Have you ever conducted due diligence over an affordable house and lot? Later on, you noticed that the selling price is less than its zonal value. Without knowing how to compute the zonal value, you thought that the land was being sold for less than its original and actual worth. This is a common misconception concerning zonal values; to learn more about the concept of zonal valuation, read on.
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What is a Zonal Value?
Accordingly Zonal Value is defined as something belonging to, influencing, or resembling a zone a zonal border. Also, a soil or a significant soil group distinguished by well-developed features determined mostly by the influence of climate and creatures (such as plants) — compare azonal, intrazonal.
The Bureau of Internal Revenue uses Zonal Valuation, which is an established zonal schedule of fair market values for real property. Section 4 of Republic Act No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which amends Section 6 (E) of the National Internal Revenue Code (NIRC) of 1997, empowers the Commissioner of the Bureau of Internal Revenue (BIR) to split the Philippines into several zones or territories and shall assess its fair market value. In addition, the valuation of real estate in each zone or area is subject to automatic revision every three (3) years.
Furthermore, keep in mind that the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which came into force last April 11, 2021, is presently in effect.
What is the Purpose of Zonal Value? Is it Important?
The declaration of such valuation is both used for taxation purposes and serves as the basis for computing the Fair Market Value of the property. The Bureau of Internal Revenue uses Zonal Value as the foundation for calculating internal revenue taxes, particularly on Capital Gains Tax (CGT) and Documentary Stamp Tax (DST). It is an approved zonal schedule of fair market values for real property. In the illustration above in such real estate transactions, if the zonal value is less than the selling price, this does not suggest that the property is overpriced If, on the other hand, the zonal value is more than the selling price, this does not mean that the property being sold is undervalued. To further understand this concept, the difference between zonal value and market value shall be explained below.
Yes. The zonal value is important because it is an imposed duty on a citizen, whether a buyer or a seller, to pay taxes associated with a property sale transaction. Furthermore, before the buyer considers purchasing the property for sale, the buyer must conduct due diligence on the property’s zonal value. This is done to reduce the possibility of fraud, such as underpayment of taxes with interest and penalties. It shall be a burden upon the next buyer if there are discrepancies with the payment of taxes upon the land.
What are the Differences Between Zonal Value and Market Value?
Market Value, according to the Philippine Valuation Standards, which incorporated the International Valuation Standards, is: “The projected sum for which a property should pass hands on the day of appraisal between a willing buyer and a willing seller in an arms-length transaction following adequate marketing in which both parties acted knowledgeably, sensibly, and without force.”
While the Commissioner determines and declares the Zonal Value, the Market Value may be based on land improvements, infrastructure, and other criteria. Market Value may be determined for due diligence purposes by looking at similar market values of the same property. In accordance with this, three property valuation techniques are used: the cost approach, the market approach, and the income method.
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Furthermore, while Zonal Value and Market Value may differ significantly, there are rare occasions where the two valuations of a property are equivalent.
How to Compute Zonal Value?
Unlike market value appraisal, which gives several techniques for determining the correct worth of a property, there is no universal formula available to ordinary persons for calculating zonal value. As a result, you must enquire with the Bureau of Internal Revenue about the property’s zonal value. To do so, take the following steps:
1- Know your Revenue District Office (RDO) Code
RDOs are sectors under the Bureau of Internal Revenue (BIR) that keeps the records of the taxpayers under its jurisdiction. There are hundreds of RDOs here in the Philippines, as the records of the collective citizens are not centralized but maintained by the divided RDOs. So, it is important to know your RDO code where you shall process payments and inquiries.
How to Know Your BIR RDO Code?
There are three ways to know your BIR RDO Code:
First, if you already applied for a TIN for the property, check the copy. BIR Forms such as form numbers 1901,1902,1903,1904,1905
Secondly, if you are unsure of what your RDO code is you may contact the BIR hotline. You may inquire about your RDO code by calling the BIR’s Customer Assistance Division.
Here are the following numbers to call:
- 8538-3200
- 8981-7030
- 8981-7003
- 8981-7040
- 8981-7020
- 8981-7046
- 8981-7419
- 8981-7452
- 8981-7478
- 8981-7479
If these hotlines are busy, for the final way it is recommended that you visit the nearest RDO in your local municipality. Next, request a TIN verification slip. Fill it out with your full name, birth date, and address. If you’re a married woman, you should indicate your maiden name. Lastly, present your accomplished slip to the BIR officer who will then stamp it and indicate your TIN, RDO code, and RDO location.
2 – Visit the Online Website of BIR
Visit the online website of BIR where the zonal value of different provinces, cities, and municipalities are posted. For reference here is the link: Zonal Values – Bureau of Internal Revenue (bir.gov.ph). After you have entered the website, use your RDO number to navigate through the multiple RDOs.
3 – Download the Excel file
To download the Excel software, click on the ZIP file. Wait a few seconds for it to download. Because it is a ZIP file, you must first extract the file you need. After that, open the file and navigate through the spreadsheet. It is suggested that the user have basic Excel understanding; otherwise, the user should be accommodated by someone who does. The file is complete with a zonal valuation from 1988, this is helpful for the user to observe appropriations and annual valuations provided.
The file comprises the following items: the Department Order signed by the Secretary of Finance and the Commissioner of Internal Revenue, definitions of terminology, a classification legend for various types of properties, and a table for values of various types of properties in certain locations. For reference, attached below is a sample of how the table looks.
The zonal value per square meter is shown in the right-most column. So, if your property has 100 square meters and is a residential regular property (RR), the calculation is 100 x 25,000.
Note: If you are not a techie, it is suggested that you go or call your RDO branch and enquire about the zonal value of your home.
