Republic of the Philippines

DEPARTMENT OF FINANCE
NATIONAL TAX RESEARCH CENTER
Harbor Centre II
23rd Street Cor. Delgado Street
Port Area, Manila

LOCAL PROPERTY
TAXATION
Local Government Units*
Provinces - 81
Cities - 145
Municipalities- 1,489
Barangays - 42,036
*As of 31 December 2015
1987 Philippine Constitution
Article X, Section 5

“Each local government unit shall have the power to

create its own sources of revenues 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.”
Legal Basis

Republic Act No. 7160, otherwise known as

the “Local Government Code of 1991”
which took effect on 1 January 1992.
LGC of 1991
• Section 18
Local government units shall have the power and authority x x
x to create their own sources of revenue and to levy taxes,
fees and charges which shall accrue exclusively for their use
and disposition and which shall be retained by them; to have a
just share in national taxes which shall be automatically and
directly released to them without need of any further action; to
have an equitable share in the proceeds from the utilization
and development of the national wealth and resources within
their respective territorial jurisdictions x x x
Fundamental Principles
(Section 130, LGC)
a. Taxation shall be uniform in each local government
unit;
b. Taxes, fees, charges and other impositions shall:
1. Be equitable and based on taxpayer’s ability;
2. Be levied and collected only for public purposes;
3. Not be unjust, excessive, oppressive, or confiscatory;
4. Not be contrary to law, public policy, economic
policy or in restraint of trade
Fundamental Principles
(Section 130, LGC)
c. Collection of local taxes, fees, charges and other
impositions shall in no case be let to any private
person;
d. Revenue collected shall inure solely to the benefit of,
and be subject to the disposition by, the LGU levying
the tax, fee, charge, or other impositions; and
e. Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
Common Limitations on the Taxing and
Other Revenue – Raising Powers of LGUs
a) Income tax, except when levied on banks and other financial institutions;

b) Documentary Stamp Tax;

c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa;

d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage

dues, and all other kinds of customs fees, charges and dues, except wharfage
on wharves constructed and maintained by the LGU concerned;

e) Taxes, fees, and charges and other impositions upon goods carried into or out
of, or passing through the territorial jurisdictions of LGUs;
Common Limitations on the Taxing and
Other Revenue – Raising Powers of LGUs
f) Taxes, fees, or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;

g) Taxes on business enterprises certified by the Board of Investments as pioneer or non-

pioneer;

h) Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees, or
charges on petroleum products;

i) Percentage or Value-Added Tax (VAT) on sales, barters, or exchanges or similar

transactions on goods or services, except as otherwise provided;

j) Taxes on gross receipts of persons engaged in the transportation of passengers or freight

by hire and common carriers by air, land, or water, except on the operation and
franchising of tricycles;
Common Limitations on the Taxing and
Other Revenue – Raising Powers of LGUs
k) Taxes on premiums paid by way of reinsurance or retrocession;

l) Taxes, fees, or charges for the registration of motor vehicles and issuance of all
kinds of licenses or permits for driving, except tricycles;

m) Taxes, fees, and charges on Philippine products actually exported;

n) Taxes, fees, or charges on countryside and barangay business enterprises and

cooperatives registered under RA Nos. 6810 and 6938; and

o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and LGUs.
Sources of LGU Income
 Locally – generated
 Real Property Taxes
 Business Tax and Other Local Taxes
 Fees and Charges
 Income from economic enterprises
Externally-sourced
 Internal Revenue Allotment
 Share in the proceeds of national wealth
 Loans, credits and bonds
 Grants and subsidies
Provincial Impositions
h. Tax on Sand, Gravel and
a.RPT
Other Quarry Resources
b. SEF i. Professional Tax
c. Idle Land Tax j. Amusement Tax
k. Tax on delivery Vans and
d. Special Levy on Land Tax
Trucks
e. Tax on Transfer of Real
l. Tolls/Charges
Property
f. Socialized Housing Tax m. Economic Enterprises
g. Tax on Business of Printing
and Publication
Municipal Impositions
a. Business Tax e. Fishery Rentals
b. Community Tax f. Tolls and Charges
c. Regulatory Fees g. Economic Enterprises
d. Fees for Licensing of h. Franchising of
Weights and Measures Tricycle Operations
Rates in MMA Municipality and Cities
 The MUNICIPALITY within MMA may levy the taxes on businesses
imposed by municipalities at rates which shall not exceed by 50% the
maximum rates prescribed for said business. The said municipalities
with MMA may levy and collect the taxes which may be imposed by
the province at rates not exceeding those prescribed therein.

 The CITY ,may levy and collect any of the taxes, fees, charges and
other impositions that the province and the municipality may impose.
The rates of taxes which the city may levy may exceed the maximum
rates allowed for the province and municipality by not more than
50% except the rates of professional and amusement taxes.
Barangay Impositions
a. Business Tax on Stores/Retailers
b. Service Fees and Charges
c. Barangay Clearance Fee
d. Other Fees and Charges
 Commercial Breeding of Fighting Cocks
 Cockfights and Cockpits
 Recreational Places
 Billboards, signboards, neon signs
Local Property Taxes
1. Basic Real Property Tax
2. Special Education Fund Tax
3. Idle Land Tax
4. Special Levy/Assessment on Land
5. Socialized Housing Tax
6. Tax on Transfer Tax
What is a real property?
• Land and all the things that are attached to it.
Anything that is not real property is personal
property and personal property is anything that
isn't nailed down, dug into or built onto the land
(http://www.lectlaw.com/def2/q013.htm).
Real Property under the LGC
• There is no complete definition of real property
under the LGC. Section 199 of the LGC only
provides the definition of machinery.

• Real property is defined under Article 415 of the

New Civil Code
Real Property under Article 415 of
the NCC
1. Land, buildings, roads and constructions of all kinds adhered to the
soil;
2. Trees, plants, and growing fruits, while they are attached to the land
or form an integral part of an immovable;
3. Everything attached to an immovable in a fixed manner, in such a
way that it cannot be separated therefrom without breaking the
material or deterioration of the object;
4. Statues, reliefs, paintings or other objects for use or ornamentation,
placed in buildings or on lands by the owner of the immovable in such
a manner that it reveals the intention to attach them permanently to the
tenements;
Real Property under Article 415 of
the NCC
5. Machinery, receptacles, instruments or implements intended
by the owner of the tenement for an industry or works which
may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works;
6. Animal houses, pigeon-houses, beehives, fish ponds or
breeding places of similar nature, in case their owner has placed
them or preserves them with the intention to have them
permanently attached to the land, and forming a permanent
part of it; the animals in these places are included;
7. Fertilizer actually used on a piece of land;
Real Property under Article 415 of
the NCC
8. Mines, quarries, and slag dumps, while the matter thereof
forms part of the bed, and waters either running or stagnant;
9. Docks and structures which, though floating, are intended
by their nature and object to remain at a fixed place on a
river, lake, or coast;
10. Contracts for public works, and servitudes and other real
rights over immovable property.
REAL PROPERTY TAX (RPT)
• Imposed on land, building and machinery

Rate:
Province – not exceeding 1% of the assessed value
City/Municipality within MMA – not exceeding 2% of the assessed value

Tax Base:
Assessed Value
= Fair Market Value x Assessment Level (%)
Tax Payable
= Assessed Value x Rate
ASSESSMENT LEVELS OF REAL PROPERTIES

• LAND
Residential - 20%
Agricultural - 40%
Commercial - 50%
Industrial - 50%
Mineral - 50%
Timberland - 20%
ASSESSMENT LEVELS OF REAL PROPERTIES
• BUILDINGS AND OTHER IMPROVEMENTS
a) Residential – from 0% for those valued at P175T or less to 60% for
those valued over P10M.

b) Agricultural – from 25% for those valued at P300T or less to 50% for
those valued over P2M.

c) Commercial/Industrial – from 30% for those valued at P300T or less to

80% for those valued over P10M.

d) Timberland – from 45% for those valued at P300T or less to 70% for
those valued over P2M.
ASSESSMENT LEVELS OF REAL PROPERTIES

• MACHINERY

Agricultural - 40%
Residential - 50%
Commercial &
Industrial - 80%
ASSESSMENT LEVELS OF REAL PROPERTIES

• SPECIAL CLASSES

Cultural, Scientific, Hospital - 15%

Local water districts and

GOCCs engaged in the
supply and distribution of
water and/or generation
of electric power - 10%
Machinery • Whether permanent or “mobile” (not permanent) are taxable

PERMANENT MOBILE
1. Fixed by the owner of the immovable 1. Must be actually, directly, and exclusively
(except agent of tenant or intended to be used to meet the needs of the particular
donated by the tenant, Valdez vs. industry, business, or activity; (MERALCO
Altagracia, Davao Sawmmill vs. Castillo) vs. The City Assessor et. al. 2015)
(415,5) (Mindanao Bus vs. The City Assessor et al.
1962: machinery must be “essential” to the
industry, business or activity)
2. In a building or on a piece of land (415, 2. by their very nature and purpose, are
5) designed for, or necessary for
manufacturing, mining, logging,
commercial, industrial, or agricultural
purposes.
3. To meet the needs of the said industry or
works (415, 5)
4. Attached to an immovable in a fixed
manner (415, 3)
5. It cannot be separated therefrom without
breaking the material or deterioration of
the object. (415, 3) (Paras qualifies
Machinery [Section 199 (o), LGC]
• It embraces machines, equipment, mechanical contrivances,
instruments, appliances, or apparatus which may or may not be
attached, permanently or temporarily, to the real property. It
includes the physical facilities for production, the installations
and appurtenant service facilities, those which are mobile, self-
powered or self-propelled, and those not permanently attached
to the real property which are actually, directly and exclusively
used to meet the needs of the particular industry, business or
activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes.
Machineries
• Manila Electric Company vs. The City Assessor (2015),
the Court highlights that under Section 199(o) of the
Local Government Code (LGC), machinery, to be
deemed real property subject to real property tax,
need no longer be annexed to the land or building as
these “may or may not be attached, permanently or
temporarily to the real property,” and in fact, such
machinery may even be “mobile.”
Machineries
These machineries subject to real property tax which are
mobile, self-powered or self-propelled, or not permanently
attached to the real property require that they:
(a) must be actually, directly, and exclusively used to meet
the needs of the particular industry, business, or activity;
and
(b) by their very nature and purpose, are designed for, or
necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.
(MERALCO vs. The City Assessor, 2015)
Machineries
EXEMPTIONS : (Machinery which are of general purpose)
(MERALCO vs. The City Assessor, 2015)
Including but not limited to: 7. telex machines
1. office equipment 8. cash dispensers
2. typewriters 9. furniture and fixtures
10. freezers, refrigerators
3. telephone equipment
11. display cases or racks
4. breakable or easily damaged 12. fruit juice or beverage automatic
containers (glass or cartons) dispensing machines which are
5. microcomputers not directly and exclusively used
6. facsimile machines to meet the needs of a particular
industry business or activity
DISTRIBUTION OF THE RPT
COLLECTION (Section 271)
• Collection in the Province:
Province - 35%
Municipality - 40%
Barangay - 25%

• Collection in the City:

City - 70%
Barangay - 30%
SPECIAL LEVIES ON REAL PROPERTY

1. Special Education Fund (SEF) Tax

- one percent (1%) on the assessed value of real property

- accrues to the SEF and released to the local school

boards
SPECIAL LEVIES ON REAL PROPERTY

2. Idle Lands Tax

- not exceeding 5% of the assessed value of real property

Coverage:
Agricultural Lands – more than one hectare in area, ½ of which
remain uncultivated or unimproved.

Non-agricultural Lands – more than 1,000 sq. m. in area, ½ of which

remain unutilized or unimproved.
SPECIAL LEVIES ON REAL PROPERTY

3. Special Levy by Local Government

- imposed on lands within the LGU specially benefited by
public works projects or improvements funded by the LGU.

- shall not exceed 60% of the actual cost of the project or

improvement.
SPECIAL LEVIES ON REAL PROPERTY

4. Socialized Housing Tax

- One-half percent (1/2% or 0.5%) of the assessed values

of all lands in urban areas in excess of P50,000.
SPECIAL LEVIES ON REAL PROPERTY

5. Tax on Transfer of Real Property Ownership

- not more than 50% of 1% of the total consideration

involved in the acquisition of the property (thru sale, barter or
any other mode of transferring ownership or title) or of the FMV
in case the monetary consideration involved in the transfer,
whichever is higher.
RPT EXEMPTIONS
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water district and GOCCs engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under RA 6938;
and
(e) Machinery and equipment used for pollution control and environmental protection.
Thank you!