Market Value vs. Tax Declaration Value
Understanding Property Valuation in Philippine Law and Practice
1. Why the Distinction Matters
Whether you are buying, selling, mortgaging, developing, inheriting, donating, or being taxed on Philippine real estate, two statutory yardsticks appear on every checklist:
| Term | Typical user | Typical document |
|---|---|---|
| Market (or “Fair Market”) Value | Bureau of Internal Revenue (BIR), banks, courts, appraisers | BIR “zonal value” tables, private appraisal reports, loan valuation sheets |
| Tax Declaration Value (often simply “Assessed Value”) | Local Government Units (LGUs) through the Provincial/City/Municipal Assessor | Tax Declaration (Form 17‑06) & Real Property Tax (RPT) Assessment Roll |
Each originates from a different law, is computed by a different office, and serves a different legal purpose. Using them interchangeably can lead to under‑payment of taxes, deficiency assessments, or even criminal prosecution for under‑declaration.
2. Statutory & Constitutional Framework
| Source | Key provisions relevant to valuation |
|---|---|
| 1987 Constitution | Art. VI §28 & Art. X §5 recognize the power to tax and to create LGUs, empowering Congress and LGUs to set the basis for real property taxation. |
| National Internal Revenue Code (NIRC), as amended | §6(E) gives the BIR Commissioner power to fix “fair market values” (FMVs) for internal‑revenue purposes; §§24(D), 34(C), 88, 100, 196, 199, 237 set tax bases for CGT, VAT, estate, donor’s, documentary‑stamp and other taxes as “whichever is higher” of (a) consideration, (b) zonal value, or (c) FMV per assessor. |
| Local Government Code (LGC) – R.A. 7160 | §§198‑208 direct assessors to prepare a Schedule of Market Values (SMV) every three (3) years; §§209‑218 describe assessment levels and computation of assessed value a.k.a. tax declaration value. |
| Revenue Regulations & Orders | RR 6‑85, RR 7‑03, RR 12‑88, RR 8‑2016, RR 13‑2023, and the regularly‑updated BIR Zonal Value Tables set FMVs per street/barangay. |
| Special Tax Laws | R.A. 10963 (TRAIN), R.A. 11213 (Estate‑Tax Amnesty), R.A. 11534 (CREATE) tweak rates but retain the same valuation rules. |
| Pending reform | The Real Property Valuation and Assessment Reform (RPVAR) Bill—a DOF priority—seeks a single valuation base for all taxes to eliminate confusion. |
3. What Exactly Is “Market” or “Fair Market” Value (FMV)?
Statutory definition (NIRC §6[E]):
“the price … which a property will command when offered for sale by a willing seller to a willing buyer, neither under compulsion…”
Three ways it is obtained in practice
BIR Zonal Value
- Fixed by the Commissioner on a per‑street/per‑barangay basis.
- Updated “as needed” (no fixed interval; some provinces are a decade old).
- Published in a Revenue District Office (RDO) circular & posted on the BIR website.
Independent Appraisal
- Banks, Pag‑IBIG, GSIS, or private appraisal firms use the sales‑comparison, income, or cost approach; applies to loans, expropriation, corporate accounting, etc.
Judicial FMV
- In expropriation, just compensation is determined by the court with the help of commissioners; tax declaration values are merely persuasive, not controlling (e.g., Republic v. Heirs of Vda. de Castellvi, G.R. L‑20620, Aug 15 1974).
4. What Is the Tax Declaration Value?
Under LGC §202 an owner must “declare under oath the true value” of real property. The Assessor then:
- Adopts the Schedule of Market Values (SMV) for the locality;
- Multiplies the SMV by a statutory assessment level (15 %–100 % depending on class & use);
- The result is the assessed value (AV), colloquially called “tax‑dec value”.
Example (Residential land, Metro Manila)
- Assessor’s SMV = ₱20,000/m²
- Lot area = 150 m² → Market value = ₱3,000,000
- Assessment level (residential) = 20 %
- Assessed/Tax‑dec value = ₱600,000
This figure is the basis of the annual Real Property Tax (RPT). It is not binding on the BIR.
Update cycle. LGUs must revise the SMV at least every three years (LGC §219), but fiscal realities mean many LGUs miss this deadline, so tax‑dec values often lag far behind current market prices.
5. How the Two Figures Interact in National Taxes
| Transaction | Legal basis | Tax base rule |
|---|---|---|
| Capital Gains Tax (6 %) on sale of capital real property | NIRC §24(D) | 6 % of the higher of (a) gross selling price, (b) BIR zonal value, (c) FMV per assessor. |
| Documentary‑Stamp Tax (DST) | NIRC §196 | 1.5 % (deeds) or ₱15.00 / ₱20.00 schedule on the highest of the same three figures. |
| Estate Tax (6 %) | NIRC §88, RR 12‑88 | Highest of decedent’s declared consideration, zonal value, or FMV per assessor at time of death. |
| Donor’s Tax (6 %) | NIRC §100 | Highest of the same three figures. |
| VAT (12 %) on sale of real property by VAT‑registered persons | NIRC §106(A); RR 4‑07 | VAT base is the higher of (a) gross selling price, (b) FMV (zonal or assessor). |
| Withholding Tax on Sale of Ordinary Assets | NIRC §57 | 6 % of higher of FMV or selling price for unlisted ordinary assets. |
Practical result: For most BIR‑administered taxes, the higher FMV wins.
For RPT, the LGU’s assessed value wins.
6. Evidentiary Weight in Litigation
- Ownership and prescription. Tax declarations are not conclusive proof of ownership but are admissible as evidence of a claim (Heirs of Malate v. Gamboa, G.R. 153206, June 22 2015).
- Expropriation. Courts routinely reject outdated tax‑dec values in favor of appraisals reflecting actual FMV (NPC v. Spouses Plopenio, G.R. 167778, Aug 24 2011).
- Deficiency taxes. Under‑valuation (e.g., using tax‑dec value to compute CGT when zonal is higher) exposes parties to 25 % surcharge plus 12 % interest per annum (NIRC §248). Fraudulent under‑declaration (30 % or more) escalates the surcharge to 50 %.
7. Common Misconceptions & Pitfalls
“My tax‑dec value is the taxable base.”
False. Except for RPT, the BIR almost never uses tax‑dec value if a higher zonal value exists.“Zonal value is always higher.”
Not necessarily. In newly‑developing areas, actual selling prices can surpass dated zonal values; banks will rely on private appraisals.“I can pay CGT/DST on my declared consideration because it’s the same as tax‑dec.”
The BIR will recompute, issue a deficiency assessment, and refuse to release the electronic Certificate Authorizing Registration (eCAR) until settled.“Tax‑dec proves ownership.”
It only shows possession and a willingness to pay taxes. Torrens title or acquisitive prescription still governs ownership.
8. Practical Checklist Before Any Transaction
| Step | What to obtain | Why |
|---|---|---|
| 1 | Latest Certified True Copy (CTC) of Tax Declaration | Confirms SMV & assessed value; reveals unpaid RPT. |
| 2 | Latest BIR Zonal Value Table for the barangay | Confirms FMV for CGT/DST/VAT computation. |
| 3 | Independent appraisal (optional but wise) | Gives a more realistic price when zonal is outdated. |
| 4 | RPT clearance & tax map verification | Ensures the parcel actually exists as described. |
| 5 | Compare zonal vs. tax‑dec vs. contract price | Compute taxes on the highest figure to avoid deficiency. |
9. Looking Ahead: Toward a Single Valuation Standard
The Department of Finance estimates that outdated SMVs cost LGUs ~ ₱30 billion annually in lost RPT. The proposed RPVAR Bill seeks to:
- Create a national Valuation Service under the DOF.
- Harmonize SMVs with BIR FMVs, updated at least every three years.
- Adopt internationally‑accepted valuation standards (IVSC).
If enacted, the double‑standard between market value and tax‑declaration value would largely disappear, simplifying compliance.
10. Key Take‑Aways
- Market/Fair Market Value is primarily a BIR concept fixed by zonal values (or by appraisal when zonal values are absent).
- Tax Declaration/Assessed Value is an LGU concept used solely for local real‑property tax.
- For national taxes, compute on the higher of zonal value, contract price, or assessor’s FMV—never on the tax‑dec value alone.
- Regularly check both the BIR’s latest zonal tables and the assessor’s SMV before pricing a deal or filing a return.
- Expect reforms that will eventually merge the two systems, but until then, treat them as distinct legal creatures.
Disclaimer: This article is for educational purposes and does not constitute legal advice. Laws and regulations may change; consult the BIR, the local assessor, or a qualified Philippine tax or property lawyer for specific transactions.