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In this post for Lamudi Philippines’ Q&A, we will discuss the legal bases for real property tax and how to compute it.
Q: What Is Real Property Tax?
A: When the Local Government Code was enacted in 1991, the government vested power to local government units (provinces and the cities within Metro Manila) to create their own revenue sources. One of these revenue sources is the Real Property Tax (RPT)—the tax imposed on all forms of real property (land, building, improvements, and machinery).
Such power, however, is exercised within the limitations set by the Code, such as setting a ceiling and limits on tax rates, and the tax base and valuation.
In addition, exemption is given to real properties owned by the government, charitable institutions, churches, cooperatives, those that are used in the supply of water and electric power, and equipment for pollution control and environmental protection.
The base of the tax—or the assessment level (the value from which the tax rate will be computed)—is only a fraction of the actual market value of the land; hence, there is an under-taxation built into the tax structure. However, this is compounded by the different assessment levels depending on land use. For example, a residential property has an assessment level of 20 percent, while that for a commercial property is 50 percent.
To compute for RPT, the RPT rate for the property is multiplied by the property’s assessed value. The RPT rate is 2 percent for the cities and municipality in Metro Manila and 1 percent for provinces.
In addition to the basic RPT rate, the LGU may levy and collect an annual tax of 1 percent, which shall be accrued to the Special Education Fund of the LGU. Furthermore, the LGU may impose a 5 percent ad valorem tax on idle lands, which is based on the assessed value of the property.
To get the assessed value, on the other hand, the property’s fair market value is multiplied by the assessment level, which is fixed through ordinances imposed by the provincial government or the city/municipal government if the property is in Metro Manila. The assessment level can be as high as 20 percent residential land to a high of 50 percent for commercial properties (show in detail in the following slideshow).
The RPT for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatever, and shall be extinguished only upon payment of the delinquent tax.
If you have prior years’ delinquencies, interests, and penalties, your RPT payment shall first be applied to them. Once they are settled, your tax payment may be credited for the current period.
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