Real Property Tax

Now we come to a subject that should concern those of you who own real estate: Real property tax, also known as real estate tax. The principles of real property taxation are as follows:

1.) Real property must be appraised at it current and fair market value.

2.) The property must be classified for assessment purposes on the basis of its use.

3.) The classification must be uniform within each LGU.

4.) Private persons can't be delegated with the power to appraise, assess, levy and collect real estate tax.

5.) The appraisal and assessment of real property must be equitable.

The LGUs with the power to impose real estate tax are the province, the city and municipalities within Metro Manila. Municipalities outside Metro Manila don't have this power.

Components of Real Property Tax

1.) Annual ad valorem tax:

Province: 1% (collected through the municipalities)

City: 2%

Municipality in Metro Manila: 2%

2.) Special levies

Special education fund: 1%

Tax on idle lands: 5%

Special assessment: depends, but can't exceed 60% of the cost of the improvement financed by the LGU and can be imposed even by municipalities outside Metro Manila (but can't be imposed on schools, charities and religious institution because of constitutional prohibition)

Special Assessment

A special assessment is made by the LGU when it makes improvements that benefits the people in a locality. Once completed, the LGU issues a special assessment requiring the property owners in the locality to contribute to the const of the improvement. The benefits could be, among others, an increase in the value of real property (such as when a road is built) or the creation of a public market (which enables residents of the locality to market their goods.

The rate can't exceed 60% of the cost of the improvement, including the cost of real property acquired in relation to the creation of the improvement (eminent domain.)

Real Property Exempt from Tax

1.) Property owned by the government or its political subdivisions, except if its beneficial use is given to a taxable person whether for a consideration or not

2.) All buildings used actually, exclusively and directly used for religious, charitable or educational purposes (constitutional prohibition)

3.) All machinery and equipment actually, directly and exclusively used by local water districts and GOCCs engaged in generation, transmission, supply and distribution of electricity

4.) All real property owned by duly registered cooperatives

5.) Machinery and equipment used for pollution control and environmental protection

Note: there is also what is known as the "zero assessment level." This refers to residential lots whose fair market value doesn't exceed Php175,000.00. These properties are exempt from real property tax.

Classes of Real Property  for Assessment Purposes

1.) Residential: principally for habitation

2.) Agricultural: primarily for the growing of trees, raising of crops, livestock and poultry, dairying, salt-making, inland fishing and similar aqua-cultural activities and other agricultural activities not classified as timber, residential, commercial or industrial land

3.) Commercial: primarily for the object of profit and not classified as agricultural, mineral, industrial, timber or residential land

4.) Industrial: primarily devoted to industrial activity as capital investment and not classified as agricultural, commercial, timber, mineral or residential land

5.) Mineral: land where minerals exist, whether metallic or non-metallic, in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials

6.) Timber: land covered with forest

7.) Special: includes land and improvements actually, directly and exclusively for hospitals, cultural or scientific purposes, those owned by local water districts and GOCCs rendering essential public services in the supply and distribution of water and electricity