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Real-property tax: Prescription

LAST week in this column, my colleague discussed some of the basic principles surrounding
real-property taxation. He noted that real-property tax accrues on January 1 of each year.
But the tax may actually be paid in four equal installments without incurring penalties. So in
the absence of a local legislation providing for a deadline more favorable to the taxpayers,
the payment of the tax must be made on or before the end of each calendar quarter.
Otherwise, a 2-percent penalty in the form of interest may be imposed on the taxes due for
every month of delay.
The date of accrual of the tax and the prescribed deadlines for the payment of the quarterly
installments due as provided by law are significant for a number of reasons. One of these is
the reckoning of the computation of interests in case the tax is not paid on the date it falls
due.
Based on the existing rules, failure to pay on time at least the first-quarter installment of the
real-property tax constitutes a waiver of the privilege to pay without penalty the annual
realty-tax obligation in four equal installments on or before the end of every quarter of the tax
year. In other words, while the law allows the taxpayer to pay his real-property tax for the
year in four quarterly installments, the taxpayer loses that right if he fails to pay portion of the
tax that falls due at the end of the first quarter.
The effect is that the taxpayer supposedly availing himself of the quarterly installments but
fails to pay the amount of taxes due on or before March 31 of the same year can be
assessed for the 2-percent penalty. If that happens, the penalty is reckoned not from the end
of the first quarter but from the first day of January of the same year. And the penalty is
imposable not only on the amount that falls due at the end of the first quarter but on the total
amount due for the entire year.
But while local government units may pursue taxpayers for unpaid taxes and penalties or tax
delinquencies, there are limitations to such action. One of these limitations is the period of
prescription within which the local government units may collect taxes. The law gives local
government units a period of five years from the date the tax becomes due to pursue the
collection of deficiency real-property taxes. Beyond this period, they are barred from
instituting either administrative or judicial action, unless one of the circumstances for the
suspension of the prescriptive period is present.
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And when does the prescriptive period start to run? In one case (CTA OC 012, November
15, 2011), the court recognized that while it is clear that the law intended that an action be
brought against a deficient taxpayer within five years, it does not clarify when the prescriptive
period begins to run. It only states that it begins when it becomes due.
So it is important to know when the real-property tax becomes due. In the same case, the
court noted that the tax accrues on January 1 of every year. However, the taxpayer is not
required to pay the tax upon its accrual. The law provides for four dates in each taxable year,
usually at the end of each quarter wherein part of the taxes is due. Thus, the court ruled that
it would only be proper that the prescriptive periods be determined with each quarter, rather
than on a yearly basis. This means that the local government unit concerned has five years
counting from the end of each quarter, to initiate either an administrative or judicial action to
collect the deficiency tax for the period, unless it falls under the circumstances that suspend
the running of the prescriptive period.
As the court emphasized, the law of prescription for the collection of taxes is beneficial to
both the government and the taxpayer. To the taxpayers, they should be aware that the right
of the government to collect taxes end after the lapse of five years. Otherwise, they might be
paying taxes that are no longer due by reason of prescription.
* * *
The author is a senior partner of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article
to any actual or particular tax or legal issue should be supported, therefore, by a professional
study or advice. If you have any comments or questions concerning the article, you can email the author at fulvio.dawilan@bdblaw.com.ph or call 403-2001 local 310.

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