Republic of the Philippines

Province of Compostela Valley

Capitol Building, Cabidianan, Nabunturan,
Compostela Valley Province

OFFICE OF THE PROVINCIAL APPRAISAL COMMITTEE

2017
APPRAISAL COMMITTEE REPORT

VIRGILIA S. ALLONES
Committee Chairperson
Provincial Administrator

12/6/2017
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TABLE OF CONTENTS

Page

I. Introduction and Summary 3

II. Approach and Scope 5

III. Valuation Considerations and

Other Factors 5

IV. Fair Market Valuation 10

V. Income statement and Financial Projection 11

VI. Load Extraction and delivery mode 12

VII. Recommendation 13

VIII. Appendices

A- Report of the Technical Working Group to the Provincial

Appraisal Committee

B- Local Sources Collection Efficiency for Tax on

Sand and Gravel for the year 2014-2016

C- Comparative Projected Income on Extraction Fee

D- Letter from the Provincial Engineer’s Office

dated August 31, 2017

E- Minutes of the conference with the permittees

and applicants held last November 14, 2017 at
ComVal Hotel and Restaurant, Poblacion, Nabunturan,
Compostela Valley Province

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I. Introduction and Summary

The Provincial Appraisal Committee on Sand, Gravel and other quarry

resources in the Province of Compostela Valley (the Province for
brevity) is duly constituted primarily to determine the Fair Market
Value (FMV) of these quarry resources upon which the extraction fee
will be based.

The Local Government Code of 19911, Section 138 thereof, expressly

provides that’ the Province may levy and collect not more than ten
percent (10%) of the fair market value in the locality per cubic meter
of ordinary stones, sand, gravel, earth and other quarry resources, as
defined under the National Internal Revenue Code, as amended,
extracted from public lands or from beds of seas, lakes, rivers,
streams, creeks, and other public waters within its territorial
jurisdiction. The permit to extract sand, gravel, and other quarry
resources shall be issued exclusively by the provincial governor,
pursuant to the ordinance of the Sangguniang Panlalawigan. The
proceeds of the tax on sand, gravel, and other quarry resources shall
be distributed as follows:

(1) Province – thirty percent (30%)

(2) Component City or Municipality where the sand, gravel and
other quarry resources are extracted – thirty percent (30%),
and
(3) Barangay where the sand, gravel and other quarry resources
are extracted – forty percent (40%)

By virtue of the foregoing legal provision, the Province imposed a tax

on sand, gravel and other quarry products by incorporating the same
provision in verbatim in its 2014 Updated Revenue Code, with addition
that the Fair Market Value shall be computed by the Provincial
Government and the Department of Trade & Industry, and shall be
agreed by the permittee concerned and further to be reviewed
quarterly2.

The FMV of the Province’s quarry resources was fixed at one hundred
fifty pesos (P150) per cubic meter (cu.meter) in 2002. Since then up
to present, or a period of about fifteen (15) years, the same valuation
is being applied as there was no recommendation from the appraisal
committee on updated FMV of the said resources was made and
proposed before the Sanguniang Panlalawigan. As a necessary
corollary, the extraction tax rate remained at fifteen pesos
(P15.00)/cu.meter since 2002 up to date, as shown in the following
table:

1
Republic Act (RA) 7160
2
Section 168 of the 2014 Revenue Code of the Province of Compostela Valley, Provincial Ordinance No. 23-2014

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Table 1
EXTRACTION FEE TAX RATE
(Sand, Gravel and Other Quarry Resources)

SP RESOLUTION/ DATE OF ENACTMENT EXTRACTION FEE TAX

ORDINANCE
SP Resolution No. 195
Sec. 35. Extraction August 14, 2002 P15.00/cu.meter
Fee Tax
2008 Updated
Revenue Code
(Provincial Ordinance October 22, 2008 P15.00/cu.meter
No. 08, Sec. 169 –
10% of the Fair
Market Value/
cu.meter
2014 Updated
Revenue Code, July 2, 2014 P15.00/cu.meter
Provincial Ordinance
No. 23-2014, Sec.
168 – 10% of the Fair
Market Value/
cu.meter

Table 1 shows that the Extraction Fee Tax Rate remained at

P15.00/cu.meter since 2002 up to present, notwithstanding that the
preceding and the prevailing Revenue Code of the Province (2008 and
2014, respectively) expressly provides that the tax rate shall be 10%
of the Fair Market Value of the quarry resources.

While the FMV of quarry materials may have been aptly determined in
2002, the imposition of the same rate in the succeeding years is
dubiously improper as several factors are to be considered yearly, to
include among others the inflation of prices on goods and
commodities, the purchasing power of Philippine currency, the
staggering demands for the quarry resources, their market value in
neighboring provinces, the actual selling prices in the component
municipalities, and many more. The meager extraction fee tax over
the years may have clearly redounded to the economic benefit of the
permittees (and contractors) but the same is certainly prejudicial to
the best interest of the Province as there was a significant loss of
income or revenue opportunity.

Conversely, the committee takes notice of the load delivery practices

in the province. Different types of hauling vehicles are being used to
transport load of quarry materials within and outside the province and
each type thereof is calibrated for a specific carrying capacity. The
committee notes that the province lacks the facility to measure with
accuracy the actual load for delivery and thus normally depends on the

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self-serving representation of the permittees in their Delivery Receipts

(DR). It was found, however, that the prescribed or expected load
capacity is not strictly observed as (most likely than not) the dump
trucks are being overloaded on lowland deliveries and underloaded
(load is lesser than the standard capacity) on upland deliveries. The
committee therefore deems it proper to propose a prescribed standard
load capacity for each type of hauling vehicle for purposes of
convenience and equitability.

Hence, this committee report.

II. Approach and Scope

Our primary objective is to determine a value which would provide a

fair and reasonable return on investment to the resource owner (the
Province, the Municipality and Barangay), the willing buyer as well as
the willing seller (the permittees and applicants), in view of the facts
and data available to us as of the effective date of the valuation.
Value has been defined as the present worth of future benefits.
Accordingly, we are concerned both on the FMV of quarry resources
upon which the 10% extraction fee tax will be based and on revenue
and cash flow that are expected to be realized in the ensuing year and
thereafter.

Considering that the prevailing FMV of our quarry resources is

outdated, to prescribe a definite percentage of increase therefrom is
impracticable and inequitable. Otherwise stated, the prevailing FMV
cannot be a practical basis of determining the present FMV. The
committee opted to adopt a different but a generally accepted method
of valuation, involving a comparison and averaging of the selling prices
in the component municipalities and neighboring provinces on various
quarry resources.

Historical revenues and financial conditions are likewise considered

because they are generally indicative of expected future revenues,
although this is not always true. The committee, however, gives
special attention to the current and anticipated cash flow or target
revenue of the Province.

III. Valuation Considerations and Other Factors

The FMV is, in its simplest expression, the price that a person
reasonably interested in buying a given asset would pay to a person
reasonably interested in selling it for the purchase of the asset or asset
would fetch in the marketplace. To establish FMV, it must be assumed
that prospective buyers and sellers are reasonably knowledgeable
about the asset, that they are behaving in their own best interest, that

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they are free of undue pressure to trade and that a reasonable time
period is given for completing the transaction3.

US jurisprudence4defines the fair market value as the price at which

the property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or to sell and both
having reasonable knowledge of relevant facts. An estimate of FMV
may be founded either on precedent or extrapolation. It differs from
the intrinsic value that an individual may place on the same asset
based on their own preferences and circumstances.

In our jurisdiction, it is the price at which a property may be sold by a

seller who is not compelled to sell and bought by a buyer who is not
compelled to buy, taking into consideration all uses to which the
property is adapted and might in reason be applied5.

For extraction fee tax purposes, several factors and conditions were
considered since FMV of our quarry resources will represent an
accurate valuation or assessment of its worth.

SUPPLY AND DEMAND

In microeconomics, supply and demand is an economic model of price

determination in the market. It postulates that in a competitive
market, the unit price for a particular good, or other traded item such
as labor or liquid financial assets will vary until it settles at a point
where the quantity demanded (at the current price) will equal the
quantity supplied (at the current price), resulting in an economic
equilibrium for price and quantity6.

As of the date of valuation, the province has sufficient supply of quarry

resources from its component municipalities. This, however, is without
regard as to the quality of quarry materials extracted therefrom. But,
with the advent and emphasis of the infrastructure development policy
of the National Government in Mindanao, a surging demand for quarry
resources in the coming years is anticipated.

ACTUAL SELLING PRICES

Considering the variability of prices and types of quarry resources from

the municipalities across the province and latter’s lack of facility
system that will allow a differentiated treatment of valuation for
extraction fee tax purposes, it would be highly viable and convenient
at this point to prescribe a uniform and approximated valuation or FMV
irrespective of the type and the source of the quarry resources. As

3
See: www.investopedia.com/Fair_Market_Value
4
US v. Cartwright, 411 US 546, 551 (1973)
5
PEA v. Yujuico, G.R. No. 181847
6
See: www.quickonomics.com/ The_law_of_Supply_and_Demand

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good custom, this FMV is computed by averaging these selling prices

of quarry materials throughout the province.

The committee’s Technical Working Group (TWG) was tasked to

conduct monitoring, assessment and initial determination of FMV of
quarry materials on-site through inspection and interview of quarry
permittees. On June 19 to 28, 2017, an actual on-site survey and
assessment was conducted, and the following data were gathered:

Table 2
MONITORING, ASSESSMENT AND DETERMINATION OF THE
FAIR MARKET VALUE OF QUARRY MATERIALS ON-SITE IN
DISTRICT I OF COMPOSTELA VALLEY PROVINCE
Municipalities Average Selling Price/cu.meter
with Delivery
Monkayo P 446.25/Cu.M
Compostela P 312.63/Cu.M
New Bataan P 512.50/Cu.M
Maragusan P 278.67/Cu.M
Total P 1, 190.05/Cu.M
Average/Cu.M P 297.51/Cu.M

Table 3
MONITORING, ASSESSMENT AND DETERMINATION OF THE
FAIR MARKET VALUE OF QUARRY MATERIALS ON-SITE IN
DISTRICT II OF COMPOSTELA VALLEY PROVINCE
Municipalities Average Selling Price/Cu.M
with Delivery
Nabunturan P 259.27/Cu.M
Mawab P 318.00/Cu.M
Maco P 232.00/Cu.M
Mabini --------------------
Pantukan P 356.16/Cu.M
Laak P 290.00/Cu.M
Total P 1, 455.43/Cu.M
Average/Cu.M P 291.08/Cu.M

The foregoing tables show (also see Appendix A- TWG Report hereof)
that the Average Selling Price/cu.meter of the Municipalities in District
I is at TWO HUNDRED NINETY-SEVEN PESOS & 51/00 (P297.51),
while that in District II is at TWO HUNDRED NINETY-ONE PESOS &
8/00 (P291.08). These values taken together yield an average selling
price for the entire province of TWO HUNDRED NINETY-FOUR PESOS &
29/00 (P294.29).

However, the TWG made notable observations, in gist, as follows:

1. The value/price declared by the permittees was the same with
the price dictated by the contractors or buyers to the quarry
owners when they purchase in bulk.

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2. The permittees engaged in the practice of “Puhal System” of

selling quarry products, that is, there is no fixed price of
products. They tend to lower the prices as they compete to
attract contractors.

3. The current FMV of quarry products in Davao Region and in

the Province of Bukidnon is already twice higher than in our
province.

4. The FMV of our quarry products was not updated for the past
fifteen years.

With these, the TWG recommended to the committee the increase of

FMV of the province quarry resources from ONE HUNDRED FIFTY
PESOS (P150.00) to THREE HUNDRED FIFTY PESOS (P300.00)
ONLY.

FMV IN THE NEIGHBORING PROVINCES

When the TWG noted that the current FMV in Davao Region and in
Bukidnon province is already twice as high as our current FMV, it
presented the following data, which was gathered after an actual
survey or inquiry from competent authority of these provinces:

Table 4
CURRENT FAIR MARKET VALUE OF QUARRY MATERIALS
(in Davao Region and in the Province of Bukidnon)
PROVINCE CURRENT EXTRACTION FEE
FMV/CU.METER TAX/CU.METER
1. DAVAO DEL NORTE
1.1 Sand, Gravel and P27.50
other Quarry
Resources
1.2 Payment for
Ecosystem Services
(PES)
1.2.1 First 3 years 25.00
1.2.2 Fourth year 30.00
1.2.3 Fifth year 50.00
2. DAVAO ORIENTAL
2.1 Sand, Gravel and P300.00 30.00
Other Quarry Resources
3. DAVAO DEL SUR
3.1 Sand, Gravel and P350.00 35.00
Other Quarry Resources
4. DAVAO OCCIDENTAL
4.1 Sand, Gravel and P350.00 35.00
Other Quarry Resources

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5. COMPOSTELA VALLEY
5.1 Sand, Gravel and P150.00 15.00
Other Quarry Resources
6. BUKIDNON
6.1 Sand and Gravel P500.00 50.00
6.2 Limestone 300.00 30.00
6.3 Diatmaceous Earth 150.00 15.00
6.4 Mountain Quarry/ 400.00 40.00
Ordinary Earth
6.5 Boulders 400.00 40.00

Table 2 above shows that the extraction fee tax of the provinces is
computed at ten percent (10%) from the current FMV. In Davao
Region, the provinces of Davao del Sur and Davao Occidental have the
highest FMV at THREE HUNDRED FIFTY PESOS (P350.00) while our
Province is the lowest of all at ONE HUNDRED FIFTY PESOS (P150.00)
only. Only the province of Davao del Norte imposed a fixed extraction
fee tax of TWENTY-SEVEN PESOS & 50/00 (P27.50) and a Payment
for Ecosystem Services (PES). Unlike in Davao Region where quarry
resources are not classified, the FMV of quarry materials in the
Province of Bukidnon varies depending on the classification or type
material, ranging from FIVE HUNDRED PESOS (P500.00) for sand and
gravel as the highest down to ONE HUNDRED FIFTY PESOS (P150.00)
for diatomaceous earth being the lowest.

Given these data, the current FMV in our province is clearly outdated
and does not represent an accurate valuation or assessment of its
worth.

INFLATION AND STATE OF THE ECONOMY

Inflation is the rate at which the general level of prices for goods and
services is rising and, consequently, the purchasing power of currency
is falling7. It basically means a rise in prices. A more exact definition of
inflation is a situation of a sustained increase in the general price level
in an economy. It denotes an increase in the cost of living as the price
of goods and services rise8.

Based on statistics since 2012 to present, the inflation rate in the

Philippines varies significantly every year, with highest in 2014 at
4.17% and lowest in 2015 at 1.41%. In 2016, the average inflation
rate amounted to about 1.78% compared to the previous year 9. This
fourth quarter of 2017, it was expected to be at 3.5% according to
Trading Economics global macro models and analysts expectations.
Looking forward, the estimated inflation rate is at 3.4% in 12 months

7
www.investopedia.com/Inflation
8
www.economicshelp.org /Definition of Inflation
9
www.statista.com/Philippines-inflation_rate_2012-2022/Statistic

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time. In the long term, the Philippines Inflation Rate is projected to

trend around 2.8% in 2020 according to economic models10.

The country’s present economy, however, remained resilient to global

headwinds. It continues to grow briskly, benefiting from robust
domestic and external demand. Despite an acceleration in inflation,
household spending remains strong. Meanwhile, upbeat business
sentiment and the ramp up of public infrastructure spending
buttressed fixed investment, increasing the country’s productive
capacity11.

A rapid economic growth, nevertheless, may lead to inflation as it

tends to cause upward pressure on prices and wages, which happens
when demand rises faster than supply because firms will respond to
the excess demand and supply constraints by putting up prices. If
economic growth is caused by aggregate demand increasing faster
than productive capacity, the economic growth if about the long-run
trend rate, then economic growth is likely to cause inflation. If
economic growth is caused by increased productivity, then the growth
can be sustainable and not cause inflation. But with cost-push
inflation, it is possible to get both negative economic growth and
inflation at the same time (Stagflation)12.

IV. Fair Market Valuation

The committee favorably considered the TWG observations and

concurred with its recommended valuation or FMV of sand, gravel and
other quarry resources since other conditions and factors than the
actual average selling price for the entire province, including the
period (date) of assessment, are likewise being considered.

On the average, the actual selling price in the province is only TWO
HUNDRED NINETY-FOUR PESOS & 29/00 (P294.29) per cubic-meter,
which value was obtained after computing the mean selling price on
quarry resources in the two composite districts. It is worth noting that
the figures or data under review covers only those transactions with
delivery. Prices for the sale of quarry materials without delivery were
excluded in the assessment of FMV because the cost of delivery is
relatively inconsistent in each municipality across the province.

Considering further that the data was obtained sometime from June 19
to 28, 2017, an increase of prices in the second semester of the year
is reasonably presumed as to justify that the proposed or
recommended FMV be fixed at THREE HUNDRED PESOS
(P300.00)/cu.meter. This value, while being a round-up of the actual

10
www.tradingeconomics.com/Philippines_Inflation_Rate_Forecast
11
www.focus-economics.com/Philippine Economy
12
www.economicshelp.org/ Conflict between economic growth and inflation

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average selling, is more practical and easier to prescribe than a

detailed fractional one.

The province’s current FMV rate at which the extraction fee tax is
based upon or the ONE HUNDRED FIFTY PESOS (P150)/cu.meter is
clearly obsolete and gravely disadvantageous to the financial interest
of the province.

V. Income statement and Financial Projection

The Provincial Treasurer’s Office collects extraction fee based on the

reports submitted by the quarry permittees. The table (Table 3)
hereunder shows a comparative of the province’s collection
performance for the extraction fee tax on sand, gravel and other
quarry resources from the year 2014 up to the September of 2017.
The percentage of collection is the ratio between the actual collection
from the collection target, which actual collection was based on the
prevailing extraction fee tax rate of FIFTEEN PESOS
(P15.00)/cu.meter:

Table 5
COLLECTION PERFORMANCE ON EXTRACTION FEE TAX
ON SAND, GRAVEL AND OTHER QUARRY RESOURCES
YEAR COLLECTION ACTUAL PERCENTAGE OF
TARGET COLLECTION COLLECTION
2014 P 5, 000,000.00 P 3, 359, 948.45 67.20%
2015 P 5, 000,000.00 P 3, 621, 377.58 72.43%
2016 P 5, 300,000.00 P 3, 641, 163.26 68.70%
Sept 2017 P 5,300,000.00 P 3, 899, 000.00 73.57%

The table above (Table 5) shows that the actually collection did not
meet 100% the collection target, the highest being only 73.57% in
September of the present year. (Please see Appendix B for the
collection on Tax on Sand & Gravel for 2014-2016)

However, with the new or recommended FMV, the proposed extraction

fee tax rate for the ensuing year (2018) will correspondingly increase
to THIRTY PESOS (P30.00)/cu.meter. With the estimated volume for
extraction of quarry resources of 1,177,778.00 cubic-meters, a total
revenue of THIRTY FIVE MILLION THREE HUNDRED THIRTY THREE
THOUSAND THREE HUNDRED FORTY PESOS (P35,333,340.00) will be
generated. This revenue projection is double higher the revenue target
of the present year, which when realized in full and distributed in
accordance with law, will yield the provincial revenue share at TEN
MILLION, SIX HUNDRED THOUSAND TWO PESOS (P10,600,002.00).
(Please see Appendix C for the comparative projected income on

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extraction fee for 2018, prepared by Mr. Rolando J. Actub, Acting

Assistant Provincial Treasurer and Head of the TWG.)

VI. Load Extraction and delivery mode

In the recent on-site monitoring conducted by the TWG in the different

quarry areas in the province, it was observed that different types or
sizes the hauling vehicles or dump trucks are used in transporting
sand, gravel and other quarry products, and for each delivery, they
are almost fully loaded. Hereunder are the different types/sizes of
dumptrucks:

Table 6
Dump Truck Types/Sizes used by Permittees in the Transport of
Quarry Products in the Province
Type/Size of Dump Truck Standard Carrying Load Capacity
Mini-Dump Truck 3.00 cu.meter
6 Wheelers- Dump Truck/Forward 6.00 cu.meter
10 Wheelers Dump Truck (Japan/Korea) 10.00 cu.meter
10 Wheelers Dump Truck (China) 15.00 cu.meter

The above data were duly noted and verified by the Office of the
Provincial Engineer. (Please see Appendix D for the letter from the
Provincial Engineer’s Office setting forth the minimum load capacities
of every type or size of Dump Truck.)

However, in a consultative conference with the permittees and

applicants conducted by the committee on November 14, 2017 at
ComVal Hotel and Restaurant, Nabunturan, Compostela Valley
Province, permittees made known that the above prescribed load
capacity is practicable only in lowlands but not in highlands as they
reduce the load when transporting quarry products in remote high
elevation areas; otherwise the dump truck will easily deteriorate or
sustain damage. (Please see Appendix E for the minutes of conference
with permittees and applicants)

Table 7
Proposed Standard Load per Type/Size of Dump Truck
Type/Size of Dump Truck Load/cubic-meter
Mini Dump Truck 3.00
6 wheelers-Dump Lowland delivery 6.00
Truck/ Forward Upland delivery 5.00
10 Wheelers Dump Lowland delivery 10.00
Truck (Japan/Korea) Upland delivery 8.00
10 Wheelers Dump Lowland delivery 15.00
Truck (China) Upland delivery 12.00

The preceding table (Table 7) shows a distinction of load capacity in

lowland and upland deliveries. This committee takes notice that Mini-

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Dump trucks are not used to deliver a load in remote high elevated
areas; thus, the standard load capacity of 3.00 cubic-meter is upheld.
Bigger Dump Trucks are however used for long distance and upland
deliveries and it is but logical and proper to lighten a load in upland
deliveries. To fix a higher load capacity for each type of dump truck
than that actually carried or transported by the permittees would be
inequitable and unfair; thus, the foregoing schedule of load capacity is
hereby proposed conditioned that the permittees will honestly indicate
in their Delivery Receipt (DR) the place of destination of their dump
truck load.

At present, the province lacks the technology to accurately measure

the actual load transported for each type of dump trucks; rather, it is
essentially reliant to the self-serving declaration of the permittees in
their DRs. The policy of prescribing a standard load for each type/size
of dump trucks is adopted for convenience and simplicity in the
determination of load deliveries, upon which the extraction fee tax are
calculated without prejudice to imposition of sanctions and institution
of appropriate legal actions for under declaration or any fraudulent
machinations on the part of the permittees.

VII. Recommendation

WHEREFORE, all foregoing premises considered, this committee

resolves as it is hereby resolved to set forth the Fair Market Value of
gravel, sand and other Quarry Resources in the entire province of
Compostela Valley at THREE HUNDRED PESOS (P300.00) for every
cubic-meters, the same having been agreed by the permittees
concerned.

Resolving further that the standard load capacity for each type/size of
Dump Trucks are as follows:

Type/Size of Dump Truck Load/cubic-meter

Mini Dump Truck 3.00
6 wheelers-Dump Lowland delivery 6.00
Truck/ Forward Upland delivery 5.00
10 Wheelers Dump Lowland delivery 10.00
Truck (Japan/Korea) Upland delivery 8.00
10 Wheelers Dump Lowland delivery 15.00
Truck (China) Upland delivery 12.00

Finally, it is hereby recommended that the foregoing matters be duly

indorsed for the approval and adoption of the Sanguniang
Panlalawigan of Compostela Valley Province, the effectivity of which to
reckon on the first day of January 2018.

"One Comval. One Vision