Introduction

In the Philippine taxation system, zonal values serve as a critical tool for ensuring fair and standardized assessment of real properties for internal revenue purposes. Specifically for agricultural land, which constitutes a significant portion of the country's land resources, zonal values provide a benchmark for determining the fair market value (FMV) used in computing various taxes imposed by the Bureau of Internal Revenue (BIR). These values are essential in transactions involving the sale, donation, or inheritance of agricultural properties, helping to prevent undervaluation and ensure compliance with the National Internal Revenue Code (NIRC) of 1997, as amended.

Agricultural land in the Philippines encompasses areas devoted to farming, livestock, aquaculture, and related activities, as defined under Republic Act No. 6657 (Comprehensive Agrarian Reform Law) and other agrarian laws. Zonal values for such lands are distinct from those applied to residential, commercial, or industrial properties, reflecting factors like soil fertility, crop productivity, accessibility, and proximity to markets. This article explores the legal foundations, determination processes, applications, challenges, and evolving aspects of zonal values for agricultural land, providing a thorough examination within the Philippine legal context.

Legal Basis and Framework

The establishment and use of zonal values are rooted in the NIRC, particularly Section 6(E), which empowers the Commissioner of Internal Revenue to divide the Philippines into zones or areas and determine the FMV of real properties therein for tax purposes. This authority is exercised in coordination with the Department of Finance (DOF) and local government units (LGUs), ensuring that valuations align with national fiscal policies while considering local conditions.

For agricultural land, additional legal considerations stem from agrarian reform laws. Republic Act No. 6657, as amended by Republic Act No. 9700, emphasizes the just valuation of lands under the Comprehensive Agrarian Reform Program (CARP), where zonal values may influence compensation for landowners whose properties are redistributed. The NIRC intersects with these laws by mandating that zonal values be used as the minimum basis for tax computations, overriding lower declared values in deeds of sale or transfer unless proven otherwise.

Revenue Regulations (RR) issued by the BIR further elaborate on zonal valuations. For instance, RR No. 2-2014 and subsequent issuances outline the guidelines for revising zonal values, requiring periodic updates every three years or as needed due to economic changes. In the context of agricultural land, these regulations account for classifications under the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR), such as prime agricultural lands, irrigated vs. rainfed areas, and those suitable for high-value crops.

The Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) amended the NIRC to adjust tax rates and thresholds, indirectly affecting how zonal values impact tax liabilities on agricultural land transactions. For example, capital gains tax on real property sales is pegged at 6% of the higher between the selling price or zonal value, making accurate zonal assessments pivotal for farmers and landowners.

Determination and Revision of Zonal Values

The process of determining zonal values for agricultural land is methodical and involves multiple stakeholders to ensure objectivity and relevance. The BIR Commissioner, upon recommendation from a Technical Committee on Real Property Valuation (TCRPV), issues Department Orders (DOs) that publish zonal value schedules for each revenue district office (RDO). The TCRPV comprises representatives from the BIR, DOF, National Tax Research Center (NTRC), LGUs, and private sector appraisers.

For agricultural land, valuation factors include:

Land Classification and Use: Based on the Philippine Valuation Standards (PVS) and the International Valuation Standards (IVS), lands are categorized by type (e.g., riceland, cornland, coconut land, sugarcane land). Prime agricultural lands under DAR Administrative Order No. 1, Series of 2002, command higher values due to their productivity and protection from conversion.
Physical and Economic Attributes: Soil quality, topography, water availability, climate, and infrastructure (e.g., roads, irrigation systems) are assessed. For instance, lands in fertile regions like Central Luzon or Negros Occidental may have elevated zonal values compared to marginal lands in mountainous areas.
Market Data Approach: Valuations draw from recent sales data, appraisals, and public hearings. The BIR collects information from deeds of sale registered with the Registry of Deeds, adjusting for agricultural-specific variables like crop yields and commodity prices.
** idle Land Considerations**: Under Republic Act No. 10752 (Right-of-Way Act) and DAR policies, idle or underutilized agricultural lands may have adjusted zonal values, potentially lower to encourage development but still subject to minimum tax bases.

Revisions occur through public consultations, where stakeholders like farmers' cooperatives, landowners, and local assessors provide input. Once approved, new zonal values are published in newspapers of general circulation and on the BIR website, becoming effective 15 days after publication. Disputes can be appealed to the BIR Commissioner or the Department of Justice (DOJ) for review.

In practice, zonal values for agricultural land are often lower per square meter than urban properties, reflecting lower economic returns. However, in areas with agro-industrial potential or near urban centers, values can escalate, sometimes leading to tensions with agrarian reform objectives.

Application in Taxation and Transactions

Zonal values play a pivotal role in various tax computations involving agricultural land:

Capital Gains Tax (CGT): Under Section 24(D) of the NIRC, CGT is imposed on gains from the sale or exchange of capital assets, including agricultural land. The tax base is the higher of the gross selling price or zonal value. For exempt transactions, such as sales to the government under CARP, zonal values determine just compensation.
Donor's Tax and Estate Tax: Sections 85 and 87 of the NIRC use zonal values to compute the FMV for donations or inheritances. This ensures that transfers of agricultural estates are taxed appropriately, preventing tax evasion through undervaluation.
Documentary Stamp Tax (DST): Per Section 196, DST on deeds of sale is based on the higher of the consideration or zonal value.
Value-Added Tax (VAT): While agricultural land sales by non-VAT registered persons are generally exempt, if the seller is VAT-registered or the transaction exceeds thresholds, zonal values may influence output tax calculations.

In agrarian contexts, zonal values intersect with DAR's Land Valuation Guidelines (DAR AO No. 5, Series of 1998), where the FMV for CARP coverage is computed using a formula incorporating zonal value (ZV), capitalized net income (CNI), and comparable sales (CS): FMV = (CNI x 0.90) + (CS x 0.10) if ZV is not higher, or adjusted accordingly. This hybrid approach balances tax and social justice objectives.

For leasehold arrangements under Republic Act No. 3844 (Agricultural Land Reform Code), zonal values may inform rental computations, typically capped at 25% of average harvest value, though not directly tied.

Challenges, Disputes, and Enforcement

Several challenges arise in the application of zonal values to agricultural land:

Disparities Between Zonal and Actual Market Values: In rural areas, zonal values may lag behind rising market prices due to tourism or infrastructure developments, leading to higher tax burdens or disputes. Conversely, in depressed areas, they might overvalue lands, burdening small farmers.
Classification Disputes: Landowners may contest classifications (e.g., agricultural vs. industrial) through petitions to the DAR or LGUs, affecting applicable zonal values.
Appeals and Remedies: Taxpayers can appeal zonal value applications via BIR rulings or to the Court of Tax Appeals (CTA). Landmark cases like CIR v. Estate of Benigno Toda Jr. (G.R. No. 147188) underscore the primacy of zonal values unless rebutted by clear evidence.
Compliance Issues: Smallholder farmers often lack awareness, leading to underreporting. The BIR's Real Property Valuation and Assessment Reform Program aims to digitize and harmonize valuations with LGU assessments under Republic Act No. 7160 (Local Government Code).

Enforcement is bolstered by penalties under the NIRC, including surcharges up to 50% for underdeclaration and criminal liabilities for fraud.

Recent Developments and Future Directions

The Philippine government has pursued reforms to enhance zonal valuation accuracy. Post-TRAIN Law, the BIR intensified revisions, with notable updates in 2020-2023 covering agricultural zones amid the COVID-19 pandemic's impact on commodity prices. The proposed Real Property Valuation and Assessment Reform Act (RPVARA), if enacted, would create a centralized valuation system, integrating BIR zonal values with LGU schedules for consistency.

Climate change considerations are emerging, with potential adjustments for lands affected by disasters or sea-level rise. Digital tools, like the BIR's eZonal Value portal, facilitate access, promoting transparency.

In the broader context, zonal values support sustainable agriculture by influencing land use policies, discouraging speculative holding of farmlands, and funding rural development through tax revenues.

Conclusion

Zonal values for agricultural land in the Philippines represent a nexus of taxation, agrarian reform, and economic policy, ensuring equitable fiscal contributions while safeguarding food security and rural livelihoods. Grounded in the NIRC and complementary laws, their determination and application demand a balance between revenue generation and social equity. As the country evolves, ongoing reforms will likely refine these values, addressing challenges and adapting to new realities. Stakeholders, from policymakers to farmers, must engage actively to uphold the integrity of this system.