 20 years.
Ayala first
Earlier, Ayala Land Inc. (ALI) had raised its own concerns about the proposed increase in property taxes.
In a letter dated Oct. 12, 2023 addressed to Cebu City Vice Mayor Raymond Alvin Garcia, ALI vice president Jennylle Tupaz said the proposed ordinance, if passed into law, would result in “an unjust, excessive and confiscatory measure,” citing Sections 130 and 186 of the Local Government Code of the Philippines.
According to Section 130, which provides the fundamental principles that govern the exercise of the taxing and other revenue-raising powers of local government units (LGUs), taxes, fees, charges and other impositions shall (a) be equitable and based as far as practicable on the taxpayer’s ability to pay; (b) not be unjust, excessive, oppressive or confiscatory; and (c) not be contrary to law, public policy, national economic policy, or in restraint of trade.
On the other hand, Section 186 gives LGUs the power to levy taxes, fees or charges, provided that these taxes, fees or charges “shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy” and that the ordinance levying such taxes, fees or charges is not enacted without a prior public hearing on the matter.
Raising real property taxes was one method eyed by the Cebu City Government to help fund its P50 billion budget for this year. Last November, Councilor Nestor Archival said the City had been able to collect only P7 billion so far of this P50 billion budget. / KOC, CTL