I. Introduction

This memorandum provides an exhaustive analysis of the fundamental principles governing real property taxation (RPT) in the Philippines. RPT is a local tax imposed by cities and municipalities, and in the case of provinces, on municipalities within its territorial jurisdiction, on real property such as land, buildings, machinery, and other improvements. Its legal foundation is primarily anchored in the Local Government Code of 1991 (Republic Act No. 7160), which devolved the power of taxation to local government units (LGUs). This memo will delineate the core principles, covering the nature of the tax, the taxing authority, the tax base, assessment procedures, exemptions, appraisal and valuation, tax liability, collection, and remedies. A comparative table of key concepts is included in Section VII.

II. Legal Foundation and Nature of Real Property Tax

The power to levy real property tax is a constitutionally recognized power of local governments under Article X, Section 5 of the 1987 Constitution, which provides that each local government unit shall have the power to create its own sources of revenue. This power is operationalized by Book II of the Local Government Code. RPT is classified as a direct tax, an ad valorem tax (based on value), and a local tax. It is not a national tax administered by the Bureau of Internal Revenue. The tax is imposed annually on the real property itself, which is deemed the taxable entity, making it a tax in rem. Liability attaches to the property, and the lien thereon is superior to all other liens, charges, or encumbrances, regardless of the owner or possessor.

III. Taxing Authority and Jurisdiction

The primary taxing authority for RPT is the local government unit where the real property is situated. The Local Government Code delineates this authority: provinces levy the tax on real property within the territorial jurisdiction of component cities and municipalities; cities and municipalities within the Metropolitan Manila Area levy the tax; and municipalities levy the tax within their territorial jurisdiction. The Sanggunian (local legislative council) of the LGU enacts the tax ordinance prescribing the rules for levy, assessment, and collection, within the limits set by the Code. The local assessor is responsible for the identification, listing, classification, and appraisal of all real property within the LGU.

IV. Tax Base: Real Property Subject to Tax

The tax base for RPT is all real property within the LGU’s jurisdiction. As defined under Section 199 of the Local Government Code, real property includes: (1) land; (2) buildings, structures, and improvements permanently attached to the land or another structure; (3) machinery, which may be movable in nature but is deemed real property if it is actually, directly, and exclusively used to meet the needs of a particular industry, business, or activity and is permanently attached to the real property; and (4.1) all other pieces of machinery not falling under the previous category that are essentially permanent in nature. The classification of machinery as real property is a significant and often contested aspect of the tax base.

V. Assessment, Appraisal, and Valuation

The process begins with assessment, which is the official act of determining the assessed value of the real property. This involves appraisal, the process of estimating the fair market value (FMV). The fair market value is the price at which a property would be sold by a willing seller to a willing buyer, both not under compulsion. The local assessor determines the FMV based on assessment levels and schedules of fair market values established by the Sanggunian. The assessed value is the FMV multiplied by the assessment level (a percentage set by law, varying per property classification—e.g., residential, agricultural, commercial, industrial, timberland). The assessed value is the figure upon which the real property tax is computed.

VI. Computation and Tax Rates

The basic real property tax is computed by multiplying the assessed value by the applicable basic tax rate. The Local Government Code prescribes ceiling rates: provinces may levy at a rate not exceeding one percent (1%) of the assessed value; cities and municipalities within Metro Manila may levy at a rate not exceeding two percent (2%). The Sanggunian may fix the rate within these limits. On top of the basic RPT, an additional tax not exceeding one percent (1%) is levied on real property classified as idle land. Furthermore, a Special Education Fund (SEF) tax of one percent (1%) of the assessed value is also imposed, the proceeds of which accrue to the local school board.

VII. Comparative Table of Key RPT Concepts

VIII. Exemptions from Real Property Tax

The Local Government Code enumerates properties exempt from real property tax. These include: real property owned by the Republic of the Philippines or any of its political subdivisions, except when the beneficial use is granted to a taxable person; charitable institutions, churches, and convents, mosques, and non-profit cemeteries; and all machinery and equipment actually, directly, and exclusively used by local water districts and government-owned or controlled corporations. Exemptions are strictly construed against the taxpayer claiming them. The mere ownership by a religious or charitable entity is not sufficient; the property must be actually, directly, and exclusively used for charitable, religious, or educational purposes. Exemptions may also be granted by special laws.

IX. Taxpayer Liability, Collection, and Penalties

The real property tax is the personal liability of the person who owned the property at the time the tax accrued. However, as a tax in rem, the primary recourse of the LGU is against the property itself. The local treasurer is responsible for collection. Taxes are due annually and may be paid in four installments. Failure to pay results in the imposition of interest (two percent per month) and a surcharge (up to seventy-two percent of the delinquency). The tax lien on the property is automatically attached. For persistent delinquency, the LGU may initiate administrative action through levy upon the real property and its subsequent sale at public auction.

X. Remedies of the Taxpayer and the LGU

A. Taxpayer Remedies: (1) Protest: Within sixty (60) days from receipt of the Notice of Assessment, the taxpayer may file a written protest with the local assessor on the assessment. An appeal may be taken to the Local Board of Assessment Appeals (LBAA), then to the Central Board of Assessment Appeals (CBAA), and finally to the Court of Tax Appeals via a petition for review. (2) Claim for Refund or Credit: If a tax is erroneously or illegally collected, a written claim must be filed with the local treasurer within two (2) years from payment.
B. LGU Remedies: For collection of delinquent taxes, the LGU may: (1) Institute civil action in court; or (2) Enforce the tax lien through administrative action by levy and public sale of the delinquent real property after due notice and publication, as provided under Sections 257 and 258 of the Local Government Code. The right of redemption is available to the owner or any interested party within one (1) year from the date of sale.