Imposition of Real Property Tax

Sec. 232. Power to Levy Real Property Tax- A province or city or a municipality within the Metropolitan
Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and
other improvement not hereinafter specifically exempted.

Ad valorem tax - is a levy on real property determined on the basis of a fixed proportion of the value of
the property

Under the Code, only the following municipal corporations may levy a real property tax

1. Provinces

2. Cities

3. Municipalities within the Metropolitan Manila area

*Outside the Metropolitan Manila area have no power to levy a real property tax.

Metropolitan Manila (often shortened as Metro Manila), officially the National Capital Region (NCR). It
is composed of 16 cities : the city of Manila, Quezon City, Caloocan, Las Pinas, Makati, Malabon ,
Mandaluyong , Marikina, Muntinlupa, Navotas, Paranaque , Pasay, Pasig, San Juan , Taguig, and
Valenzuela , as well the municipality of Pateros.

The second most populous and the most densely populated region of the Philippines. It is also the 9th
most populous metropolitan area in Asia and the 5th most populous urban area in the world.

Power to exempt from real property taxes

Municipal corporations under the Real Property Tax Code had no authority to determine whether or not
to impose tax. The Court has held that, under the Real Property Tax Code, it was the national
government, expressing itself through the legislative branche that levied the real property tax.
Consequently, when municipal corporations are required to fix the rates, they are merely constituted as
agents of the national government in the enforcement of the Real Property Tax Code. The wording of
the provision was changed from “shall “to “may “in the present Code.

Computation of real property tax due

1. Ascertain in the assessment level of the property,

2. Multiply the market value by the applicable assessment level of the property
3. Find the tax rate which corresponds to the class of the property and multiply the assessed value
by the applicable tax rates
Market Value Php

Multiplied by Assessment Level (x %)

Assesed Value Php

Multiplied by Rate of Tax (x%)

Real Property Tax Php ……..

Sec. 233. Rates of Levy – A province or city or a municipality within the Metropolitan Manila Area shall
fix a uniform rate of basic real property tax applicable to their respective localities as follows:

a. In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of
real property ; and

b. In the case of a city or municipality within the Metropolitan Manila Area , at the rate not
exceeding two percent (2%) of the assessed value of real property

Discussion:

1. In a province - at the rate not exceeding 1% of the assessed value of real property
2. In a City or Municipality within the Metro Manila area – at the rate not exceeding 2% of the
assessed value of real property

Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

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 , for consideration or otherwise , to a taxable
person;
b. Charitable institutions , churches , parsonages or convents appurtenant thereto, mosques , non-
profit or religious cemeteries and all lands, buildings, and improvements actually, directly , and
exclusively used for religious , charitable or educational purposes ;

c. All machineries and equipment that are 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 ;
 d. All real property owned by duly registered cooperatives as provided for under R.A. No. 6938 and

e. Machinery and equipment used for pollution control and environmental protection

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.

Test of tax liability.

Ownership of the property and not use was the test of tax exemptions under the Assessment, which was
the precursor of the Real Property Tax Code and the Local Government Code. Under the Local
Government Code, these exemptions are based on the ownership, character, and use of the property.
Thus:

1. Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real
properties owned by :

a. The Republic
b. A province
c. A city
d. A municipality
e. A barangay
f. Registered cooperatives

2. Character Exemptions. Exempted from real property taxes on the basis of their character are:

a. Charitable institutions
b. Houses and temples of prayer like churches , parsonages or convents appurtenant thereto,
mosques,
c. Non-profit or religious cemeteries

3. Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and
exclusive use to which they are devoted are:

a. All lands, buildings and improvements which are actually directly and exclusively used for
religious , charitable or educational purposes
 b. All machineries and equipment , actually, directly and exclusively used by local water
districts or by government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power, and

c. All machinery and equipment used for pollution control and environmental protection.

d. All machineries and equipment actually , directly and exclusively used by local water districts
or by government-owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power , and

e. All machinery and equipment used for pollution control and environmental protection.

Discussion:

For real property to be exempted under Article 3, par. (a) of the Assessment Law, it is important to
establish that the property is owned by the government or by its unincorporated agency, and once
government ownership is determined, the nature of the use of the property , whether for proprietary or
sovereign purposes, becomes immaterial. This formula was revised under the LGC.

In this regard, the Court held in the case of Mactan Cebu International Airport Authority vs. Marcos that
tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations , Sec. 193 of the Code prescribes the general rule , viz.
they are withdrawn upon the effectivity of the Code, except those granted to local water districts ,
cooperatives duly registered under Republic Act. No. 6938 , non-stock and non-profit hospitals and
educational institutions , and unless otherwise provided in the Code. Moreover, even as to real property
owned by the Republic of the Philippines or any of its political subdivisions covered by item

a. Of the first paragraph of Sec. 234 , the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or otherwise.

Scope of Sec. 234

As held in Mactan, the exemption, granted under Sec. 234 € of R.A. No. 7160 to “machinery and
equipment used for pollution control and environmental protection “is based on usage. The term usage
means direct, immediate and actual application of the property itself to the exempting purpose. Sec.
199 of R.A. No. 7160 defines actual use as “the purpose for which the property is principally or
predominantly utilized by the person in possession thereof “. It contemplates concrete, as distinguished
from mere potential use. Thus a claim for exemption under Sec. 234 € of R.A. No. 7160 should be
supported by evidence that the property sought to be exempt is actually, directly and exclusively used
for pollution control and environmental protection.

The records yield no allegation or evidence by respondent that the subject property was actually,
directly and exclusively used for pollution control and environmental protection during the period
covered by the assessement notice under protest.
Effect of subsequent legislation providing exemption.

In the case of The City of Government of Quezon City vs. Bayan Telecommunications Inc. , we again had
the opportunity to echo the ponencia of Mr. Justice Vicente V. Mendoza that:

Indeed , the grant of taking powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers , doubts must be resolved in favor of
municipal corporations.

Discussion :

The purpose of the non-impairment clause of the Constitution 20 is to safeguard the integrity of
contracts against unwarranted interference by the State. As a rule, contracts should not be
tampered with by subsequent laws that would change or modify the rights and obligations of the
parties.

Jurisprudence:

City Government of Quezon City v. Bayan

Telecommunications, Inc. [G.R. No.162015. March
6, 2006]
23NOV
FACTS
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic
Act (R.A.) No. 3259 (1961) to establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting.  Section 14 (a) of R.A. No. 3259 states: “The grantee shall  be
liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise,
xxx”. In 1992, R.A. No. 7160, otherwise known as the “Local Government Code of 1991” (LGC) took
effect. Section 232 of the Code grants local government units within the Metro Manila Area the power to
levy tax on real properties. Barely few months after the LGC took effect, Congress enacted R.A. No.
7633, amending Bayantel’s original franchise. The Section 11 of the amendatory contained the following
tax provision: “The grantee, its successors or assigns shall be liable to pay  the same taxes on their real
estate, buildings and personal property, exclusive of this franchise, xxx“. In 1993, the government
of Quezon City enacted an ordinance otherwise known as the Quezon City Revenue Code withdrawing
tax exemption privileges.
ISSUE
Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its
franchise.

RULING
YES. A clash between the inherent taxing power of the legislature, which necessarily includes the power
to exempt, and the local government’s delegated power to tax under the aegis of the 1987 Constitution
must be ruled in favor of the former. The grant of taxing powers to LGUs under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional grant to local governments simply means
that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations.

The legislative intent expressed in the phrase “exclusive of this franchise” cannot be construed other than
distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee,
namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and
(b) those properties which are not so used. It is worthy to note that the properties subject of the present
controversy are only those which are admittedly falling under the first category.
Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already
withdrawn Bayantel’s former exemption from realty taxes, the Congress using, Section 11 thereof with
exactly the same defining phrase “exclusive of this franchise” is the basis for Bayantel’s exemption from
realty taxes prior to the LGC. In plain language, the Court views this subsequent piece of legislation as an
express and real intention on the part of Congress to once again remove from the LGC’s delegated taxing
power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the
pursuit of its franchise.

CASE DIGEST: MACTAN CEBU INTERNATIONAL AIRPORT

AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS,
in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented
by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B.
CESA, respondents. (G.R. No. 120082; September 11, 1996)

FACTS:

Under its charter, the MCIAA shall be exempt from realty taxes imposed
by the National Government or any of its political subdivisions, agencies
and instrumentalities. In 1994, the Local Government Unit (LGU) of
Cebu City demanded payment for realty taxes on several parcels of land
belonging to MCIAA.

MCIAA objected to the same as baseless and unjustified, claiming its

exemption under its charter. Also, it cites the LGC stating that LGUs
taxing power does not extend to taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, and local
government units.

Cebu City countered, however, citing Sections 193 and 234 of the LGC
which withdraw tax exemptions of GOCCs and realty tax exemptions
previously granted to ore presently enjoyed by all persons, whether
natural or juridical, including GOCCs.

MCIAA paid tax under protest. It insisted that the taxing powers of LGUs
do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. It also insisted that while it
is indeed a GOCC, it nonetheless stands on the same footing as an agency
or instrumentality of the national government by the very nature of its
powers and functions.

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CASE DIGEST: MCIAA VS. MARCOS (G.R.

NO. 120082; SEPTEMBER 11, 1996)
CASE DIGEST: MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS,
in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented
by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B.
CESA, respondents. (G.R. No. 120082; September 11, 1996)

FACTS:
Under its charter, the MCIAA shall be exempt from realty taxes imposed
by the National Government or any of its political subdivisions, agencies
and instrumentalities. In 1994, the Local Government Unit (LGU) of
Cebu City demanded payment for realty taxes on several parcels of land
belonging to MCIAA.

MCIAA objected to the same as baseless and unjustified, claiming its

exemption under its charter. Also, it cites the LGC stating that LGUs
taxing power does not extend to taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, and local
government units.

Cebu City countered, however, citing Sections 193 and 234 of the LGC
which withdraw tax exemptions of GOCCs and realty tax exemptions
previously granted to ore presently enjoyed by all persons, whether
natural or juridical, including GOCCs.

MCIAA paid tax under protest. It insisted that the taxing powers of LGUs
do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. It also insisted that while it
is indeed a GCC, it nonetheless stands on the same footing as an agency
or instrumentality of the national government by the very nature of its
powers and functions.
ISSUES:
[1] Is MCIAA a taxable person?
[2] Is MCIAA exempt from realty taxation?

HELD: 
[1] Yes, although it previously enjoyed exemption from realty tax under
its charter (which has already been withdrawn by the LGC), this
exemption extended only to said tax, not to other taxes. Hence, MCIAA is
still a taxable person.

[2] No, MCIAA is not exempt from realty tax by the City of Cebu. First,
its tax exemption under its charter has already been withdrawn. Second,
while it is true that LGUs cannot levy tax on property of the Republic of
the Philippines or the National Government (outside Metro Manila), the
beneficial use of property should not be given to a taxable person.