DOF hopes for LGU tax increase on AfDB-funded project

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MANILA, Philippines — The Department of Finance (DOF) on Tuesday, June 22, announced plans to increase the local government units (LGU) share of property taxes to 113.4 billion pesos by 2024 through a project ongoing funded by Asian Development Bank (ADB) to digitize assessment as well as collection.

The latest tax data released by DOF’s Bureau of Local Government Finance (BLGF) last week showed that in 2020 a total of P70.5 billion in property taxes were collected by provinces (P 10.2 billion ), cities (P49.3 billion) and municipalities (11 billion pesos).

Last year’s property tax collections increased from 70.1 billion pesos in 2019.

In a statement, Finance Secretary Carlos Dominguez III said the AfDB’s local governance reform project “will help the [LGUs] improve their ability to raise their own finances.

Last year, the AfDB provided a loan of $ 26.53 million for the project, while the government will disburse counterpart funding of $ 4.96 million.

The DOF quoted BLGF Executive Director Niño Raymond Alvina as saying the project aimed to “ensure that at least 80 percent or 1,372 LGUs achieve 100 percent efficiency in collecting and evaluating property tax by 2024, which is expected to increase the total autonomous revenues of local governments by 30 percent.

“The share of property tax in local tax revenue has decreased since the promulgation of the local government code,” said Alvina.

The property tax, Alvina added, “currently contributes only 9% compared to corporate tax collections which represent 13% of the total income of the UGL”.

“In 2019, about 98 of the country’s 146 cities and 46 of the country’s 81 provinces fail to meet the obligation to reassess properties in their respective jurisdictions once every three years,” Alvina said.

According to Alvina, “64% of LGUs have outdated property valuations”.

The efficiency of collecting property taxes in provinces and municipalities was only 68% and provinces only 71%, said the head of BLFG.

“The Philippines lags behind its Asian counterparts in terms of the share of property tax revenues in gross domestic product,” Alvina said.

He said that in the Philippines, the property tax-to-GDP ratio has been declining since 2003 and stood at just 0.5% in 2019, the same as Thailand’s but lower than the average of 2 % set by the Organization for Economic Co-operation and Development (OECD). .

Singapore’s average property tax-to-GDP ratio is 2 percent, Japan’s 2.5 percent, and South Korea’s 3 percent, according to Alvina.

To address this problem, Alvina said the local governance reform project “would correct the following deficiencies in the LGU property valuation system”:

  • Lack of integrated and reliable real estate information and an appraisal database for transactions showing the true market value of properties
  • Poor record keeping and outdated reporting systems
  • Low capacity of local assessment teams
  • Political considerations

Alvina said the project will establish a real estate appraisal office at BLGF in 2021.

In 2020, LGUs bolstered their tax revenues, but non-tax collections declined and reduced total revenues to 251.65 billion pesos due to the pandemic-induced recession.

BLGF’s latest preliminary budget data for 2020 showed that the combined local tax and non-tax revenues of provinces, cities and municipalities decreased by 253.82 billion pesos in 2019.

Actual LGU revenue in 2020 was better than the reduced target of 193.04 billion pesos given the COVID-19 pandemic. Before the pandemic, LGUs were expected to raise up to 307.08 billion pesos in 2020.

Tax revenues, which represented the bulk of LGU collections, reached 189.86 billion pesos against 183.46 billion pesos in 2019.

Alvina explained to the Inquirer that the basis for locally sourced taxes – property tax, business tax, and other taxes – collected by LGUs in 2020 was 2019 revenues.

“The local tax base does not relate to the current year [2020], but in the previous year [2019] gross revenue, in the case of local business tax, and valuation date in the case of property tax, which predated the COVID-19 pandemic, ”Alvina said in an SMS on June 16.

On the other hand, LGU non-tax collections last year fell to 61.79 billion pesos from 70.36 billion pesos in 2019.

“There is a significant drop in non-tax revenue, especially fees and charges based on fixed rates or amounts, in 2020,” Alvina said.

Sources of non-tax recovery for LGUs included regulatory fees such as permits and licenses; service or usage charges from service revenues; receipts from commercial income of economic enterprises; as well as receipts from other general revenues.

For 2021, BLGF had scheduled LGU revenue collection to reach at least 223.9 billion pesos. Had the COVID-19 pandemic not taken place, LGUs were expected to generate up to 321.6 billion pesos in revenue by 2021.

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