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Real Property Tax in the Philippines: Things to Know

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Aside from paying the mortgage and association fees, one of the responsibilities of a homeowner is to pay the real estate or real property tax on a yearly basis.

The Real Estate Tax is a local government tax collected on items such as land, buildings, improvements to land or buildings, and machinery. Property owned by the government, charitable institutions, churches, cooperatives, and those utilized in the supply of water and electricity is exempt from this rule.

WHY DO PROPERTIES GET TAXED?

Because of Republic Act 7160, also known as the Local Government Units Code, which was passed in 1991, the Local Governments Unit or LGU in the Philippines has the authority to develop revenue sources.

To avoid duplication or multiple taxations, Section 232 of the Local Government Code divides taxing authorities among local government bodies. The tax rate ceiling is specified by this statute, and the tax base, valuation regulations, and local government limits are still determined by national policy.

Sections 197 to 283 of the Local Government Code give local governments, from provinces to cities and municipalities in Metro Manila, the authority to levy a real property tax.

WHAT IS THE REAL PROPERTY TAX RATE?

The rate of the real estate tax is determined by the property’s location. The real estate tax should not exceed 2% of the assessed value of the property in cities and municipalities within Metro Manila and no more than 1% in provinces. The assessed value is calculated by multiplying the property’s fair market value by the assessment level. The assessment level value is determined by the local government entity.

HOW DOES REAL PROPERTY TAX WORK?

To calculate the real estate tax, the property’s location must first be determined. Remember that the real estate taxes in Metro Manila and the provinces differ. The real estate tax in Metro Manila is two percent, while it is one percent in the provinces.

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The formula to compute real estate tax is REAL PROPERTY TAX = REAL PROPERTY RATE X ASSESSED VALUE OF THE PROPERTY. The assessed value of the property is defined by its fair market value multiplied by the assessment level fixed through ordinances.

The assessed value may be defined as the property’s taxable value. To get the taxable value of a property, you need to multiply the market value by the assessment level.

Assessment levels vary per property, based on their area and usage.

Land-use Assessment Levels Residential 20% Agricultural 40% Commercial, Industrial and Mineral 50% Timberland 20% Special classes: cultural, scientific 15% Hospital, and water districts 10%

For example, a residential property located in Makati City which is located in Metro Manila has a market price of Php 5,000,000. The property has a parcel of land valued at Php3,000,000. The structure of the house including the building and improvement is Php 2,000,000.

To compute the real property tax, start by defining the total assessed value of the property. To do this, add the assessed value of the residential land and the assessed value of the building.

  • Assessed Value of Land: Residential Land (Php3,000,000) x Assessment Level (20%) = Php 600,000
  • Assessed Value of the Building: Residential House (Php2,000,000) x Assessment Level (20%) = Php 400,000
  • Total Assessed Value of the Property: Assessed Value of Land (Php 600,000) + Assessed Value of House (Php 400,000) = Php 1,000,000

After getting the total assessed value of the property, multiply the applicable real estate tax rate (Metro Manila or provincial) to get the amount that needs to be paid.

  • Real Property Tax: Total Assessed Value (Php 1,000,000) x Metro Manila Real Estate Tax Rate (2%) = Php20,000

After getting the Real Property Tax we still need to add the tax for the Special Education Fund.

Special Education Fund is an additional one percent levied on the assessed value of the real property. The proceeds of this fund will go to the budget of local schools.

Special Education Fund levy: Total Asset Value (Php 1,000,000) x Special Education Fund levy (1%) = Php 10,000

The total basic real property tax to be paid for the property in Pasig City is Php 30,000 (Special Education Fund levy + Real Property Tax)

Aside from the Special Education Fund levy, this can also be imposed under real estate taxation:

  • Ad valorem tax on idle lands- five percent of the assessed value of real property tax.
  • Special assessment to recover 60% of a public improvement that benefits the property.

WHERE AND WHEN DO YOU PAY REAL PROPERTY TAX?

Real estate taxes can be paid in full or in quarterly payments at the local government unit concerned or the municipal treasurer’s office.

Those who wish to pay in full must do so by January 31st of each year, while those who like to pay quarterly must do so by the following dates:

  • First Quarter: By March 31st.
  • Second Quarter: By June 30th.
  • Third Quarter: By September 30th.
  • Fourth Quarter: By December 31st.

Valid identification, a copy of the most recent tax declaration, and copies of the official receipt are required to process the payment of the real estate tax. Bring a copy of the previous year’s tax declaration and official receipts from either the developer or the former owner of the property if you are a first-time payor. During the property handover, the old owner normally hands over certain documents to the new owner.

With the advancement of technology, it is now feasible to pay real estate taxes online using virtual platforms that allow these types of transactions.

To gain access to these portals online, simply create an account, sign in, search for your property’s tax declaration number, locate the payment button, and select the desired payment type.

Local Government Units normally give early taxpayers savings of up to 20% of the annual tax owed. Discount rates may also differ based on where the property is located in the municipality or city.

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WHO IS RESPONSIBLE FOR PAYING REAL ESTATE TAX?

The individual or people who own or whose names are listed in the titles and certificates of the property, or whoever owns it as of January 1, should pay the real estate tax.

WHAT ARE THE PENALTIES FOR FAILING TO PAY REAL PROPERTY TAX?

Late payments of the real estate tax are subject to penalties. The penalty is 2% interest per month on the unpaid sum, with a maximum penalty of 72 percent in three years.

If the real property tax is not paid, the local government entity concerned may take administrative action by a levy on real property or through judicial action.

If you fail to pay your real estate tax for an extended length of time, your property may be auctioned off by the city or municipality. However, within one year of the date of sale, the owner of the delinquent real property, or a person with a legal interest, or a representative, has the right to redeem the property by paying the delinquent tax to the local treasurer. These comprise the interest payable and sale fees from the date of delinquency to the date of sale, as well as a monthly interest rate of no more than 2% on the purchase price from the date of sale until the date of redemption.