REAL PROPERTY TAXATION

AND RELATED PROVISIONS OF THE LOCAL GOVERNMENT CODE OF 1991

(RA 7160)

LEGAL BASIS:

• Sec. 5, Article X of the 1987 Constitution provides that: “Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments.”

• Sec. 197 of LGC. Scope – This Title shall govern the administration, appraisal, assessment, levy and collection of real property tax.

• Sec. 200 – Administration of Real Property Tax.- The provinces and cities, including the municipalities within the Metropolitan Manila Area, shall be primarily responsible for the proper, efficient and effective administration of the real property tax.

GENERAL CONCEPTS AND PRINCIPLES IN REAL PROPERTY VALUATION

This subject presents an overview of general concepts and principles relevant to real property valuation in the context of the law and of economics, and introduces real property characteristics, property rights, property ownership and other significant issues to provide general information about real property.

• Concepts of Property and Land Property – a legal concept encompassing all

the interests, rights and benefits related to ownership. It consists of private rights of ownership, which entitle the owner to a specific interest or interests in what is owned. To distinguish between real estate, a physical entity and its ownership, a legal concept, the ownership of real estate is called real property. Ownership and interest in an item other than real estate is referred to as personal property.

Land – the earth surface, theoretically, land can include the space beneath the surface which extends to the centre of the earth, and the space above which extends to the sky. Valuation of the land as if vacant and of land and improvements to or on the land is an economic concept. Whether vacant or improved, land is also referred to as real estate. The ownership of the land and the rights attached to the ownership are subject to the laws of a particular country.

Real Estate – the land and all things that are natural part of the land, e.g., trees and minerals, as well as all things that are attached by people, e.g., buildings and site improvements.

All permanent building attachments such as plumbing; heating and cooling systems; electrical wiring; and built-in items like elevators, or lifts, are also part of the real estate in general terms, although elevators may be assessed separately for RPT purposes. Real Estate includes all attachments, both below and above the ground.

Realty – a term used to distinguish either real property or real estate from items of personal property.

Real Property – is defined as a real estate plus the rights, interests, and benefits inherent in the ownership of real estate. Some defined it as a bundle of rights with which the ownership of real estate is granted. The property rights are the ones valued and sold not the actual land or realty. In other words, a real property owner does not own the land itself, but owns an estate, or interest in the land.

Bundle of Rights• Ownership in real property/estate• Control• Exclusion• Possession• Disposition• Enjoyment• Use/will• Give/dedicate• Exploit/cultivate• Lease• Mortgage/encumber

Major Rights• The right of possession of the property• The right of enjoyment of the property• The right to control the property’s use• The right to exclude others from the

property• The right ot disposed of the property

There may also be potential limitations uponownership rights to real property. Thesefactors that limits ownership rights are:• Eminent Domain• Police Power of the State• Escheat• Taxation

Concepts of Appraisal and Value

Appraisal/Valuation – is the act or process of estimating the value of a property as of a specific date for a specific purpose. It is an estimate of opinion of value, usually market value or value as defined by the appraiser. It is made as of a specific date and is a conclusion which results from a logical and orderly analysis of facts.

Value – the American Institute of Real Estate Appraisers’ Appraisal Terminology Handbook, 1981 edition defined value as the present worth of future benefits arising out of ownership to typical users and investors.

Value is an economic concept referring to the amount most likely to be agreed upon by buyers and sellers in an open market transaction. The economic concept of value reflects the market’s view of the benefits that accrue to one who owns the good or receives the services as of the effective date of valuation. Thus, value is not a fact, but as estimate of the likely price to be paid for a good or service available for purchase at a given time.

Market Value – the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an “Arm’s Length Transaction” after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Cost – is the amount of money needed to acquire, produce, create or manufacture an item of property. it includes material, labor, equipment, contractor’s st – is the amount of money needed to acquire, overhead and profits, and fees.

It represents a measure of past or prospective expenditures in money, labor or interest in acquiring or producing a commodity.

Price – is the actual total amount of money paid by a buyer to a seller of property for the purchase of goods or item of property.

Utility – a relative or comparative term rather that an absolute condition that refers to the degree of usefulness of a property.

The utility of agricultural land is measured by its productive capacity. If the land has development potential, its productivity is measured by how it will support a residential, commercial, industrial, or mixed use.Optimum utility is achieved for some property if operated on an individual basis. Other property has greater utility if operated as part of a group of properties, or held and managed within the aggregate or portfolio of properties.

Utility is generally measured from a long-term perspective, ordinarily over the useful life of a property or group of properties. When a property may not have readily discernable degree of utility at the date of valuation, full disclosure of the value definition, supporting data and extent of special assumptions or limiting conditions is required.

FUNDAMENTAL PRINCIPLES IN THE APPRAISAL & ASSESSMENT OF REAL PROPERTY (Sec 198)

1. Real property shall be appraised at its current and fair market value;

2. Real property shall be classified for assessment purposes on the basis of its actual use;

3. Real property shall be assessed on the basis of a uniform classification within each local government unit;

4. The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and

5. The appraisal and assessment of real property shall be equitable.

1. In its strict sense, this fundamental principle # 1 should be the basis for computing the realty taxes. However, this would translate into higher realty taxes that would undermine the capacity of the taxpayer/property owner to pay, thus, the principle number one was apparently extended to clarify that the current and fair market values shall be based on the duly approve ordinance. The law provides that the SFMV as prepared and approved by the local sanggunians shall be the controlling basis for the appraisal of the real property.

[Reyes v. Almanzor, G.R. No. 49839, April 26 1991, 196 SCRA 322]

2. Is it lawful for a local government unit to enact an ordinance containing a proviso directing that the real property tax be based on the actual amount reflected in the deed of conveyance or the prevailing BIR zonal value? A crucial legal query decided by the Supreme Court in a recent case of Allied Banking Corporation v. the Quezon City Government, G.R. No. 154126, October 11, 2005, 472 SCRA 303.In its ruling, the court explained:

Real properties shall be appraised at the current and fair market values prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use.

Local Assessment Regulation (LAR) No. 1-92 suggests three approaches in estimating the fair market value, namely: a) the sales analysis or market data approach; b) the income capitalization approach; and c) the replacement or reproduction cost approach.

It is invalid not only because it mandates an exclusive rule in determining the fair market value but more so because it departs from the established procedures in the LAR and unduly interferes with the duties statutorily placed upon the assessors by completely dispensing with his analysis and discretion which the LGC and the regulations require to be exercised. An ordinance that contravenes any statute is ultra vires and void.

Using the consideration in the deed of conveyance to assess and appraise real properties is not only illegal since “the appraisal, assessment, levy and collection of real property tax shall not be let to private person,” but it will completely destroy the fumdamental principle in the real property taxation – that real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.

Allowing the parties to a private sale to dictate the fair market values of the property will dispense with the distinctions of actual use stated in the LGC and in the regulations.

3. Property of the same kind must belong to its proper class and must be appraised uniformly and subject to the same assessment level and taxed at the same rate within the territorial jurisdiction of the taxing authority or the local government unit

4. This applies to all local taxes and strengthens the fundamental rule in local taxation that collection of local taxes, fees, charges and other impositions shall in no case be assigned to private person.

Thus, to use the monetary consideration in the deed of conveyance to assess or appraise real properties is not only violation to the related fundamental principle but is tantamount to an appraisal and assessment of real property by private person.

5. In order to be equitable, it must be based on fair standards, hence the related principle, that real property shall be assessed on the basis of a uniform classification within each LGU without unjust or improper discrimination.

Preparation of Schedule of Fair Market Values (Sec.212)

Updating the Schedule of Fair Market Values of properties is essential in the updating of the market values of real properties for assessment purposes.Sec 219 of this Code, requires the LGU concerned to conduct general revision of property assessment every (3) years thereafter from 1994 when the general revision was first conducted after this Code was enacted into law.

Prior to the conduct of the general revision of property assessments, the local assessors shall prepare a schedule of fair market values (SFMV) which is a list of items or table of information relative to fair market values for various classes of real property within the corresponding local government units to be enacted into an ordinance by the local sanggunian concerned.

The SFMV will then be published in a Newspaper of general circulation or posted in a conspicuous public places within the locality.

The process of preparing this schedule of market values is provided in Chapter 4 of the Mass Appraisal Guidebook, Bureau of Local Government Finance, 2010.

Assessment Levels

The assessment levels (AL) or percentages provided for in Section 218 are not the end factors on which real property taxes are computed. Rather, these AL are multiplied with the fair market value of the real property sought to be assessed, whereby, the resulting product being the assessed or taxable value on which the property taxes are based and computed.

The assessment levels set by the Local Government Code is the maximum imposable levels, since the Local Sanggunians are mandated through legislative action will enact an appropriate ordinances that will determine real property assessment levels in their respective territorial jurisdictions.

1). On Land

Class Assessment levelResidential 20%Agricultural 40%Commercial 50%

Industrial 50%Mineral 50%

Timberland 20%

2). On Buildings and Other Structure:a) Residential:

FMV A – Level Over Not Over

P175,000.00 0%175,000.00 P300,000.00 10%300,000.00 500,000.00 20%500,000.00 750,000.00 25%

750,000.000 1,000,000.00 30%1,000,000.00 2,000,000.00 35%2,000,000.00 5,000,000.00 40%5,000,000.00 10,000,000.00 50%

10,000,000.00 60%

b). AgriculturalFair Market Value A – Level

Over Not Over

P300,000.00 25%

P300,000.00 500,000.00 30%

500,000.00 750,000.00 35%

750,000.00 1,000,000.00 40%

1,000,000.00 2,000,000.00 45%

2,000,000.00 50%

C). Commercial or Industrial

Fair Market Value A LevelOver Not Over

P300,000.00 30%P300,000.00 500,000.00 35%

500,000.00 750,000.00 40%750,000.00 1,000,000.00 50%

1,000,000.00 2,000,000.00 60%2,000,000.00 5,000,000.00 70%5,000,000.00 10,000,000.00 75%

10,000,000.00 80%

d). Timberland

Fair Market Value A – Level

Over Not Over

P300,000.00 45%

P300,000.00 500,000.00 50%

500,000.00 750,000.00 55%

750,000.00 1,000,000.00 60%

1,000,000.00 2,000,000.00 65%

2,000,000.00 70%

3). On Machineries

Classs Assessment LevelAgricultural 40%Residential 50%Commercial 80%Industrial 80%

4). Special Classess:Assessment Levels for all lands, buildings, machineries and other improvements.

Actual Use Assessment LevelCultural 15%Scientific 15%Hospital 15%Local Water District 10%GOCC engaged in the supply and/or generation and transmission of electric power.

10%

The Local Gov’t Code provides for the maximum assessment levels for all types of property, hence, the Sangguniang Panlalawigan, Sangguniang Panlungsod or the Sangguniang Bayan of MMA need to enact an ordinance fixing the assessment level for LGU.Two Major Considerations in this policy decisions:

1. Amount of revenue the LGU needs to generate for its operation and delivery of public service;

MAXIMUM ASSESSMENT LEVELS

2. The level of tax burden sharing that the LGU would like to impose on its constituents. (Political decisions)This assessment levels can be decreased or increased at rates to be fixed by ordinance, provided that it shall not be made effective in between the general revision of assessment periods.

Elements of the Assessment Process

The four most important elements in the assessment process are:1. Classification of real property2. Assessment levels3. Assessed value4. Actual use

The Classification of Real Property provides the foundation of equity and uniformity in realty taxation. Taxes are imposed uniformly upon the same classes of property within the territorial jurisdiction of LGU levying taxes.

The Assessment Level are fixed on the basis of actual use of the property. Assessment levels are applied uniformly on each of the classes of property within each taxing jurisdiction.

The Assessed Value (taxable value) results from the application of the assessment level to the market value of the property which when multiplied by the tax rate equals the tax due; while market value is the product of multiplying the unit value or base unit construction cost to an area of the land or floor area of a building.

For land: MV = Arealand x Unit Value For building: MV = Areafloor x BUCC

Formula: AV = MV x AL

where:

AV – Assessed ValueMV – Market ValueAL – Assessment Level

Actual Use is the basis for the assessment of real property regardless of where the property is located, whoever owns it and whoever uses it. To underscore the controlling influence of actual use, lands located in an area of mixed uses, are appraised at uniform values as fixed on the schedule of values, regardless of whether the property is use for commercial, residential or industrial purposes.On the other hand, private appraisers follow methods and techniques which are applied differently for residential and commercial purposes. Thus, the result would be two different appraised value.

It underscores the use of the property rather than ownership, as real property tax is in essence a tax on the property and not on the owner.

Residential apartments located within a highly commercial district is classified and assessed as residential the same being actually use for habitation.

Although, it provides income for the owner in the form of rentals from the lessees, is classified and assessed as residential since the property is used by the tenants as their place of residence.

Real property owned by religious institution is taxable, if the same is not actually, directly, and exclusively used for religious purposes.

On the other hand, building owned by private individual or corporation which is leased to religious organization and is actually used for religious purposes is exempt from real property tax. Likewise, a building rented by educational institution shall not be subject to real property tax.

A parcel of land occupied by building

used both for residential and commercial purposes shall be assessed on the basis of the predominant use of the building.

A case where a four storey building, the 2nd to the 4th floor is occupied and actually used for educational purposes while the 1st floor is used for full-time commercial operations.

Case Problem:Compute the tax due the government. Is the building taxable or exempt?

1,000 sq. meters = Area (1st Flr)

3,000 sq. meters = Area (2nd to 4th Flr)BUCC = P10,000.00/sq. meterTax Rate = 2% (1% basic % 1% SEF)

Formula:Tax Due = Assessed Value (AV)x Tax Rate (TR)

MV = A x BUCC = 1000 x t

QuestionDo we apply the predominant use rule and consider the whole building exempt?

Section 28(3), Article VI, of the 1987 Constitution and Sec. 234 (b) of R.A. 7160 similarly provided that “all lands, buildings and other improvements which actually, directly, and exclusively (emphasis added) used for educational purposes” shall be exempt from real property taxes.

The predominant use rule in this case cannot be applied, since, it did not satisfy the condition required by the constitution and other statutes.

SPLIT ASSESSMENT in this case may be applied meaning the first floor of the building will be classified and assessed separately from the other floors of the building. The first as commercial and taxable and the second to the fourth floors, as exempt property.

Rate of Property Tax - Basic Tax & Special Education Fund ( Sec 223 & 235).

Tax rate are to be set forth by a local ordinance with maximum rates as follows:1. For Province – not exceeding one (1%) percent of

the assessed value of the property.2. For Cities and MMA – not exceeding two (2%)

percent of the assessed value of the property.3. In addition to the basic real property tax, LGUs

may levy and collect an annual tax of 1% which shall be accrue exclusively to SEF

Formula :Tax Due = Assessed Value (AV) x Tax Rate (TR)

Accrual, Collection, and Installment Payment of Real Property Tax ( Sec. 246, 247 & 250)

The real property tax for any year shall accrue on the 1st 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 whatsoever, and shall be extinguished only upon the payment of delinquent tax. The tax may be paid in (4) quarterly installments which shall be paid on or before the last day of the quarter.

Tax discount for Advance and Prompt Payment (Sec. 251)

For purposes of implementing the provisions of Sec. 251 of this Code:

Prompt Payment – 10% Advance Payment – 20%

To entertain the protest, the taxpayer must pay the tax and on the tax receipts annotated the words “paid under protest.”

Payment under protest (Sec. 252)

Additional Ad Valorem Tax on Idle Lands and its Coverage (Sec. 236 & 237)

In addition to the Basic Tax, an annual tax on idle lands at a rate of not exceeding 5% of the assessed value of the property may be imposed by the LGUs.

For purposes of taxation, idle lands shall include the following:1. Agricultural lands more than (1) hectare in the

area, suitable for cultivation, dairying, inland fishery and other agricultural uses, ½ of which remain uncultivated or unimproved.

1. lands planted to permanent or perennial crops with at least (50) trees to a hectare and land used for grazing purposes.

2. Lands other than agricultural located in the city or municipality more than (1,000) sq. meters in area, ½ of which remain unutilized or unimproved.

3. Regardless of land area, residential lots in subdivisions.

EXCEMPTION:

Idle Lands Exempt from Tax (Sec. 238 & 239)

Conditions for granting exemptions: Force Majeur Civil disturbance Natural calamity Any cause or circumstances which physically or

legally prevents the owner from cultivating, improving and utilizing the same.

Listing of idle lands to be done by the assessor, who shall keep an updated records within his area of jurisdiction. The treasurer shall be furnished copy who shall notify the owner.

General Revision of Assessment and Property Classification (Sec. 219)

The provincial, city, and municipal assessor shall undertake a general revision of real property assessments within (2) years after the effectivity of this Code and every three years thereafter.

Local Assessment Regulation No. 1-92 – governs the rules in the conduct of general revision of real Property Assessment.

1. To equalize and update their valuation.2. To rediscover properties which have been

lost from the assessment rolls.3. To purge from the assessment rolls the

duplication of property assessments (double assessments).

4. To purge from the tax rolls property assessments of those properties which no longer exist or have been destroyed.

PURPOSES:

All field works have been completed.Field Appraisal and Assessment Sheets

have been prepared and approved.Notices of Assessments are sent to the

owners.

When is general revision of real property assessment considered completed?

Classes of Real Property for Assessment Purposes (Sec. 215)

For purposes of assessment, real property shall be classified as :

Residential Agricultural Commercial Industrial Mineral Timberland Special

Special Classes of Real Property (Sec. 216)

Hospitals Cultural Scientific Local Water Districts GOCC – rendering services in the supply and

generation of water and/or generation and transmission of electric power.

Note: Utility of this properties shall be actual, direct and exclusive.

Date of the Effectivity of Assessment or Reassessment. (Sec. 221)

1. All assessments or reassessments made after the 1st day of January of any year shall take effect on the 1st day of January of the succeeding year.

2. Reassessment due to partial destruction, revised tax declaration shall be issued to cancel the tax declaration covering the original assessment and shall take effect at the beginning of the quarter next following the reassessment.

3. For total destruction, issued Notice of Cancellation of Assessment

Valuation of Real Property (Sec. 220) Sec 220 delineates the authority of the local assessors to classify, appraise and assess real property to only three circumstances where:1). Real property is declared and listed for taxation purposes for the first time;2). There is an ongoing general revision of property classification and assessment; or3). A request is made by the person in whose name the property is declared.

For this purpose the local assessor shall make the classification, appraisal and assessment of the real property listed and described in the declaration regardless of any previous assessment or taxpayer’s valuation on such property. The assessment having been made cannot be increased of decreased more often than once every 3 years except in the following instances:1. New improvements substantially increasing

the value of the said property; or2. When there is any change in its actual use.

Assessment of Property Subject to Back Taxes (Sec. 222)

Real property declared for the 1st time shall be assessed for the period during which it would have been liable but in no case for more than ten (10) years prior to the date of initial assessment. Provided, however, that such taxes shall be computed on the basis of applicable schedule of values in force during the corresponding period. Provided further that the total tax liability shall include the current year in addition to the ten (10) years back taxes.

If such taxes are paid on or before the end

of the quarter next following the date the notice of assessment was received by the owner or his representative, no interest for delinquency shall be imposed thereon; otherwise, such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof until such taxes are fully paid.

Notice of New or Revised Assessment (Sec 223)

When real property is assessed for the 1st time or when an existing assessment is increased or decreased, the provincial, city, or municipal assessor shall within 30 days (emphasis added) give written notice of such new or revised assessment to the person in whose name the property is declared. The notice may be delivered personally or by registered mail or through the assistance of the punong barangay in the last known address of the person to be served.

Although the real property tax is levied against the property, it is the owner who pays the tax. Before the tax liability is fixed, the property owner is entitled to a hearing on the assessment of the property; notice and hearing constitute part of due process (not strictly judicial) in taxation. If the owner is not satisfied with the action of the assessor in the assessment of the property, the said owner can resort to the appeals process provided in Sec. 226. If he does not appeal within the said period, he will be deprived of his right to be heard by the Board of Assessment Appeal.

PURPOSE OF SERVICE OF NOTICE OF ASSESSMENT

APPRAISAL AND ASSESSMENT OF MACHINERYThe appraisal and assessment of machinery is dependent essentially, on its condition of existence, whether brand-new or old (secondhand), and particularly on its state of origin, whether imported or locally made. If brand-new, its FMV is the acquisition cost. If old, the FMV is determined by dividing the remaining economic life of the machinery by its estimated economic life and multiply by replacement or reproduction cost.

If imported, the acquisition cost includes: a) freight; b) insurance; c) bank and other charges; d) arrastre and handling; e) duties and taxes; f) charges and the present site (installation cost). The foreign currency cost is converted to peso cost based on the conversion rates as determined by the Bangko Sentral.

Depreciation Allowance for MachineryAll kinds of machinery depreciate through time of continual usage. This related Section provides for the annual depreciation allowance that decreases the value of machinery consequently reducing the realty tax payable on such machinery. For every year of use, the machinery may be depreciated for assessment purposes at the rate not exceeding 5% of its original cost or reproduction or replacement cost, as the case may be. However, LGC decrees that the remaining value ot depreciated value shall be fixed at 20% of the original cost as long as the machinery is useful and in operation.

Reappraisal of Old Imported Machinery

Formula:MV = RCN x REL/ELREL = EL minus Years in UseRCN = AC x FC2/FC1 x PI2/PI1RCNLD = RCN x REL/ELMV = RCNLD

Therefore:MV = AC x FC2/FC1 x PI x REL/ELFC2 – foreign exchange rate (year of appraisal)FC1 – foreign exchange rate (date acquired)PI2 – Price Index during the year of appraisalPI1 – Price Index during the year of acquisition

Locally made machinery RCNLD= AC x *PI2/PI1 x REL/EL *from NEDAWHERE: RCN – Reproduction/Replacement Cost NewOC – Original CostEL – Economic lifeREL – Remaining economic lifePI – Price Index (optional-to be used when

information is available)% Depreciation = 1/EL x 100%

ILLUSTRATION: A unit of machinery was acquired and installed in 2000.Re-appraisal year = 2006Compute the Assessed Value and annual tax.Economic Life = 30 yearsAC = $200,000.00Insurance = $20,000.00Arrastre and handling Cost of installation Convert to PesoAC = 200,000.00 x 44 = P8,800,000.00Insurance = 20,000.00 x 44 = P880,000.00Formula:

MV = RCNLDRCNLD = AC x FC2/FC1 x REL/EL

Acquisition Cost

RCNLD = 9,680,000 x 44/52 x [30-6]/30 RCNLD = MV = 6,552,615.00Assessed Value = Market Value x Assessment LevelAV = 6,552615 x 80%AV = Php5,242,092.00

Tax DUE = AV x Tax Rate = 5,242,092 x 2%Tax DUE = Php104,841.85

PESO PER DOLLAR RATES

YEAR AVERAGE RATE

2000 44.1938

2001 50.9921

2002 51.6036

2003 54.20332004 55.94082005 55.90002006 52.0000

Local Board of Assessment Appeals (Sec. 226).

There shall be organized in each LGU a Local Board of Assessment Appeals (LBAA). Any owner or person having legal interests in the property who is not satisfied with the assessment by the assessor may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the LBAA. Its compositions :

Registrar of Deeds – Chairman Provincial Prosecutor – Member Provincial Engineer – Member

Note: The chairman have the power to designate any

employee of the province or city to serve as the secretary of the board.

All of them shall have no additional compensation.

The Board shall decide the appeal within (120) days from the date of receipt of such appeal

If the owner or person having legal interest or the assessor who is not satisfied with the decision of the Board may, within (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment Appeal.

Action of the Board.

ADDENDUM

Rules in the Assessment of Real PropertyA. All real properties, whether taxable or

exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is located.

B. The appraisal of real property shall be based on the latest Schedule of Fair Market Values (SFMV), as embodied in an ordinance passed by the sanggunians.

C. Appraisal of real property declared for the 1st time shall be listed, classified, and valued on the basis of the SFMV (either for land or building), and shall be subject to back taxes (if applicable) of not exceeding 10 years from the year of initial assessment. Thus, the property shall be liable to Tax payment for a maximum of 11 years including the current year. The schedule of values applicable for the corresponding periods shall be controlling.

Illustration:A. Land – declared in 2015. Assumed all supporting

documents are submitted.Basic Data:Area : 10,000 square metersClass: Agri ( coco land)Subclass: 1st Class5 kms to all weather road12 kms to local trading centerSFMV: Coco land

2000 - P 57,200/Hec.2007 74,360/Hec

SFMV – Coco Trees (100 TREES)2000 500/tree2007 650/tree

COMPUTATION OF VALUE:LAND APPRAISAL Classification Sub-Class Actual

UseArea Unit

ValueBase Market

ValueAgricultural 1st Coco land 1.0000 57,200 57,200

Total 57,200

PLANT AND TREES APPRAISAL

VALUE ADJUSTMENT FACTOR

Kind Number of trees planted Unit Value

Base Market ValueTotal Non-

Bearing Bearing

Coco trees 100 100 500 50,000

Total 50,000

Total P 107,200.00

Base Market Value

Adjustment Factor

% adjustment Value adjustment

Market Value

107,200 All weather road

-3% 3,216 93,264

5 kms to AWR -4% 4,288

12 kms to LTC -6% 6,432

Total 13% 13,936 93,264

PROPERTY ASSESSMENT

Taxable Exempt Effectivity 2004 of Assessment Qtr Yr

Actual Use Market Value Assessment Level Assessed ValueAgri 93,264 40% 37,305

Total 37,305

x

LAND APPRAISAL

PLANT AND TREES APPRAISAL

Classification Sub-class ActualUse

Area Unit Value Base Market Value

Agri 1st Coco land 1.0000 74,360 74,360

Total 74,360.00

Kind Number of trees planted Unit Value

Base Market Value

Total Non-bearing

Bearing

Coco Trees 100 100 650 65,000

Total 65,000

Total P 139,360.00

VALUE ADJUSTMENT FACTOR

PROPERTY ASSESSMENT

Taxable Exempt Effectivity 2008of Assessment Qtr Yr

Base Market Value

Adjustment Factor

% adjustment Valueadjustment

Market Value

139,360.00 All weather road

-3% 4,181 121,243

5kms to AWR -4% 5,574

12 kms to LTC -6% 8,362

Total -13% 18,117 121,243

Actual Use Market Value Assessment Level Assessed Value

Agri 121,243 40% 48,497.00

Total 48,497.00

Property Assessment

Taxable x Exempt Effectivity 2008 of assessment Qtr Yr

Actual Use Market Value Assessment Level Assessed Value

Agri 139,360.00 11% 15,330.00

Total 15,360.00

RULES FOR THE ASSESSMENT OF LAND1. Lands actually and principally used for

residential, agricultural, commercial, industrial or mineral purposes shall be classified and valued according to the schedule of unit base market values and assessed at their corresponding levels of assessment, which shall be fixed through an ordinance by the Sanggunian concerned.

2. Lands located in mixed land uses such as residential with commercial and industrial, the predominant use of the lands in that area shall govern the classification, valuation and assessment thereof. If the predominant use is residential, all lands in that area shall be assessed as residential; and so on.

3. A lot or parcel of land classified and appraised as residential and commercial or industrial purposes shall be assessed on the basis of the predominant use of the building or buildings.

4. Vacant lands shall be assessed like similar lands in the locality.

5. Lands owned by the local water districts and government owned and controlled corporations rendering essential public services in the supply and distribution

of water and/or generation and transmission of electric power, located in residential, commercial or industrial area shall be assessed as special property at 10% assessment level applied to the market value.6. Lands actually, directly and exclusively used

for religious, charitable or educational purposes located in residential, commercial or industrial areas shall be assessed as residential, commercial or industrial, as the case may be. In mixed land uses, the predominant use shall prevail.

Exemptions from real property tax:1. Real property owned by the republic of the

Philippines or any of its political subdivision except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person.

2. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosque, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable and educational purposes.

3. All machinery and equipment that are actually, directly, and exclusively used by Local Water District and government-owned and controlled corporation engaged in the supply and distribution of water and/or generation and transmission of electric power.

4. All property owned by duly registered cooperatives as provided for under RA 6938.

5. Machinery and equipment used for pollution control & environmental protection.

Section 234 exempts certain properties from real property taxes. The exemptions are based on the ownership, character or use of the property.Ownership Exemption. Exempted from realty taxes on the basis of ownership are real properties owned by: a) the Republic, b) a province, c) a city, d) a municipality, e) a barangay, f) registered cooperatives.

Character Exemptions. Exempted from realty taxes on the basis of their character: a) charitable institution, b) houses and temples of worship like churches, parsonage or convents appurtenant thereto, c) non-profit or religious cemetery.Usage Exemptions. Exempted from realty taxes on the basis of the actual, direct and exclusive to whichthey are devoted are: a) all lands, buildings and improvements which are

actually, directly and exclusively used for religious, charitable and educational purposes; b) all machineries and equipment actually, directly and exclusively used by local water districts or by GOCC engaged in the supply of water and/or generation and transmission of electric power; and c) all machinery and equipment used for pollution control and environmental protection.

THE TAX DECLARATIONThe tax declaration is one of the principal and vital records that is prepared and kept by the assessors in connection with real property tax assessment. It contains all pertinentinformation about a parcel or unit of real property subject of the assessment, which include the name of the owner or administrator of the property, unit base value, market value, assessment level, assessed value and the year of the effectivity of the assessment, and all details necessary for real property tax assessment.

The Significance of Tax Declaration• It is a valid proof of claim of ownership• Important depository of property information• Every property unit has separate tax

declaration• It is issued not independently of the Field

Appraisal and Assessment Sheet.

Instances when Tax Declaration are Prepared and Issued• When a general revision of assessments is conducted• When a newly discovered real property is declared

for the first time• When there is reassessment made due to correction

of errors in land area based on the Title (Original or Transfer Certificate of Title), introduction of additional improvements, partial destruction of property, gross illegality of assessment or major change in classification or actual use• When there is change in ownership of real property.

Issuance of Tax Declaration Involving Real Properties Being Declared for the First Time

Untitled Land Requirements: • A survey plan prepared by a duly

licensed Geodetic Engineer duly approved by the Land Management Bureau (LMB) of the DENR.

• A certification from the CENRO stating among others that the land is within the alienable and disposable area.

Untitled Land• An affidavit of ownership and/or Sworn

Statement declaring the Market Value of Real Property file by owner or administrator; Affidavit that the applicant is in long, continuous and notorious possession of the property.

• A certification fron the barangay captain that the declarant is the present possessor and occupant of the land and the certification of the adjoining owners duly sworn to by the barangay captain and/or the municipal mayor

• An ocular inspection/investigation report by the assessor or his duly authorized representative.

Land owned by Indigenous People• Requirements• Affidavit of Assessment• Tribal Chieftain’s Certification/Barangay

Captain Certification• Sworn Statement• Certification of the authorized officer of the

NCIP• Sketch plan with accurate coordinates

For Titled Property• Certified true copy of free patent,

homestead or miscellaneous sales application.• Certified true copy of Original Certificate of

Title file with the ROD (electronics copy).• Approved Survey Plan

For Property with Approved Patent• Requirements:• Certified true copy of free patent,

homestead or miscellaneous sales application.• Certified true copy of approved patent

by PENRO• Approved survey plan• Certified true copy of transmittal by

PENRO.

Transfer of Tax DeclarationRequirements• Certified true copy of Transfer Certificate of Title

(electronic copy), if titled property .• Deed of Conveyance.• Realty Tax Clearance issued by the Municipal

Treasurer• Certification of the Provincial Treasurer of the

Tax on Transfer of ownership (RRC Form 1)• Certificate Authorizing registration (CAR) by the

BIR.• Approved Survey Plan ( consolidation or

subdivision)

• References: Local Government Code /RA 7160. Training Course on Real Estate Appraisal Program-Module I.

Theory and Practice of Valuation National engineering Center

University of the Philippines Urban Institute of Real Estate

Comprehensive Notes & Reviewer Manual on Real Property Appraisal and Assessment Operation The Essentials of Local Government and Real Property Taxation Real Estate Taxation , Ownership, Titling, Interests Atbp.

CORRUPTION KILLSEND

Sample Problem #1

An imported machinery is installed and in operation in 2000. Compute its RCN in the General Revision of property assessment in 2006.

Tax due = Php251,392.00Solution:

MV = RCNLDMV = RCN x REL/EL RCN = MV x EL/REL EQ. 1

AV = MV x ALMV = AV/AL EQ. 2TD = AV x TR AV = TD/TR EQ. 3

Subst. 2 to 1RCN = AV/AL x EL/REL EQ. 4

Subst. 3 to 4RCN = [TD/TR]/AL x EL/RELRCN = [251,392/2%]/80% x 30/24RCN = Ᵽ19,640,000.00` ans

SAMPLE PROBLEM # 2

A Floating Dry Dock anchored at the shipyard of GSMW, Inc. at Tinoto, Maasim, Sarangani Province was purchased in 2006. It was installed in 2007 and was operational on July 20, 2008. Compute the Original Cost (OC) when the tax due (Basic & SEF) the government is Php276,480.00 for 2010, the year of the effectivity of assessment. Economic Life is 25 years.

Formula:RCNLD = AC x Local Index x [EL – N]/ELOriginal Cost = Acquisition Cost = RCNLDRCNLD = MARKET VALUEMARKET VALUE (MV) = AV/ALAV = TAX DUE/TAX RATESol’n:

AV = TAX DUE/TAX = 276,480.00/2% = 13,824,000.00RCN = MV = AV/AL AC = P18,000,000 – Original Cost = 13,824,000.00/80% = 17,280,000.00

AC= MV = 17,280,000/[(25-1)/25]

SAMPLE PROBLEM # 3

Compute the yearly Assessed Value of a commercial machinery which was bought at an Original Cost of Php5,000,000.00 and was operational in 2010. If the estimated economic life is 25 years, how much is the yearly depreciation allowance, and the yearly Assessed Value of the machinery up to 2015?

SUPPLEMENTAL FORM

Yr Assessed

MV AV % Dep Effec-tivity

2010 5,000,000 4,000,000 0 2010

4,800,000 3,840,000 4 2011`

4,600,000 3,680,000 8 2012

4,400,000 3,520,000 12 2013

4,200,000 3,360,000 16 2014

4,000,000 3,200,000 20 2015

Sol’n:Given:

Php5,000,000.00 = Acquisition CostYearly Depreciation Allowance = 1/25x100% = 4%Estimated Economic Life = 25 yearsAssessed Value = MV x AL 1MV=RCNLD = AC x IP2/IP1 x REL/EL

where: REL =EL-NMV = 5,000,000 x 1 x 25/25MV = 5,000,000

AV = 5,000,000 x 80%AV = Ᵽ4,000,000.00Tax Effectivity : YEAR 2010

RCNLD = 5,000,000 x 25-1/25 RCNLD = 4,800,000AV = 4,800,000 x 80%AV = 3,840,000.00Tax Effectivity: YEAR 2011

SAMPLE PROBLEM # 4

Compute the assessed value of a lot where a residential house of Mr. Juan Dela Cruz is situated.Location: Santiago Blvd., Gen. CityLot Area: 1,000 Sq. MetersOrd. No. 29-2010SFMV - Commercial: P10,000/Sq.M.SFMV - Residential : P8,000/Sq.M.

SOL’N:AV = MV x ALMV = AREA x UNIT VALUEMV = 1,000 x 10,000MV = Php10,000,000.00AV = MV X AL (Res’l)

AV = 10,000,000 x 20%AV = Ph2,000,000.00

SAMPLE PROBLEM # 5

Compute the Assessed Value of a (2) storey building; What is its taxability?Location: Leon Llido-National H-way, GSC1st Floor Area = 1,000 sq.m. - bookstore/groceries/burger house2nd Foor Area = 2,500 sq. m. – computer schoolUBCC – Php12,000/Sq.M.

Given:1st Flr = 1,000 sq. meters – commercial2nd Flr = 2,500 sq. meters – institutionalMV(F1) = 1,000 x 12,000 = P12,000,000AV (F1)= 12,000,000 x 80% = P9,600,000.00MV (F2) = 1,500 x 12,000 = P18,000,000.00AV = MV x ALAVF2) = 18,000,000 x 80% = P14,400,000.00 AV(F2) = 18,000,000 x 0% = 0Taxability = Taxable

What will be the assessed value of the commercial building which was completed and occupied in 2007 if the degree of maintenance is poor?Taxable Year Effectivity = ?Area = 400 sq. metersUBCC = Php12,500.00

SAMPLE PROBLEM #6

Dep Table for buildingAge %dep0-2 33-5 66-8 10

9-12 1513-16 19

SOLUTION:MV = A X UBCCMV = 400 X 12,500MV = Php5,000,000.00Age of building in 2015 = 8 yearsApply depreciation base on table = 10%MV =Php5,000,000 X (100-10)%

= 4,500,000.00AV = MV X ALAV = 4,500,000.00 X 70% AV = Php3,150,000.00 Taxable year effectivity = 2008

What is the assessed value of a 2 storey building with an total floor area of 500 sq. meters? F1 – Area = 230 sq, meters – groceries. F2 = Residence; BUCC = P8,500

Solution:AV = MV X AL AV = 4,250,000 X 40% MV = UBCC X AREA AV = P1,700,000.00MV = 8,500 X 500MV = P4,250,000.00

SAMPLE PROBLEM # 8

Sample Problem # 9

An agricultural land with an area of 24.6250 hectares surveyed in 1974 was notoriously cultivated with 2,000 coco trees from 1970. It was issued patent in 1975 and registered with the Register of Deeds in 1976. In 2014, the owner requested the local assessor to issue tax declaration as required by the Rural Bank for loan purposes. Compute the back taxes of the property. What is the effective taxable year?

P250,000/Hec.- SFMV 2008P650/tree – SFMV 2008P180,000/Hec. – SFMV 2000P500/tree – SFMV 2000

Sol’n:MV = A x Unit ValueMV = 24.6250 x 250,000 = P4,925,000.00 (SFMV2008)MV = 2,000 x 650 = P1,300,000.00 (coco trees)AV = [4,925,000 + 1,300,000] x 13% = P809,250.00MV = 24.6250 x 180,000 = P4,432,500 (SFMV 2000)MV = 2,000 x 500 =P1,000,000.00 (coco trees)AV = [4,432,500 + 1,000,000] x 11% = P597,575.00Tax Effectivity = 2005TD = AV x Tax RateTD = 597,575 x 2% x 3 = P35,854.50 (2005-2007)

2008 – 2015TD = 809,250 x 2% x 8 = P129,480.00Total = 129,480 + 35,854.50 =P165,334.50

PROCESS: Determine the type of building. Locate the equivalent unit base construction cost (UBCC) in the Schedule of Fair Market Value (Ordinance).Apply the UBCC to derive the market value.Determine the actual or the predominant use of the building.Apply the equivalent assessment level (Ordinance).Compute the assessed value of the building.Determine the tax effectivity.Compute the tax due.Sent Notice of Assessment to Tax Payer (Assessor)Send Tax Bill. (Treasurer)