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

He said in a statement issued by the Department of Finance (DoF) on Monday that should the government end up targeting the super-rich, he would prefer a method that involves regularly updating the schedule of market values (SMV) on real property.

The SMV is the basis for appraising property values for taxation.

Taxes on movable assets lead to tax avoidance, while taxes on property have a higher probability of collection as “land cannot be hidden nor spirited away,” Mr. Dominguez said in the statement.

“That kind of wealth cannot escape to offshore accounts or anywhere. That is wealth here. The other kind of wealth they want to tax can disappear,” he added.

He said current land valuations are outdated relative to their market value.

“The market value of prime commercial areas in Ayala Avenue within the vicinity of San Lorenzo in Makati City, is only about P40,000 per square meter (sq.m.), based on the City’s SMV, when in fact, the real market value ranges from P400,000 to P900,000 per sq.m.,” Mr. Dominguez said. “So we are losing tens of billions of pesos because that kind of wealth is not being taxed correctly.”

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

The DoF estimated the SMV-based valuation of commercial land in Barangay San Lorenzo, which covers 52,640 sq.m., at P842.24 million, yielding RPT of P25.27 million. Bel-Air’s 52,080 sq.m. area is worth P833.28 million, implying an expected RPT of P25 million.

However, if market values are used, commercial land in Barangays San Lorenzo and Bel-Air would be worth P19.79 billion and P19.58 billion respectively, yielding RPT of P593.78 million and P587.46 million, respectively, or P1.18 billion combined.

Mr. Dominguez said that the DoF has been pushing for the passage of the Real Property Valuation and Assessment Reform Act, a component of the Comprehensive Tax Reform Program.

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

Only 62% of Revenue District 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 proposed tax reform aims to promote the development of a just, equitable, and efficient real property valuation system and broaden the tax base used for property-related taxes imposed by the national and local governments,” the DoF said.

Mr. Dominguez last year warned legislators that imposing a “super-rich” tax “would only encourage aggressive tax avoidance schemes,” adding that it would drive away investment, resulting in fewer jobs and dampened business growth.

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

He also cited a German study that found that wealth taxes on the extremely rich adversely affect the economy, as these taxes take away accumulated wealth and savings, discouraging investment on the part of taxpayers.

The Tax Reform for Acceleration and Inclusion (TRAIN) law, and the proposed Valuation Reform Act and Passive Income Financial Intermediary Taxation Act (PIFITA) adequately address inequalities in the system, he added.

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

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