The Cebu City Council opened the public hearing on the proposed adjustment of the real property market value schedule. The adjustment, according to the proponent, is intended to make a significant influence on revenue as well as the growth of Cebu City as a globally competitive and smart city.
Perusing the 300-page draft legislation is not only detrimental to the citizens of Cebu City, who are still suffering from the epidemic and Super Typhoon Odette, but also unsustainable.
Cebu City government should prioritize special levy and other land value capture mechanisms rather than raising the Schedule of Market Value of Real Properties. Special levy is included (Section 100) in the said ordinance, however there are no details of projects and ordinance for its implementation. The levy is a form of taxation based on benefit principle. The land upon which it is imposed is supposed to have derived some special benefits in terms of higher values from the improvement introduced by the government.
Moreover, land value capture is an instrument for the benefit of the community at large some or all of the land value increments (unearned income) generated by actions other than the landowner’s such as public investments in infrastructure or administrative changes in land use norms and regulations. It is widely implemented already in other countries.
Added burden
First, the value of commercial properties is raised from 213% to 809% under the proposed schedule of market value, while residential properties’ value is raised from 97% to 809%.
Second, the proposed assessment level is too high for the property owner. In other classifications, the rise varies from 5% to 40%. (Residential, commercial, industrial, agricultural). From the existing evaluation level of 10% for each, commercial and industrial saw an increase of 40%.
Buildings and other structures increase from the current assessment level by 8% to 28% for residential; 10% to 15% for commercial and industrial.
Third, when the base real property tax increases from one percent to two percent, the tax burden will get heavier. It is also important to disclose the real property tax collection efficiency, which, according to the city executive’s assertion, is 15%. Tax efficiency is more crucial than the imposition of new taxes.
As an example, the following comparison matrix shows how the proposed ordinance will affect property taxpayers.
Comparative Matrix of Existing and Proposed Property Tax Ordinance
Residential Lands – Oppra Village, Lahug, Cebu City
| SMV 2006 | Proposed Ordinance | |
| Land Area | 200 sq.m. | 200 sq.m. |
| Schedule of Market Value | 3,000 | 30,000 |
| Market Value | 600,000 | 6,000,000 |
| Assessment Level | 2 % | 20% |
| Assessed Value | 12,000 | 1,200,000 |
| Basic Tax | 120.00 | 24,000 |
| Special Education Fund | 120.00 | 12,000 |
| Total Tax Due | 240.00 | 36,000 |
Commercial Lands, Lahug – Salinas Drive, Lahug Cebu City
| SMV 2006 | Proposed Ordinance | |
| Land Area (sq.m.) | 1,000 | 1,000 |
| Schedule of Market Value | 6,000 | 70,000 |
| Market Value | 6,000,000 | 70,000,000 |
| Assessment Level | 10% | 50% |
| Basic Tax | 6,000 | 700,000 |
| Special Education Fund | 6,000 | 350,000 |
| Total Tax Due | 12,000 | 1,050,000 |
The buildings or improvements are not yet included.
As compared to other local government units in Cebu, the assessment level for residential, in Cebu City is 2%, while Mandaue, Lapulapu, and Talisay are at 1%, 4%, and 4%, respectively. However, in the proposed revision it will be raised to 20%. Greater than Manila and Quezon City, which levy residential properties at 10% and 5%, respectively.
Currently, Cebu City has a 10% assessment level for commercial properties, compared to 3% in Mandaue, 15% in Talisay, and 6% in Lapulapu.
Sustainable Growth
It is essential to take into account fairer, mainly untapped funding options as the city government attempts to realize its audacious goal of growth like Singapore. In addition to taxes and user fees, the government should look into expanding the use of land value capture (LVC), which capitalizes on the rise in land value close to new infrastructure investments and changes in land use.
The public had a hard time adopting taxes as a funding source because they had just been devastated by a pandemic and typhoons. Although fees and charges may appear fairer, they rarely bring in enough money to cover construction costs or loan repayments, let alone expenses for operations and upkeep.
The basic fairness of land value capture makes it appealing: rather than increasing the financial responsibilities of taxpayers and users, LVC draws on the freshly produced riches of increased property values. Landowners shouldn’t be the only beneficiaries of the windfall in property values achieved at public expenditure. To help pay for the development, operation, and upkeep of public projects, the government — and the people it serves — has the right to acquire a piece of it.
Singapore, which the current administration is trying to emulate, actually uses several land value capture instruments such as land readjustment and fees for development rights. The government levies a fee when developers or landowners ask to increase the building density or to take advantage of a previous change in zoning or plot ratio. The charges are differentiated for nine land use groups across 118 geographical sectors and are reviewed every 6 months. The government publishes them on a website, which provides for greater transparency and certainty.
In the context of the Philippines, the country has had its own experience with LVC. The cost of constructing, running, and maintaining the new Metro Rail Transit System Line 7 will be largely covered by tax and development proceeds from a mixed-used development around the station in Bulacan, north of Metro Manila, in a manner similar to the Hong Kong model. Two decades ago, the government sold a part in the former military outpost Fort Bonifacio to collect more than P15 billion for infrastructure improvements in Subic and Clark.
In spite of these examples of success, LVC remains underutilized and only used on a sporadic basis. Given the success of LVC in many locations worldwide, particularly Singapore, where our city aspires to be, and the Philippines’ own experience with it, the government may consider employing it more.
Prof. Agosto held the positions of President and CEO of AA+ Appraisal & Consultancy. He also worked as a consultant for the Asian Development Bank, the Cebu Provincial Government, and major businesses including Vivant Energy, Avida Condominium, Ayala FGU, Punta Engano Development Corporation, and others. He teaches at the University of San Carlos’ School of Business and Economics.
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