Understanding Real Property Taxation
Local government units (LGU) shall enjoy local autonomy—that is, according to the Supreme Court, to perform certain functions and exercise certain powers in order not for them to be overly dependent on the National Government, subject to the limitations that the 1987 Constitution or Congress may impose.
Thus, LGUs are empowered to create its own sources of revenues, and to levy taxes, fees, and charges, one of which is real property tax (RPT).
For RPT purposes, LGUs shall appraise all real properties, whether taxable or exempt, at their current and fair market value (FMV) prevailing in the localities where they are situated.
Moreover, real property shall be classified, valued, and assessed based on its actual use, regardless of where located, whoever owns it, and whoever uses it. The assessment shall likewise extend to equipment, instruments, and machineries found on the real property, whether they are attached, permanently or temporarily.
For purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial, mineral, timberland, or special.
In this regard, special classes of real property shall refer to lands, buildings, and other improvements thereon actually, directly, and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power.
All persons owning or administrating real property, including improvements, shall prepare and file with the provincial, city, or municipal assessor their tax declarations, which state:
(a) the true value of their property, whether previously declared or undeclared, taxable or exempt, which shall be the current and FMV thereof;
(b) description of the property sufficient in detail to enable the assessor or his deputy to identify the same for assessment purposes. Tax declarations shall be filed with the assessor concerned once every three years during the period from January 1 to June 30.
If the owner or administrator failed or refused to file the tax declaration, the proper assessor shall himself declare the property in the former’s name, if known, or against an unknown owner, as the case may be, and shall assess the property for taxation in accordance with the Local Government Code.
Meanwhile, all persons acquiring real property or making improvements therein shall prepare and file with said assessors their tax declarations within 60 days after the acquisition of such property or upon completion or occupancy of the improvement, whichever comes earlier.
A person who shall claim tax exemption for his property shall file with the proper assessor within 30 days from filing his tax declaration sufficient documentary evidence in support of such claim, including corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits, certifications, mortgage deeds, and similar documents.
If the required evidence was not submitted within the 30-day period, the property shall be listed as taxable in the assessment roll. But, if the property was proved to be tax-exempt, the same shall be dropped from the assessment roll.
In this regard, the following are exempt from the payment of RPT: (a) real property owned by the Republic of the Philippines or any of its political subdivisions, except when the beneficial use thereof has been granted to a taxable person, with or without consideration thereof; (b) charitable institutions, churches, parsonages, mosques, covenants, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes; (c) machineries and equipment directly and exclusively used for supply and distribution of water and/or generation and transmission of electric power; (d) real property owned by duly registered cooperatives; and (e) machinery and equipment used for pollution control and environmental protection.
For real property taxation (RPT) purposes, the assessed value shall be computed by applying the proper assessment level to its fair market value (FMV). Said assessment levels shall be fixed by ordinances at rates not exceeding those prescribed under the Local Government Code (LGC).
The provincial, city or municipal assessor shall undertake a general revision of real property assessments every three years. Meanwhile, the assessment of real property shall not be increased oftener than once every three years, except in case of new improvements substantially increasing the value of said property, or of any change in its actual use.
All assessments or reassessments made after the first day of January of any year shall take effect on the first day of January of the succeeding year. But, reassessments shall take effect at the beginning of the next quarter if they were caused by: (a) the real property’s total or partial destruction; (b) a major change in its actual use; (c) any great and sudden inflation or deflation of real property values; or (d) gross illegality of the assessment when made; or (e) any other abnormal cause. In this regard, reassessments for said enumerated causes shall be made within 90 days from the date any such cause or causes occurred.
Real property declared for the first time shall be assessed for back taxes but for a period not more than 10 years before the date of initial assessment. Back taxes shall be computed based on the applicable schedule of values in force during the corresponding period.
If the back taxes were paid on or before the end of the quarter from the date of the owner or authorized person’s receipt of the assessment, interest for delinquency shall not be imposed. Otherwise, said taxes shall be subject to an interest rate of 2 percent per month or a fraction thereof from the date of receipt of the assessment, and until such taxes are fully paid.
Meanwhile, brand-new machinery found on the real property shall be assessed based on its acquisition cost as the FMV. If the machinery were imported, the acquisition cost shall include freight, insurance, bank and other charges, brokerage, arrastre and handling, duties and taxes, plus charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency exchange rates fixed by the Central Bank of the Philippines.
In all other cases, the FMV shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost.
A depreciation allowance shall be made for machinery at a rate not exceeding 5 percent of its original cost or its replacement or reproduction cost, as the case may be, for each year of use. But, the remaining value for all kinds of machinery shall not be fixed at less than 20 percent of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation.
A province, city or municipality in Metro Manila shall fix a uniform rate of basic RPT applicable to their respective localities as follows: (a) in the case of a province, at a rate not exceeding 1 percent of the assessed value of real property; and (b) in the case of a city or municipality, at a rate not exceeding 2 percent of such assessed value. Moreover, said local government units (LGU) may levy and collect an annual tax of one percent on the assessed value of real property, which proceeds shall exclusively accrue to the Special Education Fund.
Meanwhile, a province, city or municipality may levy an annual tax on idle lands at the rate not exceeding 5 percent of the assessed value thereof, which shall be in addition to the RPT. Idle lands may refer to: (a) be agricultural or non-agricultural lands, which prescribed areas under the LGC remain uncultivated, unutilized or unimproved by the owner or person having legal interest therein; or (b) residential lots in duly approved subdivisions. Where the ownership of said residential lots was transferred to individual owners, they shall be liable for the additional tax. Otherwise, the subdivision owner or operator shall be liable for said additional tax.
For assessment purposes, idle taxes shall exclude those which, by reason of force majeure, civil disturbance, natural calamity or any cause or circumstance, the owner or person having legal interest therein is physically or legally prevented from improving, utilizing or cultivating.