Real property tax

Real property tax is an ad valorem tax imposed by cities and provinces on real properties such as
land, buildings, machinery and other improvements affixed or attached to real property.

Nature of real property taxes

The real property taxes are classified as:

1. Property taxes - The taxes are imposed on the properties.

2. Direct taxes - The burden of the taxes could not be shifted to other persons.
3. Local taxes - The levy, assessment and collection are made by the local government units.
4. Revenue taxes – Generally, the objective of the imposition is to raise revenue; in some cases,
however, the purpose is regulatory such as in Idle Land Tax where the imposition is being made
to penalize property owners who do not make their property productive.
5. Ad valorem taxes – The taxes are based on the value of the property, i.e. either assessor’s
market value or assessed value.
6. Proportional tax – The real property tax on land is based on a flat tax rate.

Exemptions from real property tax

The following are exempt from the payment of real property tax:

1. Real property owned by the Republic of the Philippines or any of its political subdivision except
when the beneficial use thereof has been granted to taxable person;
2. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes.
3. Non-profit or religious cemeteries or burial grounds;
4. Machineries and equipment that are actually, directly and exclusively used by local water district
and government-owned or controlled corporations engaged in the supply of water and/or
generation of electric power;
5. All real property owned by duly registered cooperatives as provided for under R.A. No. 9520,
and
6. Machineries and equipment used for pollution control and environmental protection.

Fundamental principles

The appraisal, assessment, levy and collection of real property tax shall be guided by the
following fundamental principles:

1. Real property shall be appraised at its current and fair market value;
2. Real property shall be classified for assessment purposes on the basis of its actual use;
3. Real property shall be assessed on the basis of a uniform classification within each local
government unit;
 4. The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and
5. The appraisal and assessment of real property shall be equitable.

Fair market value

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.

For assessment purposes, it is also known as the “assessor’s value.”

Classes of real property for assessment purposes

For purposes of assessment, real property shall be classified as residential, agricultural,

commercial, industrial, mineral, timberland or special.

Residential land is land principally devoted to habitation.

Agricultural land is land devoted principally to the planting of trees, raising of crops, livestock
and poultry dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural
activities, commercial or industrial land.

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

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

Mineral lands are lands in which mineral metallic or non-metallic, exist in sufficient quantity or
grade to justify the necessary expenditures to extract and utilize such mineral.

All 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 shall be classified as special.

Assessment level and assessed value

Assessment level is the percentage applied to the fair market value to determine 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 to taxable value.

The assessment levels to be applied to the fair market value of real property to determine its
assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod
or sangguniang bayan of municipality within the Metropolitan Manila Area, at the rates not exceeding
the following:

A. On Lands and Machineries

Classification Assessment Levels

Land Machineries
Residential 20% 50%
Timberland 20% -
Agricultural 40% 40%
Commercial, industrial 50% 80%
Mineral 50% -
Special classes: cultural, hospital, 15% 15%
scientific
Local water districts 10% 10%
Government owned or controlled 10% 10%
corporations engaged in the supply
and/or generation/transmission of
electric power

B. On Improvements

Fair market value

Over Not Over Residential Commercial/Industrial Agricultural Timberland
P 175,000 0% 0% 0% 0%
P 175,000 300,000 10% 30% 25% 45%
300,000 500,000 20% 35% 30% 50%
500,000 750,000 25% 40% 35% 55%
750,000 1,000,000 30% 50% 40% 60%
1,000,000 2,000,000 35% 60% 45% 70%
2,000,000 5,000,000 40% 70% 50% 70%
5,000,000 10,000,000 50% 75% 50% 70%
10,000,000 60% 80% 50% 70%

Tax rates on the basic tax

For purposes of computing the basic real property tax, the following rates shall be applied:

In provinces - Not exceeding 1% of the assessed value

In cities, and municipality of Pateros - Not exceeding 2% of the assessed value

Assessment when classification conflicts with its use

When the land is located in a commercial area but the building is residential, the classification of
the land conflicts with its use.
 In such cases, the following rules shall be observed:

Classification of land to determine

Fair Market Value Assessment Level
1. Land is in residential area,
Residential Commercial
building is commercial
2. Land is in commercial area,
Commercial Residential
building is residential
3. Land is in mixed
residential/ commercial
Commercial Commercial
area, building is
commercial
4. Land is in mixed
residential/commercial Residential Residential
area, building is residential
5. Land is in mixed
residential/commercial Residential Residential
area, and is vacant
6. Land is in mixed
residential/commercial
area, and building is used
Predominant Use Predominant Use
for mixed
residential/commercial
purpose

Special Education Fund Tax

A province or city, or the municipality of Pateros may levy and collect an annual tax of one
percent (1%) on the assessed value of real property, within their jurisdiction, in addition to the basic real
property tax.

The proceeds shall exclusively accrue to the Special Education Fund (SEF).

Transfer tax on transfer of real property ownership

The province, city or municipality of Pateros may impose a tax on the sale, donation, barter, or
any other mode of transferring ownership or title of real property at the rate of not more than one-half
percent (1/2%) in province/municipality and three-fourth (3/4%) in cities of the total consideration
involved in the acquisition of the property or of the fair market value in case the monetary consideration
involved in the transfer is not substantial, whichever is higher.

The sale, transfer or other disposition of real property pursuant to RA 6657 (Comprehensive
Agrarian Reform Law) shall be exempt from this tax.

Collection of real property tax

 1. Date of accrual of tax. - The real property tax for any year shall accrue on the first (1 st) day of
January.
2. Payment of real property taxes in installment - Except the special levy, the payment of which
shall be governed by the ordinance, the owner of the real property or the person having legal
interest therein may pay the basic real property tax and the additional tax for the Special
Education Fund (SEF) thereon without interest in four (4) equal installment as follows:

1st installment – on or before March 31

2nd installment – on or before June 30
3rd installment – on or before September 30
4th installment – on or before December 31

3. Application of payment of real property taxes. – The payments shall first be applied to prior
years’ delinquencies, interests, and penalties, if any, and only after said delinquencies are
settled may tax payments be credited for the current period.
4. Tax discount for advanced prompt payment. – If the basic real property tax and the additional
tax accruing to the SEF are paid in advance in accordance with the prescribed schedule of
payment as provided above, a discount of not exceeding twenty percent (20%) of the annual tax
due may be granted to the taxpayer.
5. Interests on unpaid real property tax – In case of failure to pay the real property tax (basic and
special levies) upon the expiration of the periods for payment, or when due, as the case maybe,
shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month
on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid,
but not to exceed thirty-six (36) months.

Period to collect real property taxes

The basic real property tax and special levies shall be collected within five (5) years from the
date they become due. No action for the collection of the tax, whether administrative or judicial, shall
be instituted after the expiration of such period.

In case of fraud or intent to evade payment of the tax, such action may be instituted for the
collection of the same within ten (10) years from the discovery of such fraud or intent to evade
payment.

The running of the prescriptive period within which to collect shall be suspended for the time
during which:

1. The local treasurer is legally prevented from collecting the tax;

2. The owner of the property or the person having legal interest therein requests for
reinvestigation and executes a waiver in writing;
3. The owner of the property or the person having legal interest therein is out of the country
or otherwise cannot be located.
Person or office tasked to collect the tax

The collection of the real property tax with interest thereon and related expenses, and the
enforcement of the remedies shall be the responsibility of the city or municipal treasurer concerned.

The city of municipal treasurer may deputize the barangay treasurer to collect all taxes on real
property located in the barangay.

Provided, that the barangay treasurer is properly bonded for the purpose which shall be paid by
the city or municipal government concerned.