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Understanding the Zonal Value of Property and How It Works

21 October 2022
Understanding the Zonal Value of Property and How It Works

As property owners, have you ever conducted due diligence on an affordable house and lot that you see as a potential investment? If you're interested to understand the zonal value and know the basics of real property taxes, property prices, and how property transfers work, you're on the right track. Besides, it's helpful to know some additional property-related taxes so you can manage your own real estate properties or invest in some units.

 

First, what is a Zonal Value?

The term Zonal value refers to the property value placed on real estate properties for taxation purposes, which is the basis for our Bureau of Internal Revenue (BIR). Republic Act No. 8424's Section 6 (E) or the Tax Reform Act of 1997 gives the BIR commissioner the power to fix the zonal value schedule.

 

Zonal Valuation is a set zonal schedule of fair market values for real estate used by the Internal Revenue Service. According to Republic Act No. 10963, otherwise known as the TRAIN Law or Tax Reform for Acceleration and Inclusion, the Commissioner of BIR will be able to divide the Philippines into various zones or territories and calculate its fair market value. Additionally, each zone or area's property valuation is reviewed every three (3) years.

 

Moreover, the Corporate Recovery and Tax Incentives for Enterprises Act, which entered into force on April 11, 2021, is still in effect today.

 

Zonal Value vs Market Value: What are the Differences?

A property's market value is determined by the Philippine Valuation Standards, which incorporate International Valuation Standards. An arms-length transaction involving both parties acting in a manner that is knowledgeable, sensibly, and without force is defined between a willing buyer and a willing seller based on adequate marketing with true and actual values.

 

The Zonal Value is determined and declared by the Commissioner, while the Market Value is based on land improvements, infrastructure, and other factors. A similar market value of the same property can be used to determine market value for due diligence purposes. This is why three property valuation strategies are used: the cost approach, the market approach, and the income approach. Additionally, although Zonal Value and Market Value may differ considerably, there are rare occasions when they are equal.

 

 

The Purpose of Zonal Values and Its Importance

Besides being used for taxation purposes, the valuation declaration also serves as the basis for determining the property's fair market value. In calculating internal revenue taxes, especially Capital Gains Tax (CGT) and Documentary Stamp Tax (DST), the Bureau of Internal Revenue uses Zonal Value. Essentially, it is an approved zonal schedule of fair market values that have been approved by the zoning commission.

 

A property sale transaction is taxed based on the zonal value, and citizens are responsible for paying taxes regardless of whether they are buyers or sellers. Additionally, the buyer should perform due diligence on the property's zonal value before considering buying it. In order to minimize fraud, such as underpaying taxes with interest and penalties, this measure is taken. Any discrepancy in tax payment shall be borne by the next buyer.

 

 

Learn How to Compute Zonal Value in 3 Easy Steps

Unlike market value appraisal, which uses several property computation techniques to determine the value of a property, zonal value cannot be calculated by ordinary persons using a universal formula. Therefore, to determine the property's zonal value, it is necessary to consult the Bureau of Internal Revenue. You can do this through the following steps:

 

1. Get to know your Revenue District Office (RDO) code

Under the Bureau of Internal Revenue (BIR), RDOs keep the records of taxpayers under their jurisdiction. The Philippines has hundreds of RDOs since the collective records of citizens are not consolidated in a centralized system, but maintained by the divided RDOs. Therefore, it is imperative that you know your RDO code where payments and inquiries will be handled.

 

There are available hotlines to get your RDO code but if the lines are busy, we suggest you visit the nearest RDO in your local municipality. After that, you will need to obtain a TIN verification slip. Complete the form with your full name, birth date, and address. In the case of married women, you must include your maiden name. Finally, present your completed slip to the BIR officer who will stamp it and note your TIN, RDO code, and location of the RDO.

 

 

2. Check out the BIR's online website

A list of zonal values for cities, municipalities, and provinces can be found on the Bureau of Internal Revenue's website. You can navigate through the multiple RDOs by using your RDO number once you have entered the website.

 

 

3. Please download the Excel file

Click the ZIP file to download the Excel software. The download will take a few seconds, and since the file is a ZIP archive, you will need to extract it first. Users will be able to view appropriations and annual valuations provided in the file with a zonal valuation from 1988.

 

Among the items in the file are a Department Order with the Commissioner of Internal Revenue and the Secretary of Finance's signatures, definitions of terminology, classification legends for different types of properties, and tables of values for various types of properties based on their locations.

 

There are two ways to get the information - either by visiting the BIR's website or by calling/visiting your nearest BIR office.

 

 

Lumina Homes, A Growing Investment You Can Trust

Do you intend to buy an investment or real estate property in the near future? Possibly you are on the search for an affordable house and lot for sale in order to start a passive income or for a place to live. Aspiring Filipinos can find affordable houses and lots at Lumina Homes, an all-economic residential project in the Philippines.

 

Our residential projects are located in over 50 key locations across the country. In this way, you can find the most convenient location for your family or start property investment. With our affordable real estate properties, you can enjoy the lifestyle you want without breaking the bank.

 

If you're ready to make the most lucrative investment, check out what Lumina Homes has to offer and reserve your unit today!

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