Proposed hike in Baguio real estate values defended

The proposed increase in market values for land in the city is realistic and reasonable and will not result to confiscatory taxes.

Mayor Mauricio Domogan and city council appropriations committee chair Councilor Elmer Datuin maintained thus in a riposte to the business groups’ opposition to the proposal.

The Chamber of Real Estate and Builders’ Associations Inc. (Creba), the Philippine Chamber of Commerce and Industry Inc. (PCCI) Baguio-Benguet Chapter and the Hotel and Restaurant Association of Baguio submitted their position papers on the proposed revised schedule of market values for lands which is due for deliberation on second reading after publication by the city council.

All groups opposed the proposed adjustment claiming that the new rates are “unrealistic, unreasonable, burdensome and confiscatory.”

Domogan and Datuin reminded the groups that the city’s failure to revise the schedule for 21 years has rendered the market values outdated and unrealistic.  

The city officials said that the resulting increase in the market values which, as defined, are the prices of lots at which the seller is willing to sell and the buyer is willing to buy was expected to reach high proportions but this cannot be deemed as unfair and unreasonable as this was based on actual conditions prevailing in the city at present.

They cited the current market value of lots in Session Road which is pegged at P5,500 per square meter but in reality  the lots in this area at present fetch a price of as much as P150,000 per square meter. The city has proposed to raise the market value in this area at P110,000 per square meter which is still lower that the prevailing price.

“Under the law, the city is duty-bound to impose the correct market value of the properties in our area of jurisdiction and we have been negligent and remiss on this duty since we did not impose any adjustments for 21 years,” the mayor said.

“But now, it is high time to correct this and also address the falsehood bred by our outdated market values which the city unwittingly tolerated with its failure to update the market values. Dapat tumugma sa kung ano ang totoo,” he intoned.

Furthermore, the city made sure that the new market values are comparable to zonal valuation of the Bureau of Internal Revenue which is still in the 1998 level so the new rates cannot be dismissed as unreasonable.

The officials also assured that this will not result to confiscatory taxes as they have proposed to lower the assessment levels to temper the effect of the increased market values from the current assessment levels of 12 percent to just six percent for residential lands; 35 percent to eight percent for commercial and industrial lands; and from 12.5 percent to just five percent for cultural, scientific and hospital lots.

“That to me is already going down nearly to the bottom just to ensure that the resulting taxes will not go beyond what is reasonable,” the mayor said.
Citing examples, City Assessor Almaya Addawe said a 100-square meter lot along Benin Road in Pinsao Proper commands a P25.20 annual tax at present. With the proposal, this tax will increase to just P270 annual tax.

Residential lots within subdivisions in certain barangays are presently charged P212.40 per 100 square meters annual tax and after the proposal, they will be paying P864 per 100 square meters after the 20 percent prompt payment discount. 

This tax rate applies to most subdivisions and residential areas as per the proposal, Addawe said.

As to commercial areas like Session Road, they pay P5,775 per 100 square meter annual tax and with the proposal, they will be assessed P21,120 per 100 square meter or a 357 percent tax increase for these profitable businesses, Addawe added.

To further cushion the impact of the increase, the city is willing to implement the adjustment in three tranches for three years. This is on top of the 20 percent prompt payment discount being given by the city every year, the city officials said.

The officials reiterated that the adjustment is long overdue as the city has for years been berated by no less that the Bureau of Local Government Finance for its failure to comply with Section 219 of the Local Government Code which mandates the city assessor to undertake a general revision of real property assessments within two years after the effectivity of the Code in 1992 and every three years thereafter.

If religiously followed, then the city should have implemented the realty tax revisions for seven times now since 1996.

“But of course we do not want our people to bear the brunt of the seven-year absence of tax increase in one blow so we made sure that this proposal will not result to confiscatory taxes,” the mayor said.

The mayor appealed to the people to “understand what is reasonable” for both the city government and to them.

“By now, our people should have realized that we do not want to impose the new rates just for the sake of increasing taxes. This and other humanitarian considerations are the reasons why we have stalled on imposing the increase that long,” he said.

“We want to impose what is reasonable for both the taxpayers and the city government and we believe that this proposal is as fair as it gets.”

The city officials also assured that the proceeds of the increase in taxes will not be squandered and will be used for its intended purpose in the form of basic services to the public.

SOURCE:  Baguio Midland Courier

Holding firms’ exemptions reconsidered in their favor

Every January, during the renewal of local business permits, I collect anecdotes from our staff, specifically actual stories of the challenges faced while processing the business permits of our clients. They range from the usual time wasting queue in certain local government offices to technical issues. At times the problem is not even a technical issue -- like a local government unit’s refusal to process an application simply because the latest sales figure is lower than the previous year’s.

So as not to delay the renewal of their required business permits, some taxpayers have resorted to “paying under protest,” reserving their right to dispute the assessed local business tax (LBT) because they do not believe that they are subject to the (additional) tax. On the other hand, the local government is hell-bent on collecting.

This has been the case for some holding companies. The issue arose when some local government units (LGU) introduced amendments in their local revenue codes by inserting the term “holding companies” among the entities subject to LBT. Other LGUs classified holding companies as non-bank financial intermediaries and imposed the corresponding LBT.

This is why the recent decision of the 3rd Division of the Court of Tax Appeals (CTA) promulgated on April 6 is a very welcome development.

It involves the case of a holding company against the City Treasurer of a city down south. The taxpayer was seeking a refund or tax credit on the LBT that it paid under protest in 2011.

The taxpayer’s income comprises dividend and interest income, from its shareholdings in a local company and from money market placements, respectively. Based on the holding company’s investment activities and the primary purpose provided in its Articles of Incorporation, the city classified the taxpayer as a non-bank financial intermediary. This left the taxpayer with no other choice but to pay the assessed LBT under protest and subsequently file a claim for refund or credit.

However, due to the inaction of the city on the refund claim, the taxpayer filed a case with the Regional Trial Court, with no success. On appeal, the decision was reversed, with the CTA declaring the taxpayer a non-financial institution, and thus, not subject to LBT. The CTA’s conclusion was based on the following considerations:

• The definitions under the Manual of Regulations for Non-bank Financial Institutions as prescribed by the Bangko Sentral ng Pilipinas (BSP) do not qualify the taxpayer as a non-bank financial intermediary;

• No document can show that the principal activities of the taxpayer qualifies it as a financial intermediary;

• The taxpayer has no secondary license and does not hold itself out as a financial intermediary nor perform functions as such;

• Its Articles of Incorporation shows that its principal purpose cannot fall under the definition of a financial intermediary; and

• The LGU was not able to present any proof that the BSP has authorized the taxpayer to operate as a non-bank financial intermediary.

As I mentioned earlier, this decision is a very positive development for holding companies. While it may have gone the opposite direction against two previous decisions of the CTA (concerning the same taxpayer), it is hoped that this latest decision be the last straw on this issue.

In this case, the court also ruled that even without addressing the issue on financial intermediaries, the taxpayer shall still be exempt from LBT. This is based on the fact that while the taxpayer is a private holding company, its investments in shares of stock are government-owned. Therefore, the related revenue earned by such shares (dividend and interest) likewise belong to the government. Hence, it is not subject to LBT following Section 133(o) of the Local Government Code, which provides that the exercise of the taxing power of the LGU shall not extend to the levy of taxes, fees or charges on the National Government, its agencies and instrumentalities.

Based on the CTA’s rationale in resolving whether or not the dividend and interest income of a holding company is subject to LBT, it is clear that, in this particular case, the holding company is not subject to LBT.

The Bureau of Local Government Finance (BLGF) may have solidified further the position taken by the court. In its recent memorandum circular, the BLGF categorically provided that passive income (i.e., interest, dividends, gains from the sale of shares) should not form part of gross receipts subject to LBT.

It may be worth mentioning also that in another case, decided upon by the CTA En Banc in 2016, the court ruled that imposing LBT on the dividend income of holdcos is beyond the scope of the LGU’s taxing powers. Doing so was considered to be a deliberate circumvention by the LGU of the prohibitions laid down in the LGC which limits their income taxing powers to banks and other financial institutions -- especially in particular cases wherein the LGU merely inserted a provision in its local revenue code subjecting holding companies to LBT.

Of course, one can say that the issue as to whether holding companies are subject to or exempt from LBT is not yet fully resolved since the case may still be appealed to the Supreme Court. But in the case at hand, in my opinion, an appeal to the high courts may be futile.

The CTA decision addressed two important points: 1) the holding company does not qualify as non-bank financial intermediary and 2) the investment in shares of stock is government-owned. Both aspects exempt the holding company from LBT. Furthermore, the source upon which the CTA based its decision seems impregnable.

As taxpayers, we understand our role in nation-building through paying the proper taxes. But then, the implementation of the taxing power by our tax authorities be it national or local, should be just and equitable. The challenges that taxpayers encounter during the renewal of business permits, as I have mentioned in this article, are becoming common and alarming. It also goes against the reform programs that the current administration wants to carry out.

As for LGUs that continue to make the renewal of business permits difficult for resident businesses, while their zeal in exercising such power may help them attain their collection targets, such practices can backfire. Taxpayers will continue to look for more investor-friendly locales where they can operate their business without going through the hassle of renewing annual permits.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

John Edgar S. Maghinay is a director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-2728

john.edgar.s.maghinay@ph.pwc.com 

source:  Businessworld

Supreme Court halts QC's real property tax hike

The Supreme Court (SC) on Tuesday stopped the Quezon City government from implementing a resolution that raises the city’s real property tax rates by 100 to 500 percent.

Sitting en banc, the High Court issued a temporary restraining order (TRO) against QC Ordinance No. 2556 (Series of 2016), which approved the fair market value of lands and basic unit construction costs for buildings and other structures towards a revision of real property assessments in Quezon City. 

The ordinance meant to increase existing real property values from 100% to 500%, to be effective this year for land, and in 2018 for buildings and other structures.

The QC government earlier estimated that the local measure would increase its collection by P700 million on the first year of implementation. 

The SC order was in response to a petition by the Alliance of Quezon City Homeowners’ Association Inc. (AQCHI), which sought relief from the ordinance, arguing that its rates were “unjust and excessive.”

Acknowledging the need to increase property valuation in the city, AQCHI is calling for smaller or staggered increases.

The court ordered respondents QC Mayor Herbert Bautista, the City Assessor’s Office, and the City Treasurer’s Office to file their comment on the petition within 10 days.

Bautista earlier asked the city council to make the necessary revisions on real property rates to comply with the recommendations of the Commission on Audit (COA) and Department of Finance (DOF), asserting that the rates were last updated 21 years ago, on December 19, 1995.

In an official statement, the QC government had said “[c]learly, the P5,000 per square meter land value is unrealistic, and no property owner in that area will transact at this rate.”

The QC government compared its rates with those of Caloocan City and Makati City at P55,000-P80,000 per square meter.

The local government further stressed that under the Local Government Code, “a general revision of real property assessments should be conducted every three years.”

source:  ABS-CBN News

CA junks PH Heart Center's bid for real property tax exemption

MANILA - For failure to exhaust all available administrative remedies, the Court of Appeals (CA) has dismissed the Philippine Heart Center's (PHC) bid for exemption from payment of real property tax.

In a 14-page decision, the appellate court's 13th Division dismissed PHC's appeal of an earlier ruling that junked PHC's petition that seeks an exemption from payment of unpaid real property taxes in 2004 amounting to P36.5 million. The PHC invoked an exemption granted to it by the late President Ferdinand Marcos.

The appellate court stressed that PHC should have filed the petition before the Quezon City Local Board of Assessment Appeals (LBAA), then to the Central Board of Assessment Appeals (CBAA), and eventually the Court of Tax Appeals (CTA).

"The premature invocation of the intervention of the court is fatal to one's cause of action. The doctrine of exhaustion of administrative remedies is based on practical and legal reasons.

"The availment of administrative remedy entails lesser expenses and provides for a speedier disposition of controversies," the CA ruled.

In 2006, the Office of the Government Corporate Counsel (OGCC) informed PHC that consistent with the Supreme Court (SC) ruling in the case of Manila International Airport Authority (MIAA) v. Court of Appeals, PHC is exempt from paying real property taxes.

PHC then stopped real property tax payments which led the local government to issue final notices of delinquency with corresponding warrants of levy.

This led PHC to elevate its case before the appellate court.

source:  ABS-CBN News