Understanding real property taxation

(Second of two parts)

For real property taxation (RPT) purposes, the assessed value shall be computed by applying the proper assessment level to its fair market value (FMV). Said assessment levels shall be fixed by ordinances at rates not exceeding those prescribed under the Local Government Code (LGC).

The provincial, city or municipal assessor shall undertake a general revision of real property assessments every three years. Meanwhile, the assessment of real property shall not be increased oftener than once every three years, except in case of new improvements substantially increasing the value of said property, or of any change in its actual use.

All assessments or reassessments made after the first day of January of any year shall take effect on the first day of January of the succeeding year. But, reassessments shall take effect at the beginning of the next quarter if they were caused by: (a) the real property’s total or partial destruction; (b) a major change in its actual use; (c) any great and sudden inflation or deflation of real property values; or (d) gross illegality of the assessment when made; or (e) any other abnormal cause. In this regard, reassessments for said enumerated causes shall be made within 90 days from the date any such cause or causes occurred.

Real property declared for the first time shall be assessed for back taxes but for a period not more than 10 years before the date of initial assessment. Back taxes shall be computed based on the applicable schedule of values in force during the corresponding period.

If the back taxes were paid on or before the end of the quarter from the date of the owner or authorized person’s receipt of the assessment, interest for delinquency shall not be imposed. Otherwise, said taxes shall be subject to an interest rate of 2 percent per month or a fraction thereof from the date of receipt of the assessment, and until such taxes are fully paid.

Meanwhile, brand-new machinery found on the real property shall be assessed based on its acquisition cost as the FMV. If the machinery were imported, the acquisition cost shall include freight, insurance, bank and other charges, brokerage, arrastre and handling, duties and taxes, plus charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency exchange rates fixed by the Central Bank of the Philippines.

In all other cases, the FMV shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost.

A depreciation allowance shall be made for machinery at a rate not exceeding 5 percent of its original cost or its replacement or reproduction cost, as the case may be, for each year of use. But, the remaining value for all kinds of machinery shall not be fixed at less than 20 percent of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation.

A province, city or municipality in Metro Manila shall fix a uniform rate of basic RPT applicable to their respective localities as follows: (a) in the case of a province, at a rate not exceeding 1 percent of the assessed value of real property; and (b) in the case of a city or municipality, at a rate not exceeding 2 percent of such assessed value. Moreover, said local government units (LGU) may levy and collect an annual tax of one percent on the assessed value of real property, which proceeds shall exclusively accrue to the Special Education Fund.

Meanwhile, a province, city or municipality may levy an annual tax on idle lands at the rate not exceeding 5 percent of the assessed value thereof, which shall be in addition to the RPT. Idle lands may refer to: (a) be agricultural or non-agricultural lands, which prescribed areas under the LGC remain uncultivated, unutilized or unimproved by the owner or person having legal interest therein; or (b) residential lots in duly approved subdivisions. Where the ownership of said residential lots was transferred to individual owners, they shall be liable for the additional tax. Otherwise, the subdivision owner or operator shall be liable for said additional tax.

For assessment purposes, idle taxes shall exclude those which, by reason of force majeure, civil disturbance, natural calamity or any cause or circumstance, the owner or person having legal interest therein is physically or legally prevented from improving, utilizing or cultivating.