By: Atty. Nica Marsha Gasapo on December 21,2023

As the curtains fall on another trip around the sun, it is important to dissect the events that unfolded in the past months. The conclusion of the year is not merely a time for reflective musings; it also a strategic and opportune moment to plan important tasks. Among these tasks which real property owners face is the crucial obligation to pay real property taxes, which taxes accrue on the first day of January.

Real property tax is the tax imposed on real properties by local government units. The Local Government Code, as amended, empowers a province, city, or municipality within Metro Manila to levy an annual ad valorem tax on real properties, such as land, building, machinery, and other improvements.

While the Local Government Code of 1991 (Republic Act [RA] No. 7169) as amended, covers the administration, appraisal, assessment, levy and collection of real property taxes, it curiously fails to furnish a clear-cut definition of the term “real property.”  Thus, for taxation purposes, resort is made to the definition of real properties in the Civil Code (RA No. 386), which includes, although not exhaustively, land, buildings, improvements upon them, along with machines, equipment, plants, and service facilities.

Generally, the obligation to pay real property taxes falls upon the owner of the property or one obliged to declare the same for taxation purposes. Thus, it is the declared owner of the real property who is deemed as the taxpayer, liable to pay the real property tax. However, practically speaking, anyone can pay the real property tax, even one who is not the actual owner of the real property.

Under the Local Government Code, local government units shall fix a uniform rate of basic property tax applicable to their respective localities. In case of a province, the tax shall be at a rate not exceeding 1% of the assessment value of the real property; and, in case of a city or a municipality within Metro Manila, at a rate not exceeding 2% of the assessed value of real property. To be clear, the term “assessed value” is equal to the fair market value of the real property multiplied by the assessment level. The assessment level is a figure determined by the local government unit and is generally revised every three years.

Other than this “basic property tax,” local government units may impose special levies on real properties. These include the additional levy on real property for the special education fund at 1% of the assessed value of the real property and which shall be in addition to the basic property tax. The proceeds of this special levy shall exclusively accrue to the special education fund.

Another is the additional ad valorem tax on idle lands, which shall not exceed 5% of the assessed value of the real property and shall be in addition to the basic property tax.

Another special levy is specifically for public works projects or improvements funded by the local government. This levy shall not exceed 60% of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith.

As mentioned, real property taxes kick in on the first day of January, and, beginning from then, shall create an immediate lien on the real property. It must be noted, though, that the Local Government Code allows payment of real property taxes and the additional tax for the special education fund in four equal installments: the first installment is due and payable on or before March 31^st; the second installment, on or before June 30^th; the third installment, on or before September 30^th; and the last installment, on or before December 31^st.

Also, under the Local Government Code, as amended, local government units may grant a discount of 20%, at most, for payments made in advance in accordance with the prescribed schedule.

In case of failure to pay basic real property tax when due, interest may be imposed at the rate of 2% per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid, provided that in no case shall the total interest on the unpaid tax or portion thereof exceed 36 months.

For collection of real property tax, the local government unit concerned may avail of the remedies by administrative action through levy on real property or by judicial action. It is important to emphasize that real property tax constitutes a lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by administrative or judicial action, and may only be extinguished upon payment of the tax and the related interests and expenses.

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Nica Marsha V. Gasapo is a Senior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com