Zonal Value: Everything You Need To Know

Let’s say you already bought your dream luxury home in the Philippines. You wonder how the seller and the local government set the price for your home. Do they estimate it based on the price when they first bought the house, and add the values of the amenities?

Truth be told, selling luxury houses in the Philippines is more than just pegging a price depending on how much you spent when you first purchased it. You need to know your luxury real estate’s original and actual worth by computing its zonal value.

Read more to know about zonal values and how to compute them.

What is a Zonal Value?

Zonal valuation or zonal value is the value of real properties for taxation purposes used by the Bureau of Internal Revenue. It is the approved zonal schedule on fair market values for the computation of internal revenue taxes.

The governing law for zonal values is the National Internal Revenue Code (NIRC) of 1997. This law gives the Bureau of Internal Revenue the authority to compute, assess, and collect internal revenue taxes, fees, and charges, and to enforce penalties, surcharges, and forfeitures. Under Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) law, the BIR Commissioner has the power and authority to divide the Philippines into different zones and determine the fair market values of real properties located therein by consulting appraisers from the public and private sectors. The value of the real estate in each area or zone is automatically revised every three (3) years.

But as of April 11, 2021, the Corporate Recovery and Tax Incentives for Enterprises Acts (CREATE) is the prevailing law.

How to Determine Tax Liability of a Real Property?

In determining the tax liability of a property, you have to check the value of the real property based on the following, whichever is higher:

• The gross selling price or consideration that is shown in the duly notarized document of sale or transfer of property; or
• The fair market value as determined by the BIR Commissioner; or
• The fair market value as shown in the schedule of values of the Provincial or City Assessors.

BIR Zonal value applies to the following:

• Land
• Condominiums, such as Brittany Corporation’s luxury condominiums
• Townhouse ownership evidenced by a condominium certificate of title (CCT)

What is the Importance of Zonal Valuation?

The use of zonal valuation is primarily for:

• Computation of internal revenue taxes, such as Capital Gains Tax (CGT), Estate Tax, Donor’s Tax, Documentary Stamp Tax (DST); and
• The basis of computing the fair market value of the real property.

Zonal value is important because it is the duty of every citizen, whether he is a buyer or seller of a luxury real estate or luxury condominium, to pay the taxes associated with the real property transaction. Each homeowner of a luxury house and lot in Metro Manila and the rest of the Philippines must conduct their due diligence on their property’s zonal values to prevent fraud.

Zonal values create realistic values instead of guessing the price of the real property, which can be more or less than the fair market values of real properties located in particular areas. Zonal value is an effective and efficient tax administration through minimizing discretion on both the tax administrators and taxpayers on determining the tax base.

If the zonal value is less than the selling price of the real estate, it does not follow that the property is overpriced. And if the zonal value is higher than the selling price, it does not also mean that the property is undervalued. With this, it is crucial to note the difference between the zonal value and the market value.

What is the Difference Between a Zonal Value and a Market Value?

According to Philippine Valuation Standards, market value is the “projected sum for which a property should pass hands on the day of appraisal between a willing buyer and a willing seller n an arms-length transaction following adequate marketing in which both parties acted knowledgeably, sensibly, and without force.”

Market value is determined based on improvements in land, infrastructure, and other criteria. It is also used for due diligence purposes for looking at similar values of the same real estate. On the other hand, the Commissioner of the BIR determines and declares the zonal value of the real estate.

How to Compute for your Zonal Values?

There is no universal formula in checking for zonal values. You must inquire at the Bureau of Internal Revenue to determine the BIR zonal values for your area. Here are the steps on how to calculate your property’s zonal value:

1. Know your Revenue District Office (RDO) Code

RDOs are sectors of the BIR that keep records of taxpayers under its jurisdiction. Look for your RDO Code so you know where to process requirements and pay your taxes.

There are three ways to determine your RDO code:

• Check the copy if you applied for a TIN for your luxury real estate. You can look into the BIR Forms 1901, 1902, 1903, 1904, and 1905.
• If you still are not sure about the RDO Code of your location, such as San Carlos City, San Pablo City, or San Rafael, or if you have not yet applied for a TIN, you may call the BIR hotline through the BIR’s Customer Assistance Division.
• You can visit the nearest RDO in your local municipality and request a TIN verification slip. Fill out the slip with your full name, address, and birth date. Submit the accomplished TIN verification slip to the BIR Officer who will then stamp it and indicate the TIN and RDO Code.

2. Visit the BIR Website

Check the BIR website to locate where the zonal values of provinces, municipalities, and cities are posted. Once you entered the website, use your RDO code to navigate the RDOs on the site.

You may also have the option to look for your RDO by making a request via the Freedom of Information Website at foi.gov.ph. The Freedom of Information (FOI) was created pursuant to Executive Order (EO) No. 2 or the Executive Order on the Freedom of Information. This EO aims to promote an open government by increasing transparency of public records of the executive branch and its agencies.

3. Download the Excel File

To view the excel file, you need to download the ZIP file first from the website. Once downloaded, extract the file that you need. It is highly recommended you have at least basic knowledge of how to use Excel to understand the file easily. The file includes BIR zonal value from the year 1988 — this is helpful to determine the appropriations and valuations provided through the years.

Aside from the zonal valuation, the file also includes the Department Order signed by the Secretary of Finance and the Commissioner of Internal Revenue, definition of terms, a legend for various properties, and a table of values for various types of properties in certain locations.

Find the Home of your Dreams in Brittany

Now that you have an idea how sellers and provincial and city assessors determine the zonal value of luxury houses in the Philippines, it’s always a good way to determine how much budget you have to buy your next dream home.

But having a world-class living experience doesn’t have to be expensive! Brittany Corporation offers townhouses, condominiums, and other luxury house and lots in Metro Manila and in provinces such as Laguna. You’ll be surprised with its modern-looking and fully furnished houses pegged at a reasonable price. And in case you are overwhelmed with all the requirements, our accredited real estate agents and brokers are more than glad to help you ease the pain.

Head over to our website, LinkedIn, and Youtube to know the latest news about us.

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