6. Real Property Taxation

R.A. No. 7160, Book II, Title II

• Fundamental Principles; Nature
• Exemption from Real Property Tax (R.A. No. 7160, sec. 234¹; )
• Government’s Remedies a. Real Property Tax Assessment b. Collection
• Taxpayer’s Remedies a. Administrative b. Judicial c. Refund

NATURE OF REAL PROPERTY TAX

• Direct tax on the ownership or privilege to use of real property
• Ad Valorem tax - the assessed value is the tax base
• Proportionate - the tax is calculated on the basis of a certain percentage of the value of the property assessed
• Indivisible single obligation
• Local Tax - with respect to LGUs, it is levied thru a delegated power
• Lien - It attaches on the property and is enforceable against it.

Ad Valorem Tax

It is a levy on real property determined on the basis of a fixed proportion of the value of the property. (LGC, Sec. 199(c))²

Imposing Authority

LGUs, through their sanggunian, that may levy RPT are the following:

• Province;
• City; and
• Municipality within Metro Manila Area (MMA) (LGC, Sec. 200³, 232)

Note: Municipalities outside MMA cannot levy RPT but they can impose special levies. (LGC, Sec. 240)⁴

Extent of Taxing Powers

LGUs have the power to levy RPT and fix the rates. (LGC, Sec. 232⁵, 233)

Rates of Levy

• Province – not exceeding 1% of the assessed value of real property
• City or a municipality within the MMA – not exceeding 2% of the assessed value of real property (LGC, Sec. 233)⁶

GR: No need for public hearing is required

No public hearing shall be required before the enactment of a local tax ordinance levying the basic real property tax (IRR of LGC, Art. 324)⁷ as well as the special education fund tax (IRR of LGC, Art. 326)⁸ in comparison with local business tax ordinances which require public hearing (LGC, Sec. 187)⁹

Public hearing is not required for the enactment of local tax ordinance levying basic RPT and SEF tax. (IRR of LGC, Art. 324, 326)

EXCEPTION: Public hearing is required for special levies. (LGC, Sec. 242)¹⁰

Territorial Jurisdiction

While a LGU is authorized under several laws to collect real estate tax on properties falling under its territorial jurisdiction, it is imperative to first show that these properties are unquestionably within its geographical boundaries. The suit on the boundary dispute between two LGUs is a prejudicial question which must be resolved before determining the RPT liability of the property subject of the dispute. It is an exception to the general rule that prejudicial questions only apply when a civil and a criminal action is involved. (Sta. Lucia Realty & Development, Inc. v. City of Pasig, G.R. No. 166838, 14 May 2012)¹²

Types of Real Property Tax

• Basic RPT
• Additional levies:
• Special Education Fund (SEF) tax
• Ad valorem on Idle lands
• Special levy/Special Assessment

A province or city, or a municipality of MM area may levy and collect an annual tax of 1% on the assessed value of real property, in addition to the basic RPT. The proceeds thereof shall exclusively accrue to the Special Education Fund (SEF). (LGC, Sec. 235)¹³

A province, city or municipality within the Metropolitan Manila Area can impose Special Education Fund (SEF) at a rate of less than 1%. There is no limiting qualifier under Section 235 of the LGC¹⁴ to the articulated rate of 1% which unequivocally indicates that any and all special education fund collections must be at such rate. (Demaala v. COA, G.R. No. 199752, 17 February 2015)¹⁵

Additional Ad Valorem on idle Lands

A province or city, or a municipality of MMA may levy an annual tax on idle lands at the rate not exceeding 5% of the assessed value of the property, in addition to basic RPT (LGC, Sec. 236)¹⁶

Types of Idle Lands

• Agricultural lands

More than 1 hectare in area which is suitable for cultivation, dairying, inland fishery, and other agricultural uses, and if one-half (½) of which remains uncultivated or unimproved, except:

• Lands planted to permanent or perennial crops with at least 50 trees to a hectare;
• Lands actually used for grazing purposes.
• Other than agricultural lands

Located in a city or municipality, more than 1,000 sq.m. in area, and 1/2 of which remain unutilized or unimproved

• Residential lots in subdivisions duly approved by the proper authorities

Regardless of land area but the person liable to pay may vary as follows:

• If the ownership of individual lots has been transferred to individual owners, the latter shall be liable for the additional tax.
• If the ownership of which has not been transferred to the buyer, the subdivision owner or operator shall be liable for the additional tax. (LGC, Sec. 237)¹⁷

Special Levies/Special Assessments

• Not exceeding 60% of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith. (LGC, Sec. 240)¹⁸
• Not applicable to lands exempt from basic RPT or to the remainder of land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements. (LGC, Sec. 240)
• Accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing the special levy. (LGC, Sec. 245)¹⁹

Note: Municipalities outside MMA cannot levy RPT but they can impose special levies. (LGC, Sec. 240)

Ordinance Imposing a Special Levy

Specify the following:

• Describe with reasonable accuracy the nature, extent, and location of the public works projects or improvements to be undertaken;
• Metes and bounds by monuments and lines
• Number of annual installments for the payment of the special levy which in no case shall be less than 5 nor more than 10 years. (LGC, Sec. 241)²⁰

Procedures for Enacting an Ordinance Imposing a Special Levy

• Send a written notice to the owners of the real property to be affected or the persons having legal interest therein as to the date and place thereof and afford the latter the opportunity to express their positions or objections relative to the proposed ordinance
• Conduct a public hearing (LGC, Sec. 242)²¹