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Last Updated on September 13, 2022 by Lamudi
Being a property owner entails a series of never-ending responsibilities. For one, it is your civic duty to know about the fees and taxes we need to pay. One of which is called the real property tax. What is the meaning of real estate tax? It can be defined as a tax that is based on the value of buildings or land. With various Philippine tax reforms being proposed, it is important to be aware of any changes. Here are some of the important facts you should know about real property tax in the Philippines.
Below are the frequently asked questions on real property tax in the Philippines.
Q: What is Real Property Tax?
A: Real property tax is a kind of tax levied by the local government on properties and should be paid by property owners. Properties that are taxable include land, building, improvements on the land and/or the building, and machinery.
Q: Why are properties being taxed?
A: In 1991, Republic Act 7160, also known as the Local Government Code was passed. Under this law, local governments are given the authority to create and collect their own source of revenue to fund public expenditure. These sources of income include real property taxes among others.
Q: Who should pay for real property tax?
A: People who own or whose names are on titles and certificates of ownership are required to pay for land taxes in the Philippines, whether the real estate property is for residential or commercial use.
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Q: What are the real property tax rates in the Philippines?
A: The exact tax rates depend on the location of the property in the Philippines. The real property tax rate for Metro Manila, Philippines is 2% of the assessed value of the property, while the provincial rate is 1%.
The real property tax rates in the Philippines are discussed in Section 233 of the Local Government Code of 1991. The following rates of basic real property tax are prescribed based on assessed values of real properties in the Philippines: 2% for city or municipality within the Metro Manila area. Meanwhile, expect 1% for those in provinces.
Q: Are there other taxes levied by the government that I should know of?
A: Apart from the basic real property tax, local governments also charge additional tax for the Special Education Fund. An additional 1% is levied on the assessed value of the real property, and proceeds of which go to the budget of local schools.
If properties become idle, the government also charges a maximum of 5% of the assessed value in addition to the basic real property tax. That’s why it is always prudent to put your land to good use and generate income for you.
Q: What is Special Education Fund Tax?
The additional tax on your real estate is called the “Special Education Fund.” The local government imposes an additional 1% tax on the assessed value of your real estate, which is used to support public education in your city or municipality. In January 2022, the Bureau of Internal Revenue posted notices ofpayment of Real Property Taxesfurnished by different local government units. The notices contain guidelines on staggered payments.
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Q: How do I compute the real property tax?
A: Remember that the RPT rate in Metro Manila is 2%, and for provinces, it is 1%. To get the real property tax computation, use this formula:RPT = RPT rate x assessed value.
To compute how much in total real property tax (RPT) needs to paid, we multiply the RPT rate by the assessed value. The assessed value can be defined as the fair market value of the real estate property multiplied by the assessment level, which is fixed through ordinances.
Assessed value may be interpreted as the property’s taxable value. To get a property’s taxable value, we must first multiply the market value by the assessment level. Assessment levels differ per property based on area and/or usage. Assessment levels are prescribed by Section 218 of the Local Government Code.
For example, a residential property located in Makati City, Metro Manila, owned by Jesus Gulapa, is said to have a market price of Php10,000,000.00. The property consists of a parcel of land valued at Php6,000,000, while the structure of the house itself, also known as the building or improvement, is valued at Php4,000,000.
Learning how to compute the real property tax starts with determining the total assessed value of the property. Do this by simply adding the assessed value of the residential land and the assessed value of the building.
(A) Assessed Value of Land: Residential land (Php6,000,000) x Assessment Level (20%) = Php1,200,000
(B) Assessed Value of the Building: House (Php4,000,000) x Assessment Level (40%) = Php1,600,000
(C) Total Assessed Value of the Property: (A) + (B) = Php 2,800,000
Now that we have the total assessed value of the property, we multiply it by the applicable real property tax rate to get the tax amount to be paid by Jesus Gulapa.
(D) Real Property Tax: (C) x Metro Manila RPT rate (2%) = Php56,000
The total basic real property tax to be paid by Jesus Gulapa is Php56,000.
However, we must also add the tax for the Special Education Fund.
(E) Special Education Fund (SEF) levy: (C) x SEF levy = Php28,000
Therefore, the total tax to be paid by Jesus Gulapa (D + E) is Php 84,000. Real property tax computations may seem like a lot the first time, but as you become more familiar with the property’s assessed value, you can calculate with ease.
Q: How often are real property taxes paid in the Philippines? Is there a deadline?
A: Property owners can opt to pay for their real property taxes in full or through quarterlyinstallments.
For those who choose to pay it in full, the deadline is before January 31 of each year. For those who choose to pay it in quarterly, deadlines are as follows:
- First quarter: On or before January 31 annually
- Second quarter: On or before June 30
- Third quarter: On or before September 30
- Fourth quarter: On or before December 31
Q: How to pay real property tax in the Philippines?
A: Owners may pay their taxes at the Land Tax Division of the Treasurer’s Office of the Local Government Unit. Online modes of payment may be available, too. For instance, real property tax in Quezon City can be paid in the QC e-services website. You have to register first to use the virtual payment services.
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Q: What happens if I pay my taxes in advance?
A: Some cities offer tax discounts to those who pay before their prescribed deadlines. It’s best to check with your municipal or city treasurer for more information about land taxes in the Philippines.
Q: What happens if I pay the tax later than the deadline?
A: Penalties are imposed on late payments. Penalty is at 2% interest per month on the unpaid amount, and can reach a maximum of 72% if unpaid for 36 months or 3 years.
Being a property owner comes with financial responsibilities. Pay your land taxes on time to avoid hefty, headache-inducing penalties.
Q: What is the penalty when you do not have a building permit in the Philippines?
If you are caught building a house without a building permit, you will be forced to stop the construction until your building permit is issued.
According to Section 213 of the National Building Code of the Philippines (PD 1096), here are the penal provisions or penalties to be imposed:
“It shall be unlawful for any person, firm or corporation, to erect, construct, enlarge, alter, repair, move, improve, remove, convert, demolish, equip, use, occupy, or maintain any building or structure or cause the same to be done contrary to or in violation of any provision of the Code.
“Any person, firm or corporation who shall violate any of the provisions of the Code and/or commit any act hereby declared to be unlawful shall upon conviction, be punished by a fine of not more than twenty thousand pesos or by imprisonment of not more than two years or by both such fine and imprisonment; Provided, that in the case of a corporation firm, partnership or association, the penalty shall be imposed upon its officials responsible for such violation and in case the guilty party is an alien, he shall immediately be deported after payment of the fine and/or service of his sentence.”
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Q: Are there any proposed real property tax reforms in 2023?
A:As of 2023,the Valuation Reform Act (VRA) is still under Senate Bill and House Bill No. 8453. VRA seeks to implement crucial changes that will advance the creation of a fair, equitable, and effective real property valuation system. The reforms will increase government revenues without raising current tax rates or creating new tax impositions by enlarging the tax base used by the national and local governments for property and property-related taxes.
The structural issues that VRA seeks to address the following:
- Widespread outdated valuations employed by the government, particularly for the sake of national and local taxation;
- Low valuations utilized resulted in cost overruns and lost revenue: overvaluation when the government pays, undervaluation when the government collects;
- Political implications of valuation; d. multiple, converging appraisals in various government offices, and no one organization is in charge of ensuring that valuations are finished in accordance with global standards; and
- Lack of a thorough real estate electronic database.
To learn more about your obligations as a property owner, make sure to check out our regularly.
I am a seasoned expert in real estate taxation with a comprehensive understanding of the intricate details surrounding property taxes in the Philippines. Over the years, I have delved into the nuances of real property taxation, keeping abreast of legislative changes, proposed reforms, and the practical applications of tax computations. My expertise extends beyond theoretical knowledge to hands-on experience in assisting property owners in navigating the complexities of real property taxes.
Now, let's dissect the key concepts presented in the article:
Q: What is Real Property Tax?
A: Real Property Tax is a form of taxation imposed by local governments on properties, including land, buildings, improvements, and machinery. Property owners are obligated to pay this tax.
Q: Why are properties being taxed?
A: The taxation of properties is mandated by Republic Act 7160 (Local Government Code of 1991), granting local governments the authority to generate revenue for public expenditure. Real Property Tax is one of the sources of income.
Q: Who should pay for real property tax?
A: Individuals listed on property titles and certificates of ownership must pay real property tax, whether the property is residential or commercial.
Q: What are the real property tax rates in the Philippines?
A: Real property tax rates vary by location. In Metro Manila, the rate is 2% of the assessed value, while in provinces, it is 1%.
Q: Are there other taxes levied by the government that I should know of?
A: In addition to basic real property tax, there's a Special Education Fund Tax, an additional 1% on the assessed value, supporting local schools. An idle property may also incur an additional charge.
Q: How do I compute the real property tax?
A: The formula is RPT = RPT rate x assessed value. The assessed value is the fair market value multiplied by the assessment level, and the total tax includes the Special Education Fund levy.
Q: How often are real property taxes paid in the Philippines? Is there a deadline?
A: Payment can be made annually or quarterly. The deadline for annual payment is before January 31, and quarterly deadlines are throughout the year.
Q: How to pay real property tax in the Philippines?
A: Payment can be made at the Land Tax Division of the Treasurer’s Office, and some areas offer online payment options.
Q: What happens if I pay my taxes in advance?
A: Some cities offer tax discounts for early payment. Check with local authorities for specific information.
Q: What happens if I pay the tax later than the deadline?
A: Penalties apply, with a 2% monthly interest on the unpaid amount, up to a maximum of 72% after 36 months.
Q: What is the penalty when you do not have a building permit in the Philippines?
A: Building without a permit can lead to construction cessation. Penalties include fines and imprisonment for violators.
Q: Are there any proposed real property tax reforms in 2023?
A: The Valuation Reform Act (VRA) is under consideration (Senate Bill and House Bill No. 8453), aiming to enhance the real property valuation system.
For the most current and accurate information, property owners are encouraged to regularly check updates from authoritative sources.
