Transitory Rules on Valuation of Real Property for Internal Revenue Tax Purposes

May 19, 1986 REVENUE AUDIT MEMORANDUM ORDER NO. 3-86 SUBJECT : Transitory Rules on Valuation of Real Property for Internal Revenue Tax Purposes TO : All Internal Revenue Officers and Others Concerned 1. BACKGROUND Section 16(e) of the Tax Code, as amended by P.D. 1994, which became effective January 1, 1986, provides that the Commissioner has the authority to: 1.1 Divide the Philippines into different zones or areas; and 1.2 Determine the fair market value of the real properties located in such zones or areas. acd The authority carries with it, however, some constraints, i.e., (a) That consultation should be made with competent appraisers (private and public); and (b) That for purposes of computing the internal revenue tax, the value of the property shall be either the fair market value which has been determined by the Commissioner or the fair market value as shown in the schedule of values of the Provincial and City Assessors, whichever is higher. It is in sub-paragraph (b) where problem lies because it provides room for discretion in the choice of which value to apply. 2. Sole basis for real property valuation during transitory period. Pending final determination of zonal values and as a short-run measure to establish more realistic basis for real property valuation, this Office hereby orders that the market value of real properties (land and/or improvement) appearing in the latest declaration of real property filed in the Provincial/City Assessor's Office, be increased by ten percent (10%) thereof to cover inflationary value, shall be the sole basis in assessing the following internal revenue taxes: 2.1 Capital gains tax on individuals, estate and trust under Section 34(y) of the Tax Code, as amended by P.D. 1994; 2.2 Estate tax; cd i 2.3 Donor's tax; and 2.4 Documentary stamp tax and other applicable taxes. 3. EFFECTIVITY This Order takes effect immediately. Strict enforcement of this Order is enjoined. (SGD.) BIENVENIDO A. TAN, JR. Commissioner