ADB: Property taxes, valuation key to bolstering gov’t revenue

PROPERTY TAXES should be a key area of focus for developing economies in Southeast Asia seeking to raise government revenue after the pandemic, the Asian Development Bank (ADB) said.

During a webinar on Monday, ADB Economic Research and Regional Cooperation Department Advisor Donghyun Park said the collection of property taxes is hampered by issues like valuation.

“I think an important source of tax revenue, for local governments and subnational governments, is in fact, property taxes,” Mr. Park said. “What is limiting property taxes which are very much underutilized in the region is proper market valuation.”

“I think governance reform, especially at the subnational government level, is very important for mobilizing tax revenue at the subnational and local level.”

“Of course, you have to try to raise more from the mainstays such as value-added tax (VAT), but also venturing to new areas, such as property tax, personal income tax, digital economy tax, environmental tax, and so forth,” he added. “It has to be a balance. I do think it has to be a medium-term strategy and priority for most governments in the region.”

The Department of Finance (DoF) has said that current land valuations are outdated. In April, it said commercial areas in San Lorenzo, Makati are valued at P40,000 per square meter, when the actual value is between P400,000 to P900,000.

“So we are losing tens of billions of pesos because that kind of wealth is not being taxed correctly,” Finance Secretary Carlos G. Dominguez III said.

In May, the DoF also urged the incoming administration to pass pending tax legislation, including the proposed Real Property Valuation and Assessment Reform Act, a component of the Comprehensive Tax Reform Program.  It is currently with the House Committees on Ways and Means, Local Government, and Finance.

Hannelore Niestan, a consultant and international taxation expert at the ADB, also sees room for further improvement in collecting VAT, a likely platform for taxing the digital economy.

She said “tax revenue in the Asia Pacific is low” due to issues with collecting property and personal income taxes and sees seeing room for strengthening environmental taxes.

Ms. Niestan also backed a greater focus on tax administration, with tax compliance a key area for improvement “especially for multinational companies.”

Mr. Park also warned that Information and Communication Technology (ICT) should not be the sole driver for tax collection.

“ICT can do a lot to help improve the quality of tax administration, but at the same time, we cannot assume it is a panacea for tax administration. It is just a complement,” Mr. Park said. “Without good governance, technology can only do so much for tax administration.” — Tobias Jared Tomas