Guide to Real Estate Property Tax in the Philippines

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Purchasing a new property often results in an overwhelming sense of delight. However, everyone should know that signing the deed of sale is not the end of the homebuying process. When you first step into your new home, new responsibilities await.

One of the responsibilities of having a new home is the obligation of having it assessed and declared for taxation purposes. Everyone should be knowledgeable about the different laws concerning the ownership of a property. According to the Local Government Code of 1991 or Republic Act no. 7160, property owners are required by the law to pay the Real Property Tax (RPT) every year.

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Here are some of the FAQ about the Real Property Tax that you need to know:

What is Real Property Tax?

Revenues of the Local Government Units are earned from their local and external sources. One of these local sources is the Real Property Tax (RPT).

RPT is a property tax that is paid yearly. It is imposed on all types of real properties including lands, buildings, improvements, and machinery. To avoid excessive use of such authority, limitations were established by setting specific percentages for the ceiling and base rates.

The legal basis for the law is found in Title II of the Local Government Code (LGC), Republic Act no. 7160.

Who is responsible for the tax payment?

Responsible for the payment is the owner or administrator of the property.

How much should be paid?

The RPT rate for the cities and municipalities in Metro Manila is two percent (2%) while for provinces it is one percent (1%).

To compute for RPT, the RPT rate is multiplied by the assessed value of the property.

Assessed value is the fair market value of the real property multiplied by the assessment level. It is synonymous with taxable value. On the other hand, the assessment level is the percentage applied to the fair market value to determine the taxable value of the property. It shall be fixed through ordinances imposed by the city or provincial government. It can be as high as twenty percent (20%) for residential land and fifty percent (50%) for commercial and industrial lands.

LGUs may levy and collect an annual tax of one percent (1%) on the assessed value of the real property which shall be in addition to the basic real property tax. The collection shall be accrued to the Special Education Fund (SEF). Moreover, at the rate not exceeding five percent (5%) of the assessed value of the property may be imposed annually as an additional ad valorem tax on idle lands.

When is the deadline for the payment of RPT?

Options to pay the RPT in full or in installment, which is quarterly, can be preferred.

Taxpayers can opt to pay for one whole year. If so, the payment is due on or before the thirty-first (31st) of January each year. However, if they decide to pay in installment, they have to religiously remember these dates:

      • 1st quarter: On or before March 31
      • 2nd quarter: On or before June 30
      • 3rd quarter: On or before September 30
      • 4th quarter: On or before December 31

What is the advantage of an advance payment?

Discounts can be availed by owners who settle their taxes in advance. If you want to avail of such benefit, you can check with your city or municipal treasurer.

What happens when RPT is not paid?

Failure to pay the RPT on the schedule will result in having penalties. Late payments shall subject the taxpayers to the payment interest at the rate of two percent (2%) per month on the unpaid amount to a maximum of seventy-two (72%) percent or thirty-six (36) months.

Where can owners pay?

The Treasurer’s Office of the LGU is responsible for the collection of RPT.

Are there exempted properties?

The following are exempted from the tax:

      • Charitable institutions;
      • Charitable institutions;
      • Churches;
      • Cooperatives;
      • All lands that are exclusively used for religious, charitable or educational purposes;
      • Those that are used by local water districts;
      • Government-owned or controlled corporations; and machinery and equipment are used for pollution control and environmental protection
      • Government-owned or controlled corporations; and machinery and equipment are used for pollution control, and environmental protection are exempted from the tax.
      • Machinery and equipment are used for pollution control and environmental protection

What are the terminologies that property owners need to know and understand?

Ad Valorem Tax is a levy on real property determined on the basis of a fixed proportion of the value of the property.

Assessment Level is the percentage applied to the fair market value to determine the taxable value of the property.

Assessed Value is the fair market value of the real property multiplied by the assessment level. It is synonymous with taxable value.

Commercial Land is land devoted principally to the object of profit and is not classified as agricultural, industrial, mineral, timber, or residential land.

Fair Market Value 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.

Improvement is a valuable addition made to a property or an amelioration in its condition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes.

Industrial Land is land devoted principally to industrial activity as capital investment and is not classified as agricultural, commercial, timber, mineral or residential land.

Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes.

Residential Land is a land principally devoted to habitation.

To avoid penalties and the hassle they bring, it is recommended that you should be diligent in settling your RPT promptly. Moreover, you need to pay every year so that your LGU will not auction your property. Truly, owning a house is a lifetime responsibility. You get to experience first hand not only the beauty but also the complications of acquiring a new property.

Planning to buy a property? Call us at (02) 826 1322 so we can help you!

Reference: http://ppp.gov.ph/wp-content/uploads/2015/01/The-Local-Government-Code-of-the-Philippines.pdf

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