Wednesday, August 15, 2012

What is Zonal Value?

I've met the words selling price or purchase price, zonal value and fair market value. Are these three terms similar? I'm confused about the difference of these three terms. There seems to be a thin line separating these three terms.

Let's start with the Zonal Value.

Zonal value is the amount set by the Bureau of Internal Revenue (BIR) with the assistance of realtors, and other knowledgeable persons in the area as the basis for computing taxes. Therefore, zonal values are purely for taxation purposes only. It has nothing to do with the true market value of the property. Zonal value is not an accurate basis when appraising a real property. When applying for a loan in a lending institution, and this especially true with commercial banks, their appraisers rely on the zonal valuation which is much lower than the market value.

Zonal valuation is fixed by the government and re-assessed from time to time. "Much lower" means only a third or even a quarter of the market value.

Zonal valuation is done in order to :

1. establish realistic values of real properties which can more or less approximate the present fair market values  of real properties  as basis for computing the capital gains tax, documentary stamp tax, estate tax of the donor’s tax due when the property is sold or transferred; 

2. have an efficient tax administration by minimizing the discretion both by the tax administrators and the taxpayers in the determination of the tax base.

The BIR assigned zonal values only to :

•  Land
•  Condominiums
•  Townhouses ownership of which are evidenced by a Condominium Certificate of Title (CCT)
•  For purposes of computing all internal revenue taxes (capital gains tax, creditable withholding tax, documentary stamp tax, estate and donor’s taxes, etc.) due on sales, exchange or other dispositions of real properties, the zonal value established shall apply provided the same is higher than :

(1) the fair market value as shown in the tax   
declaration, and
(2) the gross selling price / consideration as shown
in the duly notarized document of sale or
exchange of real properties.

Furthermore, the zonal value is not the only basis for computing the applicable taxes. The Fair Market Value (FMV) and gross selling price are also considered. Whichever is highest among the three will become the basis for the computation of applicable taxes.

If you want to know the zonal values of a particular property your eyeing, please click the link below. 

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