BIR Zonal Valuation: Difference Between Land and Building Values in the Philippines

Executive Summary

“Zonal valuation” is a schedule of fair market values (FMVs) issued by the Bureau of Internal Revenue (BIR) for real property situated in specific streets, barangays, districts, cities, and provinces. In Philippine tax practice, zonal values typically apply to land (and, in many areas, to condominium units). Standalone buildings and other improvements generally do not have BIR zonal values; their FMV is taken from the City/Provincial Assessor’s Schedule of Market Values (SMV) or from the actual selling price, whichever is higher, depending on the tax type. This land–building split is crucial because most transaction taxes are computed on the higher of: (a) actual consideration, or (b) the statutory FMV benchmark (zonal or SMV).

Legal Bases and Key Rules

NIRC, Sec. 6(E) – Authorizes the Commissioner of Internal Revenue to determine real property values and publish zonal valuations.
Capital Gains Tax (CGT) on sale of real property classified as capital asset (individuals; domestic/foreign) – 6% based on the higher of the gross selling price (GSP) or FMV at the time of sale.
- FMV of land = BIR zonal value (if any) or Assessor’s SMV, whichever is higher.
- FMV of building/improvements = Assessor’s SMV (since buildings typically have no zonal values), or actual selling price if higher.
Donor’s Tax – Generally 6% (TRAIN), applied on the net gifts; the FMV at the time of donation is relevant: land by zonal/SMV (higher); buildings by SMV (or higher actual).
Estate Tax – 6% on the net estate; real property valued at time of death: land by zonal/SMV (higher); buildings by SMV (or higher actual).
VAT / Creditable Withholding Tax (CWT) on ordinary assets – For sellers engaged in real estate business, bases typically follow higher of GSP or FMV rules; FMV uses zonal for land and SMV for buildings.
Local real property tax (RPT) – Not based on BIR zonal values. LGUs assess RPT using the Assessor’s SMV and assessment levels under the Local Government Code.

Zonal Valuation vs. SMV: What Applies to What?

Asset	Typical BIR Zonal Value?	Default FMV Source if no Zonal	Notes
Raw land / lots	Yes	Assessor’s SMV	Zonal values are location-specific per street/barangay; updates are periodic.
Condominium units	Often yes	Assessor’s SMV for buildings or developer documentation	Many RDOs publish unit-per-sqm zonal values by project/area; if none, use SMV/actual.
Standalone buildings (house, warehouse, office) and other improvements	No (as a rule)	Assessor’s SMV for buildings	The BIR usually does not issue building zonal values; use SMV or actual if higher.

Practical takeaway: When computing taxes for a property consisting of land + building, you normally combine (a) the land’s zonal/SMV (whichever is higher) and (b) the building’s SMV (or higher actual price), then compare the total to the gross selling price. Use the highest as the tax base (subject to rules per tax type).

How the “Higher of the Two (or Three)” Test Works

Identify the parties and the tax type (CGT vs. VAT/CWT; donation; estate).
Get the GSP (from the notarized deed or contract to sell).
Determine FMV of the land
- Zonal value per square meter × area; or
- Assessor’s SMV if no zonal or if SMV is higher than zonal.
Determine FMV of the building/improvements
- Assessor’s SMV (or actual value if credibly higher).
Add land FMV + building FMV to get total statutory FMV.
Compare: use the highest among (a) GSP and (b) statutory FMV for the tax base (subject to the specific tax’s rules).

Sample CGT Computation (Sale of House and Lot)

Lot area: 200 m²
Land zonal value: ₱25,000/m² → ₱5,000,000
Assessor’s land SMV: ₱18,000/m² → ₱3,600,000 (lower than zonal)
Assessor’s building SMV: ₱1,800,000
GSP (Deed of Sale): ₱6,300,000

Statutory FMV = Land (₱5,000,000) + Building (₱1,800,000) = ₱6,800,000 Tax base = higher of ₱6,300,000 (GSP) vs ₱6,800,000 (FMV) → ₱6,800,000 CGT = 6% × ₱6,800,000 = ₱408,000

If the same property were treated as an ordinary asset (e.g., by a real estate developer), VAT/CWT mechanics apply, but the higher-of valuation logic for the base is similar.

Special Property Types and Situations

Condominium Units
- If the RDO publishes a zonal value per m² for the project or area, use that (or SMV if higher) as the unit’s FMV.
- Parking slots may be separately valued if the BIR schedules them or if sold separately.
Townhouses / Rowhouses
- Land portion may have a zonal value; the building portion follows the Assessor’s SMV. Consider separate valuation per TCT lot area plus SMV for improvements.
Agricultural vs. Residential/Commercial Land
- Zonal values are often zoned by use. Check the property’s actual use and local zoning; misclassification can materially change the base.
No Published Zonal Value
- Use the Assessor’s SMV for the land (and for buildings). If the actual consideration is higher than SMV, taxes reference the higher figure.
Partial interests / Easements / Right-of-Way
- Pro-rate by area affected and apply the same higher-of principle. Documentation should segregate land and improvement values if applicable.
Foreclosures / Dación en pago / Exchanges
- Still apply the statutory valuation rules at the time of the taxable transfer. For exchanges qualifying under tax-free transfer provisions, basis rules differ but documentation of FMVs remains critical.
Installment sales / Pre-selling
- For ordinary assets, VAT/CWT may follow collection or invoicing rules; valuation caps (higher-of GSP or FMV) still apply at the time title transfers or per relevant issuance.

Documentary Flow and Compliance (ONETT and eCAR)

For taxable transfers of real property (sale, donation, succession), BIR’s One-Time Transaction (ONETT) process generally requires:

Taxpayer Identification Numbers of all parties
Notarized instrument (Deed of Absolute Sale, Deed of Donation, Extra-Judicial Settlement/Deed of Sale with Assumption, etc.)
Transfer Certificate of Title / Condominium Certificate of Title (owner’s copy) and latest tax declarations for land and improvements
Zonal valuation printout (if applicable) and Assessor’s certifications/SMV extracts
Location plan / vicinity map (if required by the RDO)
Proof of payment of applicable taxes: CGT/Donor’s/Estate Tax, DST, and local transfer taxes
Certificate Authorizing Registration (CAR/eCAR) issued by BIR before Registry of Deeds transfer

RDO practices vary in checklists and sequencing, but the substance is to evidence the highest applicable valuation and pay the right taxes before title transfer.

Allocation Between Land and Building in the Deed

Although a deed may state a lump-sum price, it is best practice to:

Allocate the price between land and improvements (or land and condominium unit) in reasonable proportions; and
Attach supporting schedules (e.g., appraisals, developer price lists, Assessor’s cost schedules).

The BIR may reconstitute the allocation using zonal value for land and SMV for buildings if the allocation is missing or appears unrealistic.

Updates, Objections, and Due Process

Issuance/Revision – Zonal values are set after public consultations/hearings and approval by the Commissioner. They are updated by area rather than nationally all at once.
Effectivity – Apply the schedule in force on the valuation date (sale notarization, donation, death, etc.), not the date you file.
Questions/Clarifications – Concerns on classification or mapping to streets/barangays can be raised with the RDO’s Zonal Valuation Section. Formal objections typically go through the RDO to the BIR National Office.
Transitional issues – If a new zonal schedule becomes effective after your transaction date, the older schedule applies to that transaction.

Common Pitfalls and How to Avoid Them

Using land zonal value for the building – Don’t. Buildings are normally valued via Assessor’s SMV (unless you have a condo unit zonal table).
Ignoring the Assessor’s SMV – Even with zonal values for land, compare them with the SMV; the higher controls for the base.
No separate building tax declaration – Keep updated tax declarations for both land and improvements to avoid delays and disputes.
Overlooking property use/zoning – Residential vs. commercial zonal brackets can differ dramatically.
Relying on outdated schedules – Always confirm the effective schedule for the specific barangay/street and the valuation date of your transaction.
Lump-sum price without allocation – Provide a reasonable split between land and improvements to streamline review.
Condo parking treatment – Check if parking slots are separately scheduled; they often are.

Quick Checklists

For Sellers/Donors/Heirs

Determine transaction date (sale notarization / donation / death).
Pull current zonal value for land (or condo unit) as of that date.
Obtain Assessor’s SMV for land and building.
Compute higher-of bases; prepare allocation schedules.
Complete ONETT documentary set; secure eCAR/CAR.

For Buyers

Validate that taxes were computed using the correct higher base.
Require copies of zonal schedule page, SMV extracts, and eCAR.
For financing, align appraisal with tax bases to anticipate DST/local taxes.

Frequently Asked Questions

Q: Does the BIR ever issue zonal values for buildings? A: As a rule, no. Zonal valuation targets land and, in many jurisdictions, condominium units. For standalone buildings, use the Assessor’s SMV.

Q: Which is controlling for land—zonal or SMV? A: For BIR-administered taxes, use the higher of zonal and SMV (or actual consideration if that is higher still).

Q: Our area has no zonal valuation. What now? A: Use the Assessor’s SMV (and compare to actual price). Maintain complete tax declarations.

Q: Are local transfer taxes and RPT based on zonal values? A: No. LGU taxes and RPT rely on Assessor’s SMV and local assessment levels, not on BIR zonal schedules.

Bottom Line

Land: Usually has a BIR zonal value; compare with Assessor’s SMV and GSP; pick the highest for the tax base.
Buildings/Improvements: No zonal value; use Assessor’s SMV or actual if higher.
Condo units: Often have unit-level zonal values; if not, revert to SMV/actual.

When in doubt, compute both the zonal-based and SMV-based figures (plus actual selling price) and use the highest applicable base for the specific tax. Because issuances and local practices evolve, it’s prudent to confirm the effective schedule for your exact location and valuation date with the relevant RDO and Assessor’s Office.