5. Fair Market Value, Donor's Tax

(10%)
ABC Corporation sold a real property in Malolos, Bulacan to XYZ Corporation. The property has been classified as residential and with a zonal valuation of P1,000 per square meter. The capital gains tax was paid based on the zonal value. The Revenue District Officer (RDO), however, refused to issue the Certificate Authorizing Registration for the reason that based on his ocular inspection the property should have a higher zonal valuation determined by the Commissioner of Internal Revenue because the area is already a commercial area.

Accordingly, the RDO wanted to make a recomputation of the taxes due by using the fair market value appearing in a nearby bank’s valuation list which is practically double the existing zonal value. The RDO also wanted to assess a donor’s tax on the difference between the selling price based on the zonal value and the fair market value appearing in a nearby bank’s valuation list.

a) Does the RDO have the authority or discretion to unilaterally use the fair market value as the basis for determining the capital gains tax and not the zonal value as determined by the Commissioner of Internal Revenue? Reason briefly.

b) Should the difference in the supposed taxable value be legally subject to donor’s tax? Reason briefly.