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Real Property Tax

RPT- direct taxes imposed on the privilege to use real property such as land, building,
machinery, and other improvements, unless specifically exempted.

Theory of Real Property Tax

1. Ability to pay – a man with property having economic value is much better able to pay a tax
than a man without any property. The mere possession of wealth and control of that wealth
indicates a general ability to make a tax contribution.

2. Benefit Theory- RPT is collected for use to finance the expenses of local government unit, the
property owner is a direct beneficiary of the services rendered

Nature of RPT (DIAL-UP)


1. Direct Tax- whose burden could not be shifted by the one who pays to their persons
2. Indivisible- single obligation
3. Ad valorem – based on the assessed value
4. Local Tax
5. Imposed on the use not on the ownership
6. Progressive- the higher the assessed value , the higher the tax

For taxation purposes, real property consists of the following:

1. The list of immovable under Art. 415 of NCC


(10 list of immovable under Art. 415)

Q: Exclusive? Yes, generally the SC held that article 415 of the ncc provides an exclusive
enumeration of what constitutes real property, for tax purposes.

Exception:

“Doctrine of Essentiality” - Personal property under the CIVIL CODE may nonetheless be
considered as real property for tax purposes.

Q: What must be requirement? It must be ESSENTIAL AND A PRINCIPAL ELEMENT of an


industry without which such industry would be unable to carry on the principal industrial
purpose for which it was established.

2. Machinery section 199 of LGC


1. Realty by destination- machinery essential to the business.
Requisites to be classified as real property:
a. actually, directly, and exclusively used to meet the needs of the particular
industry, business or activity
b. by their very nature and purpose are designed for or necessary to
manufacturing, mining, fogging
2. Realty by incorporation – machinery permanently attached.

Summary of Rules on Machinery:


1. If machinery permanently attached – subject to RPT
2. if not permanently attached:
a. Doctrine of Essentiality – subject to RPT
b. not an essential and principal element of an industry- not subject to RPT

WHO IS LIABLE TO PAY RPT


-chargeable against the person who has actual or beneficial use and possession of it
regardless of whether or not he is the owner.

WHO MAY LEVY RPT?


1. Province
2. City
3. Municipality within Metro Manila

IMPOSITION OF REAL PROPERTY

Taxing powers of LGU:


1. Power to levy real estate tax
2. Fix Real Estate Tax

Note* No public hearing shall be required before the enactment of a local tax ordinance levying
the basic RPT. Unlike, Local business tax which requires public hearing.

PROCEDURE IN THE ADMINISTRATION OF RPT


STEP 1 Declaration of Real Property
a. Declaration by Owner or Administrator- Section 202 LGCC –All persons, natural or
juridical, owning or administering real property, including the improvements therein, are
required to prepare:

FORM : SWORN STATEMENT


A. True Value (FMV) whether taxable or exempt, whether previously declared or not
b. Description of the Property
Period : Once every 3 years
Agency: Provincial/city/municipal assessor
b. Declaration by Provincial/Municipal- when any person under Section 202 of LGC
refuses or fails to make a declaration within the time prescribed,

Q: Does RP Exempted from RPT need to be declared?


A: Yes, Because all real property, whether taxable or exempt, shall be appraised at its current
FMV. 201

Purpose: A tax declaration only enables the assessor to identify the property for purposes of
determining the assessment levels.

Q: Is the tax declaration a proof of ownership? No, it is only an indicium of a claim of


ownership.

Step 2. Listing of RPT in the assessment rolls.

Assessment Roll – listing of all real property, whether table or exempt, located within the
territorial jurisdiction of the LGU concerned.

Note: GR: Real Property shall be listed, valued and assessed in the name of the owner or
administrator, or anyone having legal interest in the property.

Exception
1. Undivided Real Property- in the name of the estate or heirs of devisee
2. In case of undivided real property other than that owned by a deceased – in the name of one
or more co-owner
3. corporation, partnership – same as individuals
4. owned by republic of the phils- in the name of possessor

STEP 3. APPRAISAL AND VALUATION OF REAL PROPERTY

APPRAISAL – act or process of determining the value of property as of a specific date for a
specific purpose.

Section 201 LGC- All real property, whether taxable or exempt, appraised at the current fair
market value prevailing in the locality where the property is situated

Fair Market Value- Section 199 LGC – 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.

Assessed Value- FMV X ASSESSMENT LEVEL.


-Synonymous to taxable value
LAND: a. Assessor summons the owner and takes deposition concerning the property
(ownership,amount, nature, and value)
b. Assessor prepares a schedule of FMV for difference classes of properties
c. The said schedule is published in a newspaper of general circulation in the place concerned.
In the absence thereof, it shall be posted in the provincial capitol, city or municipal hall, and to 2
other conspicious public places
d. Assessor may recommend to Sanggunian concerned amendments to correct errors in
valuation.

MACHINERY:

a. For brand new - acquisition cost. If imported, include freight, insurance, bank and other
charges, brokerage, arrastre and handling, duties and taxes, plus charges. 224

b. Otherwise, use this formula:

Remaining economic life x Replacement/Reproduction Cost = FMV


Estimated Economic life

Economic life - Estimated period of which the machinery may be profitable utilized.
Remaining economic life - period of time from the date of appraisal to the date the machine
becomes valueless
Replacement or Reproduction Cost - cost that would be incurred in acquiring an equally
desirable substitute property, or of producing replica on the basis of current prices

C. Depreciation allowance
For purpose of assessment, a depreciation allowance shall be made for machinery at:
i. rate not exceeding 5% of original cost or replacement cost for each year of use.
ii. Remaining value shall be fixed at not less than 20% of the replacement or reproduction cost

4. Determining Assessed Value and the Tax Due


Assessment - The act or process of determining the value of a property, or proportion thereof
subject to tax, including the discovery, listing, classification, and appraisal of properties.

Effect of the assessment – an assessment fixes and determines the tax liability of the taxpayer. It
is a notice to the effect that the amount therein stated is due and a demand for payment thereof.

Basis of the assessment of real property:


General rule: Real property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it 199

Actual Use- the purpose for which the property is principally or predominantly utilized by the
person in possession thereof. 199
Ex. Cohabitation, devoted principally for the object of profit, raising crops

Exception:
1. For Mixed land uses - predominant use of the lands shall govern the classification, valuation,
and assessment
2. For buildings used for a purpose different form that which the land is classified –
predominant use of the building or buildings shall govern.

Assessment level – the percentage applied to the FMV do determine the taxable value of the
property. Fixed by an ordinance of the appropriate Sanggunian.

MEMORIZE THE ASSESSMENT LEVEL!!! PALIHUG 

For Land:
Land Use Assessment Level Not to Exceed
Residential 20%
Agricultural 40%
Commercial, Industrial, and Mineral 50%
Timberland 20%

Classes of Real Property for Assessment Purposes:


1. Residential- principally devoted to habitation
2. Agricultural – principally devoted to planting of trees, raising crops, livestock and poulty
3. Commercial – to object of profit and is not classified as agricultural, industrial, mineral,
4. Industrial- to industrial activity as capital investment, not classified as agricultural,
commercial
5. Mineral - land in which minerals, metallic exists in sufficient quantity
6. Timberland – land identified as forest or reserved area by the government
7. Special - directly and exclusively used for hospitals, cultural, or scientific purposes
- owned and used by local water GOCCs rendering essential service in the supply and
distribution of water and electricity.

For Buildings and Other structures:


Land Use Graduated rates of
Residential 0-60%
Agricultural 25-50%
Commercial, Industrial, and Mineral 30-80%
Timberland 45-70%

For Machineries
Class Assessment Level Not to Exceed
Residential 50%
Agricultural 40%
Commercial & Industrial 80%

For Special Classes of Properties


Purpose Assessment Level Not to Exceed
Cultural 15%
Scientific 15%
Hospital 15%
Owned and used by local water district 10%
GOCCs rendering essential public services 10%

5. Payment and Collection of Taxes


Steps:
1. Take the schedule of FMV
2. Take the assessment by determining the classification of property
3. Multiply the FMV by the assessment level to get the assessed value
4. Compute the RPT by multiplying the assessed value and the RPT rate

LGU Rate of Basic Real Property Tax


Province Not exceeding 1% of the assessed value
City Not exceeding 2% of the assessed value
Municipality within Metro Manila Not exceeding 2% of the assessed value

Market value xxx


Multiply by: Assessment level x%
Assessed Value xxx
Multiply by: Rate of Tax x%
Real Property Tax xxx

Accrual of Tax – January 1st of every year


Time and Manner of Payment- Basic RPT + SEF -> 4 equal installments march 31, June 30, Sept.
30, Dec 31.
Collecting Officer- the collection of RPT shall be the responsibility of the city municipal
treasurer concerned. Pwde rin si Barangay treasurer if bonded and deputized by city/municipal
treasurer
Late payment, interest – 2%
Advance payment- 20%
Prompt payment – 10%
Special Levies

In addition

1. Special Education Fund (SEF) - 1% of the assessed value additional real estate tax to finance
the Special Education Fund.

Article 272 of the LGC provides that:


a. proceeds of the additional 1% RPT accruing the SEF shall be automatically released to the
local school boards;
b. In cases of provinces, the proceeds of SEF shall be divided equally between the provincial
and municipal school boards
c. Said proceeds shall be allocated as determined and approved by the local school board
concerned only for the following purposes:
i. Operation and maintenance of public schools
ii. Construction and Repair of School Buildings, facilities and equipment
iii. Educational Research
iv. Purchase of books and periodicals
v. Sports development

2. Additional Ad Valorem on Idle lands - not exceeding 5% of the assessed value of the
property

Purpose: To penalize landowners for not using their properties productively, and to encourage
land resource utilization for national development.

(ANG TINDI nito ha?) ayaw nalang pag tag.iya og yuta kung dli nimo gamiton kay nay 5%
haha

3. Special Assessments - levied on lands specially benfited by public works, projects, or


improvements funded by the local government unit;
- Shall not exceed 60%

4. Imposed by other laws like Socialized Housing Tax - Additional one-half (0.5%) of the
assessed value of all lands in urban areas in excess of 50,000 pesos.