DoF: Wealth tax easily evaded, property tax reform preferable

FINANCE Secretary Carlos G. Dominguez III said he prefers a wealth tax centered on reforming the real estate valuation system because taxes on other forms of wealth are more easily evaded.

He said in a statement released Monday by the Department of Finance (DoF) that if the government ends up targeting the super-rich, he would prefer a method that involves regularly updating the Schedule of Market Values ​​(SMV) on property. real estate.

The SMV is the basis for assessing land values ​​for taxation.

Movable property taxes lead to tax evasion, while property taxes have a greater likelihood of collection because “land cannot be hidden or evaded,” Dominguez said in the statement.

“That kind of wealth cannot escape offaccounts ashore or anywhere. That’s the wealth here. The other kind of wealth they want to tax can disappear,” he added.

He said current property assessments are outdated relative to their market value.

“The market value of the main shopping areas on Ayala Avenue near San Lorenzo in Makati City is only around P40,000 per square meter (m²), based on the city’s SMV , when in fact the real market value ranges from 400,000 to 900,000 pesos per m²,” Dominguez said. “So we are losing tens of billions of pesos because that kind of wealth is not properly taxed.”

The DoF found that the property tax (RPT), based on the current SMV for Barangays San Lorenzo and Bel-Air in Makati, is P40,000 per sq.m, down from P940,000 per sq.m. reference used by the Bureau of Internal Revenue (BIR) to “calculate estate, donor and capital gains taxes”.

The DoF estimated the SMV-based valuation of the commercial land at Barangay San Lorenzo, which covers 52,640 m², at 842.24 million pesos, giving an RPT of 25.27 million pesos. The 52,080 m² of Bel-Air. The area is worth 833.28 million pesos, implying an expected PTR of 25 million pesos.

However, if market values ​​are used, the commercial land at Barangays San Lorenzo and Bel-Air would be worth 19.79 billion pesos and 19.58 billion pesos respectively, giving an RPT of 593.78 million pesos and 587.46 million pesos, respectively, or P1. 18 billion combined.

Dominguez said the DoF pushed for the passage of the Real Estate Valuation and Assessment Reform Act, a component of the comprehensive tax reform program.

The Real Estate Assessment and Valuation Reform Act is currently pending before the House Committees on Ways and Means, Local Government and Finance.

Only 62% of district revenue offices under the BIR have updated zonal values, while only 40% of local government units have updated SMVs, according to the DoF’s tax reform website.

“This tax reform project aims to promote the development of a fair, equitable and eFeffective property valuation system and broaden the tax base used for property taxes imposed by state and local governments,” the DoF said.

Last year, Dominguez warned lawmakers that imposing a tax on the ‘super rich’ would ‘only encourage aggressive tax avoidance schemes’, adding that it would scare away investment, which which would result in fewer jobs and slower business growth.

“There is a capital risk flight if the wealth tax is passed in the Philippines,” he said in a letter to Speaker of the House, Lord Allan Jay Q. Velasco. “Currently, only four countries continue to apply wealth tax – Belgium, Norway, Spain and Switzerland.”

He also cited a German study which found that wealth taxes on extremely wealthy people hurtffect the economy, as these taxes remove accumulated wealth and savings, discouraging taxpayer investment.

The Tax Reform for Acceleration and Inclusion (TRAIN) Act, together with the Assessment Reform Bill and Passive Income Financial Intermediary Taxation Act (PIFITA) adequately address the inequalities of the system, he added.

He said a wealth tax would also necessarily involve additional administrative and law enforcement efforts and a relaxation of the Bank Secrecy Act, which prohibits the disclosure of individual bank details except in extreme cases or with the permission of the account owner.

The BIR’s list of top taxpayers is not based on wealth, but on income. — Tobias Jared Tomas

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