Question & AnswerQ&A (BIR REVENUE AUDIT MEMORANDUM ORDER NO. 1-2001)
The primary objective is to clarify the procedures in the determination of the valuation of improvements for computing the internal revenue tax on the sale, transfer, or exchange of real property, and to prescribe a uniform guideline in the valuation of improvements for tax purposes.
It clarifies the conflicting interpretations of Revenue Audit Memorandum Order No. 1-2000 against BIR Ruling No. UN-089-95 and DA 179-97 regarding the valuation of improvements for internal revenue tax purposes.
The value of improvements is determined by subtracting the zonal value of the land from the total selling price or consideration per deed of sale (covering both land and improvements). The resultant value of improvement must not be lower than the fair market value in the latest tax declaration covering the improvements.
The fair market value appearing in the latest tax declaration, certified by the city or municipal assessor, must be used as the basis for valuation, and the computed value of improvements shall not be lower than this fair market value.
No adjustments shall be added to the fair market value, provided that the tax declaration bears the upgraded fair market value pursuant to Section 219 of RA No. 7160 and local assessment regulations.
Section 219 of RA No. 7160 (Local Government Code of 1991) and the last paragraph of Local Assessment Regulations No. 1-92 dated October 6, 1992.
The Order expressly repeals all revenue issuances or portions thereof that are inconsistent with its provisions.
The Order took effect immediately upon approval on February 15, 2001.
The Order was approved and signed by Rene G. Baaez, Commissioner of Internal Revenue.