By: Tax and Accounting Center Philippines
Under the Local Government Code of the Philippines of Republic Act. No. 7260 (RA No. 7160), a province or city or municipality within Metropolitan Area may levy a real property tax in the Philippines on such real property as land, building, machinery, and other improvement.
Real property tax extends to machineries and improvements
Real property tax in the Philippines is not imposed on the literal meaning of real properties (e.g. land and building) alone because it extends to machineries and improvements.
Real property tax on machinery in the Philippines 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.
On the other hand, real property tax on improvement in the Philippines is imposed upon a valuable addition made to a property for 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.
Real property tax based on ownership and actual use
Real property tax in the Philippines is imposed upon the owners of the real property making the owner under obligation to pay the same based on actual use. If the real property is owned by an exempt entity, then, the person actually using the real property shall be the one subject to real property tax based on the actual use.
Real property tax based on real property valuation
Local government units makes assessments of value for real property tax purposes. First, it determines the fair market value of the property based on the circ*mstances of the property and related appraisal values. Based on the fair market value, they would determine the assessment level based on the classification of the real property – e.g. residential, industrial, commercial, agricultural, etc. This is what is called “assessed value” that is normally lower than the zonal value of the Bureau of Internal Revenue. Valuation of real property is subject to periodic appraisal by the local government.
Real property tax rates at 1% to 2% of assessed value
Under Section 233 of the Local Government Code of 1991, the following rates of basic real property tax are prescribed based on assessed values of real properties in the Philippines:
- 1% for province; and,
- 2% for city or municipality within Metro Manila area
Rates above are quite minimal but applied to large properties, they could tantamount to a fortune. Aside from the basic real property tax, the following may likewise be imposed under real property taxation in the Philippines:
- Special education fund (SEF) of 1% of the assessed value of real property;
- Ad valorem tax on idle lands of 5% of the assessed value of real property tax;
- Special assessment to recover at least 60% of public improvement benefiting the real property
This would mean that real property taxation in the Philippines could cover the four impositions and not merely limited to the basic real property tax.
Real property tax accrues every January 1
Real property tax for the calendar year accrues on the very start of the year – January 1. This would mean that whoever owns the real property as of January 1 shall be considered as the one liable. It could be paid one time for the entire year, or in quarterly installments on or before the following dates:
- March 31 – first installment
- June 30 – second installment
- September 30 – third installment
- December 31 – fourth installment
In normal practice, those who pay in full within January each year are normally given real property tax discounts of up to 20% depending on the allowed rate for the local government unit of location. Installment payments are not imposed 2% per month but not to exceed equivalent rate of 36 months (2% multiplied by 36 months or 72%), except upon late payment of quarterly installment.
Should you overpay or erroneously or illegally paid real property taxes in the Philippines, a refund or credit for taxes is allowed within two (2) years from date of reduction or adjustment. Said application has to be decided upon by the provincial or city treasurer within sixty (60) days.
Exemptions from real property tax based on specific provision of law
As a rule, one who claims exemption from tax must show proof that indeed, exemptions apply by express mandate of the law. Section 234 of the Local Government Code of the Philippines enumerated the following exemptions from real property taxes:
- Government owned real property, except when beneficial use is granted for consideration to a taxable person
- Lands, buildings, and improvements exclusively used for religious, charitable, or educational purposes
- Machineries and equipments actually, directly and exclusively used by local water districts and government owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power
- All real property of registered cooperatives under Republic Act No. 6938
- Machinery and equipment used for pollution control and environment protection.
As a piece of advice, it is always a better approach to secure confirmation of exemption from the local government unit concerned.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circ*mstances.For comments, you may please send mail atin**@ta************.org,or you may post a question atTax and Accounting Center Forumand participate therein.
I'm well-versed in real property tax systems, particularly in the context of the Philippines, as outlined in Republic Act No. 7160, commonly known as the Local Government Code. This legislation establishes the framework for real property taxation in the country. Here's a breakdown of the concepts mentioned in the article:
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Scope of Real Property Tax: Real property tax in the Philippines covers not just land and buildings but extends to machinery and improvements.
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Taxable Items - Machinery: The tax on machinery includes various equipment, apparatus, or instruments attached or not permanently to real property, exclusively used for specific industry, business, or activity.
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Taxable Items - Improvements: The tax on improvements applies to significant additions made to a property, exceeding mere repairs or replacements, intended to enhance its value, beauty, or utility.
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Taxation Based on Ownership and Use: The tax is imposed on property owners but may fall on the user if the property is owned by an exempt entity.
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Valuation for Taxation Purposes: Local government units assess the fair market value of property and determine the assessed value based on property classification (e.g., residential, industrial, commercial, agricultural).
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Tax Rates and Additional Impositions: Basic real property tax rates range from 1% to 2% based on assessed values. Additional impositions include Special Education Fund, ad valorem tax on idle lands, and special assessments for public improvements.
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Accrual and Payment of Tax: Real property tax accrues on January 1 each year and can be paid annually or in quarterly installments.
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Refunds and Credits: Provisions allow for refunds or credits within two years for overpaid or erroneously paid taxes.
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Exemptions: Various exemptions exist, such as government-owned property, those used for religious, charitable, or educational purposes, machinery used for specific purposes like pollution control, and more.
Understanding these concepts is crucial for property owners, businesses, and entities to comply with taxation laws and seek proper exemptions. However, seeking advice and confirmation from local government units or legal/tax consultants is recommended due to the complexities of specific cases.
This overview captures the fundamental aspects of real property taxation in the Philippines as outlined in the Local Government Code.
