Real Property Tax Code + Local Government Code

Plain-Language Summary

Real Property Tax (RPT) in the Philippines is governed by Presidential Decree No. 464 (Real Property Tax Code of 1974) as amended by Republic Act No. 7160 (Local Government Code of 1991). RPT is an annual tax imposed by local government units (cities and municipalities) on the ownership of real property—land, buildings, machinery, and other improvements. The tax is the primary source of revenue for local governments, funding roads, schools, health centers, and public services. Legal Basis and Tax Authority Under the 1987 Constitution, local government units have the power to impose taxes, fees, and charges. The Local Government Code (LGC) operationalizes this by authorizing provinces, cities, and municipalities to levy RPT. The tax is imposed on the assessed value of real property, which is determined by the local assessor based on the property's fair market value. The tax is an annual obligation that runs with the property, not the owner. Even if the property is sold mid-year, the tax for the full year is due. However, the sale contract typically specifies which party (buyer or seller) pays the current year's tax. The buyer is advised to demand proof that the seller has paid all prior years' taxes before finalizing the sale, as unpaid RPT becomes a lien on the property and can result in public auction. Determination of Assessed Value and Tax Rates Real property tax is computed as: RPT = Assessed Value x Tax Rate. The Assessed Value is a percentage of the Fair Market Value (FMV) as determined by the local assessor. The LGC specifies maximum assessment levels: residential properties are assessed at 20% of FMV, commercial/industrial properties at 50% of FMV, agricultural properties at 40% of FMV, timberland at 20%, and mineral lands at 50%. For example, if a residential house and lot has a Fair Market Value of PHP 5 million, the Assessed Value is PHP 1 million (20% of PHP 5 million). The Tax Rate is set by the local Sanggunian (city or municipal council) within limits set by law: provinces can impose up to 1%, cities and municipalities in Metro Manila up to 2%, and other municipalities up to 1%. Most LGUs impose the maximum rate. Using the example above, if the city imposes a 2% rate, the annual RPT is PHP 20,000 (PHP 1 million x 2%). This amount is due in four quarterly installments or in full by January 31 of each year. Paying in full by January 31 usually qualifies for a discount (typically 10-20% depending on the LGU). The Fair Market Value is reassessed every three years by the local assessor. The assessor uses a Schedule of Market Values (SMV) that lists the base value per square meter for each zone in the locality. For example, residential lots in Makati CBD may be valued at PHP 200,000/sqm, while those in rural areas may be PHP 2,000/sqm. The assessor multiplies the lot area by the SMV, then adds the value of improvements (building, fence, swimming pool) using construction cost tables. Property owners can contest the assessed value if they believe it is too high. The process is: file a written appeal with the Local Board of Assessment Appeals within 60 days of receiving the tax declaration. The Board reviews the case and issues a decision within 120 days. If still unsatisfied, the owner can appeal to the Central Board of Assessment Appeals, and ultimately to the Court of Tax Appeals. Exemptions from Real Property Tax Certain properties are exempt from RPT under the Constitution and the LGC: (1) Properties owned by the Republic of the Philippines (government land, public schools, military bases). (2) Properties used exclusively for religious, charitable, or educational purposes, provided they are non-profit and do not lease the property for income. (3) Properties used for cemeteries, shrines, and cultural heritage sites. (4) Machinery and equipment used in pollution control and environmental protection. (5) Socialized housing projects under UDHA (RA 7279) for low-income beneficiaries. Important limitations: A church building used exclusively for worship is exempt, but if the church leases part of the building for commercial use (e.g., a coffee shop), that portion becomes taxable. Similarly, a private school's academic buildings are exempt, but the school canteen and rental dormitories are taxable. Senior citizens and persons with disabilities are entitled to RPT discounts under RA 9994 and RA 10754: 20% discount on RPT for properties they own and use as their primary residence, provided the assessed value does not exceed PHP 10 million. Consequences of Non-Payment and Tax Delinquency Failure to pay RPT triggers penalties and interest. Under the LGC, unpaid RPT incurs a 2% monthly interest (24% annually), compounded. After one year of delinquency, the property is annotated with a tax lien at the Register of Deeds, making it impossible to sell or mortgage until the tax is paid. After two years of delinquency, the local treasurer can initiate foreclosure proceedings. The process is: (1) The treasurer publishes a Notice of Delinquency in a local newspaper and posts it at the City/Municipal Hall and on the property. (2) If the owner does not pay within 30 days, the treasurer schedules a public auction. (3) The property is sold to the highest bidder at the auction. The minimum bid is the total tax due plus penalties, interest, and costs. (4) The owner has a one-year redemption period to pay the full amount and recover the property. If the owner does not redeem within one year, the buyer obtains a Final Deed of Sale and can transfer the title. Many properties in the Philippines are sold at tax delinquency auctions for a fraction of their market value because owners fail to monitor tax payments or abandon properties. Buyers at these auctions must verify that the auction process was legal (proper publication, notice to the owner, valid assessment) to avoid the sale being voided by courts. Transfer Tax vs. Real Property Tax Transfer Tax is a separate tax imposed by local governments on the sale or transfer of real property. The tax is 0.5% to 0.75% of the property's selling price or fair market value, whichever is higher. Transfer Tax is paid once at the time of transfer, while Real Property Tax is paid annually. Both taxes are paid to the local treasurer's office. The buyer typically pays the Transfer Tax as part of the closing costs. The treasurer issues a Clearance or Certificate of Payment, which is required by the Register of Deeds before the new title can be issued. Practical Compliance Tips Property owners should pay RPT on time to avoid penalties. Most LGUs offer online payment portals, and some accept payment through banks or Bayad Centers. Keep official receipts as proof of payment—these are needed when selling the property or applying for loans. Before buying property, buyers should request a Certificate of No Tax Delinquency from the local treasurer's office. This certifies that RPT is fully paid. If the seller has unpaid taxes, the buyer can deduct the amount from the purchase price or demand that the seller settle the taxes before closing. Developers and large property owners should maintain a tax calendar to track due dates and avoid late payment. Properties with multiple co-owners should designate one person to handle tax payments and keep all co-owners informed.

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Frequently Asked Questions (1)

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