Understanding Philippine Real Property Tax

by Steve Van Derodar

It is almost understood by every buyer that owning a property comes with the responsibility of paying real property taxes. The real property tax is the main source of revenue for the local governments thus direct taxes are imposed on the privilege to use real property such as land, building, machinery, and other improvements, unless specifically exempted.

In the Philippines, the true beginnings of real property taxation came with the advent of American Rule as laws were enacted authorizing provincial and municipal treasurers to levy taxes on real properties. Real property tax is assessed every year subject to classification of property, tax rate and additional levies that are added for tax purposes.

As real property tax can be lengthy in scope, it is our intent for this column to just cover a few basics including the basic real property tax, levies, collection but not delinquency, protests and appeals which can include administrative and judicial actions.

According to Section 198 of Local Government Code, Fundamental Principles – The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles: (a) Real property shall be appraised at its current and fair market value; (b) Real property shall be classified for assessment purposes on the basis of its actual use; (c) Real property shall be assessed on the basis of a uniform classification within each local government unit; (d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and (e) The appraisal and assessment of real property shall be equitable.

” …accrual of tax commences January 1st of every year and such will constitute a lien superior to any other lien/mortgage/encumbrance of any kind (Sec. 246, LGC). Real property tax including the Special Education Fund (SEF) is paid annually (on or before 31 March), 4 quarterly installments, or in advance If payment is made before the due date, the taxpayer is granted up to 20% of the annual tax.”

Real property tax (RPT) is a yearly tax. The legal basis of the real property tax is found in the Title II of the Local Government Code, Republic Act (R.A) No. 7160. Further, accrual of tax commences January 1st of every year and such will constitute a lien superior to any other lien/mortgage/encumbrance of any kind (Sec. 246, LGC). Real property tax including the Special Education Fund (SEF) is paid annually (on or before 31 March), 4 quarterly installments, or in advance If payment is made before the due date, the taxpayer is granted up to 20% of the annual tax. Nevertheless, it should be noted that these monetary incentives vary on the location. For quarterly payments, the taxpayer should be able to pay the tax due on or before the last day of every quarter – that is, 31 March, 30 June, 30 September, and 31 December.

Computation of real property tax in the Philippines is based on the real property tax (RPT) rate multiplied by the assessed value. The RPT rate is contingent upon the coverage of the property. Assessed Value–the fair market value of the property multiplied by the assessment level (Sec. 199 (h), Local Government Code). Assessment Level –the percentage applied to the fair market value to determine the taxable value of the property (Sec. 199 (g), Local Government Code. To illustrate, the maximum RPT rate of properties located in cities and municipalities within Metro Manila is 2% while only 1% in provinces. On the other hand, assessment levels are variable according to land or building structures. For example, a residential house has a 20% assessment level while 50% for a commercial property.

“When buying a property, especially in high-rise condominium buildings, purchase of the property includes paying the real property tax on its first year upon full purchase and thus are included in the other charges of the transaction and are similarly the same with lot purchases in almost all developers….”

When buying a property, especially in high-rise condominium buildings, purchase of the property includes paying the real property tax on its first year upon full purchase and thus are included in the other charges of the transaction and are similarly the same with lot purchases in almost all developers. You will find in the computation sheet where a real property tax is being included upon purchasing a property.

As an example for illustration purposes, a Php 5,000,000.00 condo unit with assessment level of 40% would have Php 2,000,000 for an assessed value multiplied by 2% would be Php 40,000 for a Real Property Tax due (RPT). A Php 3,500,000 residential lot property with assessment level of 20% would have Php 700,000 for an assessed value multiplied by 2% would be Php 14,000.00. Property taxes are to be paid at any municipal treasurer’s office where the real property is situated.

There are two types of real property taxes which include 1. Basic and Special Levies. Special levies are categorized as 1. Special Education Fund, 2. Additional Ad Valorem on Idle Lands, 3. For Public Works (Special Assessments). Basic Real Property Tax and the Special Levy for the Special Education cover all residential, agricultural, industrial, commercial, mineral, timberland, etc., while the Special Levy on Idle Lands and Special Levy on Public Works cover only lands.

Not quite understood by many but the SPECIAL EDUCATION TAX (Sec. 235, LGC) is a section found supporting the special education fund levy which states: A province or city or municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively accrue to the Special Education Fund. Sec. 272, Local Government Code…the proceeds shall be allocated for the operation maintenance of public schools, construction and repair of school buildings, facilities and equipment, educational research, purchase of books and periodicals, and sports development as determined by the Local School Board.

“Real Property Taxation is a great guide in understanding expectations for real property tax payments, levies, and collection systems. As a property owner, it is paramount to know these as a matter of responsibility …”

It is interesting to note that Chapter 2 of the Local Government Code under Appraisal and Assessment of Real Property, Section 205 specifies on Listing of Real Property in the Assessment Rolls. In short, counting every real property on record. -(a) In every province and city, including the municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the local government unit concerned. Real property shall be listed, valued, and assessed in the name of the owner or administrator, or anyone having legal interest in the property.

Real Property Taxation is a great guide in understanding expectations for real property tax payments, levies, and collection systems. As a property owner, it is paramount to know these as a matter of responsibility and to know where your taxes go in terms of additional levies and in contribution to the local government treasury and overall economy.

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(Stevenson’s experience in Philippine Real Estate spans more than 15 years. He has been involved in horizontal, vertical, vacation and commercial properties. He has worked as an International Property Specialist to markets in Asia, Europe and North America with Ayala Land, Federal Land and Century Properties. Through PhilHouseHunters, he offers real estate investment opportunities, marketing, and consultancy with a key focus to Metro Manila and Mega Cebu areas. Visit www.philhousehunters.com. Email at derodarsales@gmail.com.)

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