Improving Fiscal and Land Governance Through Property Valuation and Taxation Reforms in the Philippines Nino ALVINA LAMP2- Component 4 Bureau of Local Government Finance Department of Finance The Philippines Annual World Bank Conference on Land and Poverty 2013 Washington, DC, USA, April 8-11, 2013 With technical assistance grant and funding support from: In cooperation with: Implemented by:

Outline of Presentation Context, overview Solution, reform agenda Innovations, interventions Pilot implementation Benefits, lessons Future directions Conclusions, recommendations

Background: Sector Issues Valuation Dispersed: multiple systems, varying methodologies in 20+ national govt agencies, local govts Wide disparities of values: mostly obsolete, below market levels, no uniformity Neglected duty: politicized at the local level: low compliance to legislated mandate Weak support system: lack of formal education, capacity building, dispersed data source, outdated land use plans, lack of integrated spatial framework Overvaluation vs undervaluation: high when govt pays, low when govt collects Taxation Multiple taxes on property ownership & transfers,; high rates at the nat’l level No singular base for assessment; weak enforcement Real property undermined Systemic effects Weak LAM governance

LAM Program as a solution… LAM reform agenda: 15-20 years; Phase 1 (2001-2005), Phase 2 (2006- present) Valuation & taxation as core issues – impact on governance affairs Partnerships with national, local governments, private sector, academe, etc. Support of World Bank, AusAID, FAO Comprehensive solution: policy, capacity, structures, systems and tools Improved Land & Fiscal Governance Standardized, harmonized approaches Depoliticized valuation; make taxation equitable Support the widening of property tax base Enhanced capacity thru professional development, and education Computerization & information management

Key Interventions, innovations Policy and Legal Framework Reforms Professionalization of appraisers: Real Estate Service Act of 2009; 3,900 licensed Policies, proposals for sustainability: Executive Order No. 833, Valuation Reform Act bill, inter-agency circulars, tax reforms New Tools and Systems Philippine Valuation Standards Mass Appraisal Guidebook Basic Course on Mass Appraisal Local tax policy studies Prototype systems: Valuation Database and Information System (VDIS) and electronic Field Appraisal & Assessment Sheet (eFAAS)

Key Interventions, innovations Capacity Development Piloting in cities: Naga, Iloilo, Mandaue Formal land valuation education courses by UP Open University Continuing professional devt courses Diploma, master’s programs Trainings on valuation, tax policy setting Information drives, roadshows, caravans, legislative briefings Broader support to selected LGUs through Innovation Support Fund, grants, LGU-led rollout, replication of reforms

Paradigm shift…

Local Implementation: The Naga City Model Situation Nat’l, local values differ LGU values outdated by 12 years Re-valuation led to 147% increase in MV; 110% in AV  Initial taxpayers’ resistance due to possible increases in tax liabilities Selling points / Strategies Revaluation as part of governance process, not mainly revenues, but fairness in taxation Funding the LGU needs: RPT to support capital investments, basic services Political will & inclusive approach: people’s participation -- engage them not only when taxes are raised, but also when government funds are spent Results Uniformity in valuation: Naga as model for harmonized nat’l & local valuations Local revenues not felt immediately in 2009 due to discount, capping, taxpayer’s consciousness, LGU preference, BUT: nat’l taxes grew: CGT (68%), DST (63%); As of 2011, RPT collections reached Php131.9M (27% more) BIR’s total year-on-year collections (May 2012) grew by 15.7-16% Balanced NG-LGU ratio – 1:1

Lessons Learned Perpetuating faulty, weak valuation, neglect of mandate – indicate bad governance: effects are systemic and complex; leads to greater inequity Valuation and taxation reforms are vital for effective decentralization to make LGUs economically viable Win public support thru ‘champions’ (with political will), participatory communication, transparent agenda Naga Case: reforms are doable, benefits from valuation reforms outweigh political costs; Convergence/collective commitment & cooperation; broad-based stakeholders & whole-of-government support

Future Directions Land Sector Development Framework (LSDF) + Roadmap for Valuation and Taxation Reforms 2030 LAM Vision LSDF as overall land governance framework Both reflect key elements of the Voluntary Guidelines on the Responsible Governance of Tenure of the FAO and WB guidance on land governance Additional Financing to expand, rollout LAMP2 innovations Nationwide digital conversion of land records Adoption of systems, tools, etc. Replication of pilot work, mainstreaming of reforms

Conclusions and Recommendations LAM is good for fiscal governance, socio-economic development: it has to be efficient, effective Put safeguards: ensure equity, mitigate impact on the poor Complementary efforts: improve tax collection & awareness, good expenditure management, adoption/integration of computerized systems, completion of cadastral survey, updating of land use planning, other LAM initiatives. LAM reforms – a continuing endeavor: to attain significant results, invest in the momentum, rollout and replicate.

THANK YOU! www.valuationreforms.org.ph www.jmc.blgf.gov.ph