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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B.

Aban
(PROF. CABANEIRO) A2011 1

JUICY NOTES

Chapter 11: REAL PROPERTY TAXATION


IN GENERAL
Real property tax and special levies
1. Basic real property tax
2. Additional levy on real property for the Special Education
Fund 1%
3. Additional ad valorem tax on the idle lands 5%
4. Special levy by local government units.
IMPOSITION OF REAL PROPERTY TAX
Real property tax
Real property tax has been defined as a direct tax on the
ownership of lands and buildings or other improvements
thereon not specially exempted and is payable regardless
or whether the property is used or not, although the value
may vary in accordance with such factor.
Real property tax is a fixed proportion of the assessed
value of the property being taxed and requires, therefore,
the intervention of assessors.
Note however that the Supreme Court decided that taxing
real property is on the basis of actual use, even if the user is
not the owner of the property.
Real property tax receipts
Real property tax receipts are not evidence of ownership,
but merely evidence of rightful possession.
Characteristics of real property tax
1. It is a direct tax on the ownership or use of real property.
2. it is an ad valorem tax. Value is the tax base.
3. It is proportionate because the tax is calculated on the basis
of a certain percentage of the value assessed.
4. It creates a single, indivisible, obligation.
5. It attaches on the property (lien) and is enforceable only
against property.
6. It is a local tax

Ad valorem tax
Ad valorem tax is a levy on real property on the basis of a
fixed proportion of the value of the property. [Section
199, Local Government Code]
Nature and scope of power to impose realty tax
The taxing power of local governments in real property
taxation is a delegated power.
The real estate tax is not a local tax. It has always been
imposed by the law- making body before the 1973
Constitution, and later, the defunct Batasang Pambansa
before the advent of Aquino Administration in 1986. The tax
is imposed throughout the Philippines, levied on every real
property that is located thereat (Meralco Securities
Industrial Corp. Vs Central Board of Assessment, Mar 31,
1982).
However, there seems to be no question that the realty tax
is veritably a local tax.
The previous case was ruled that way because Real Property
Tax Code (PD 464, as amended) provides that real property
tax were not levied by local government.
Who has the power to impose realty tax?
1. provinces
2. cities
3. municipalities within the Metro Manila area [Section 232,
Local Government Code]
Rates of levy
A province or city or a municipality within the Metro Manila
area shall fix a uniform rate of basic real property tax
applicable to their respective localities as follows:
1. In the case of a province, at the rate not exceeding 1%
of the assessed value of real property; and
2. In the case of a city or a municipality within the Metro
Manila area, at the rate not exceeding 2% of the
assessed value of real property. [Section 233, Local
Government Code]

Chapter 11: REAL PROPERTY TAXATION. Page 1 of 12

TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 2

JUICY NOTES

the Board of Assessment Appeals has no competence to


decide since it can deal only with findings of facts.
Power to prescribe penalties for tax violations
Local governments have the power to impose penalties for
tax violations.
Penalty:
Fine: not less than 1000 but not more than 5000
Imprisonment:not less than 1 month but not more
than 6mo
Power to fix penalties applies only to provinces, cities and
municipalities of Metro Manila.
Reason:
It is only the Sanggunians of these local government
units that can levy real property taxes (Sec. 232,
LGC)
Fundamental principles governing real property taxation
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.
5. The appraisal and assessment of real property shall be
equitable. [Section 197, Local Government Code]
Ty, et al vs Trampe (December 1, 1995)
The Supreme Court declared illegal the 400% to 570%
increase in real estate taxes imposed on landowners in Pasig
City because the new schedule of taxes did not comply with
the provision of PD 921 which mandates that real estate
taxes shall not unduly burden the taxpayers.
The exhaustion of administrative remedies was not
necessary before they could raise the issue judicially
because the complainants raised purely legal issues which

Do local governments have the power to exempt real


property from taxation?
Unlike in the case of local taxes where Sec 192 of LGC
explicitly authorizes them to grant tax exemptions,
incentives, or reliefs under such terms and conditions as
they may deem necessary, local govt seems to be bereft
of this authority insofar as realty taxes are concerned.
By specifying in Sec 234 of LGC on what particular
properties are exempt, it follows by clear implication that
the law has withheld the local govts the power to exempt.
The Latin maxim expressio unius est exclusion alterius
applies.
Properties exempt from real property taxes (Sec 234, LGC)
1. Real property owned by the Republic of the Philippines or
any of its political subdivisions 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, mosques, non-profit or religious
cemeteries, and all lands, buildings, and improvements
actually, directly and exclusively used for religious,
charitable, or educational purposes.
3. All machineries and equipment that are actually, directly
and exclusively use by local water utilities and governmentowned or controlled corporations engaged in supply and
distribution of water and/or generation and transmission of
electric power.
4. All real property owned by duly registered cooperatives as
provided for under Republic Act No. 6938.
5. Machinery and equipment used for pollution control and
environmental protection. [Section 234, Local Government
Code]
Property owned by the Republic of the Philippines and its
political subdivisions

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 3

MCIA v. Marcos : MCIA, which is a government owned or


controlled corporation, mandated to control, manage and
supervise the Mactan International Airport, is not exempt
from real property tax. It is a GOCC and not an
instrumentality of the government.

National Development Co. V. Cebu City : It may


therefore be stated that tax exemption of property owned
by the Republic of the Philippines refers to properties
owned by the government and by its agencies which do not
have separate and distinct personalities, as distinguished
from GOCCs which have separate and distinct personalities.

City of Baguio V. Busuego : While the GSIS may be


exempt from real estate tax under its charter and Real
Property Tax Code, said property is taxable of the beneficial
use or actual possession thereof is granted for a
consideration or otherwise to a taxable person.

Province of Nueva Ecija V. Imperial Mining Co. : The


policy of taxing real property is on the basis of actual use
even if the user is not is not the owner. Although real
property owned by the RP, any of its political subdivisions,
and any government-owned corporation is exempt from tax
but the exemption shall not apply to real property of the
abovenamed entities, the beneficial use of which has been
granted for consideration or otherwise to a taxable person.
National Development Co. V. Province of Nueva Ecija :
The NDC is neither the government nor the Republic nor a
branch or subdivision thereof but a government-owned and
controlled corporation, which cannot be said to exercise a
sovereign function. It does not exercise sovereign powers
and, hence, cannot invoke the exemptions thereof, but is an
agency for the performance of purely corporate, proprietary
or business function. It is therefore subject to real estate
tax.

Exempt government property

JUICY NOTES

The exemption from tax of property owned by the


government obtains even as to properties owned in a
private, proprietary or patriamonial character. The law
makes no distinction between property held in government
capacity and those possessed in a proprietary capacity,
[Board of Assessment Appeals of Laguna v CTA]

Properties of government agencies, whether exercising


purely sovereign, political or constituent functions or only
ministrant or proprietary functions, like the SSS are tax
exempt. What is decisive is that properties possessed by
the SSS although devoted to private or proprietary purposes
are in fact owned by the Government. It is axiomatic that
when public property is involved, exemption is the rule and
taxation is the exception, [SSS v City of Bacolod]

A 42 km road constructed by respondent from its mining


claim to the loading pier which is on public land, is not
subject to the real property tax. The ownership of the road
belongs to the government by right of accession, [Board of
Assessment Appeals of Zamboanga del Sur v Samar
Mining Co.]

Proof of exemptions
Taxpayer claiming exemption must submit sufficient
documentary evidence to the local assessor within 30 days
from the date of the declaration of real property; otherwise,
it shall be listed as taxable in the assessment roll (Sec 206,
LGC).
Real properties subject to tax
Real property tax is imposed on lands, buildings,
machineries and other improvements.
The Local Government Code contains no definition of real
property. Therefore, it is necessary to fall back on the
definition of real property of Art. 415 of the Civil Code.
Improvement

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 4

JUICY NOTES

It is a valuable addition made to a property or an


amelioration in its condition amounting to more than a
repair or replacement of parts involving capital expenditures
and labor which is intended to enhance its value, beauty, or
utility or to adopt it for a new or further purposes. [Section
199(m), Local Government Code]

Manila Electric Co. V Central Board of Assessment of


Appeals: Oil storage tanks while not embedded in the land
or attached to any part of the foundation by bolts, screws
or similar devices are nevertheless be considered as
improvements on the land enhancing its utility and
rendering it useful to the oil industry. Hence, taxable.

Machinery
Machinery embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus, which
may or may not be attached, permanently or temporarily, to
the real property. [Section 199(o), Local Government Code]

Fernandez v Shearer:
Sugar mills with appropriate
machinery on real estate are improvements subject to real
estate tax.

Meralco Securities Industrial Corp v CBAA: Pipeline


system consisting of cylindrical steel pipes to carry oil from
Batangas to Manila is taxable. The court applying Art 415
par 1 and 3 of the civil code, ruled that the pipeline system
is a construction adhering to the soil because it is attached
to the land in such a way that it cannot be separated
therefrom without breaking the material or deterioration of
the object.

SOME COURT RULINGS ON THE


TAXABILITY OF REAL PROPERTY

QUESTION

OF

THE

Mindanao Bus Co. V City Assessor and Treasurer and


the Board of Tax Appeals of Cagayan de Oro City:
Machineries and equipment sitting on cement which can be
moved around and about in the repair shop maintained by a
land transportation company in order to service its buses
that are in need of repairs are not taxable. They are not
immobilized by destination, being only incidental to the
taxpayers business of transportation.
Caltex Phils Inc V Central Board of Assessment
Appeals:
Underground tanks, elevated water tanks,
gasoline pumps, computing pumps, water pumps, car
washer, truck hoists, air compressors and tireflators of a
gasoline station located on leased land are taxable as
necessary fixtures to the gasoline station witgout which the
gasoline station would be useless. The ruling in Davao
Sawmill v Castillo which states that machinery which is
movable by nature becomes immobilized when placed by
the owner of the property but not so when placed by a
tenant, a usufructuary or a person having a temporary right
is not applicable. Machinery installed by the lessee of
leased land is not real property for purposes of execution of
a final judgment only.
The issue on the taxability of
improvements is, however, a different matter.

Board of Assessment Appeals v Manila Electric Co:


Steel towers constructed by Manila electric on land
belonging to it at intervals from its hydroelectric plant in
Laguna to the City of Manila are not subject to real estate
tax.
They do not constitute buildings or constructions
adhered to the soil under Art 415 par 1 of the CC, nor are
they attached to an immovable in a fixed manner under par
3. They are also cannot be considered as immobilized by
destination under par 5 of the same article.
USE AND OWNERSHIP IN REAL PROPERTY TAXATION
Two interrelated concepts that are important factors in
determining whether real property tax is tax-exempt or not.
Tax-exempt properties enumerated in Sec. 28(3) art VI of
the Constitution, the tax exemptions thereunder rest on the
premise that they are actually, directly and exclusively used
by said entities or institutions for their stated purposes, and
not necessarily because they are owned by religious,
charitable or educational institution.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 5

Once the use of those properties lose their tax-exempt


character because they are neither essentially nor
incidentally used for religious, charitable or educational
purposes, their tax exempt status likewise ceases even if
there is no corresponding change in ownership.
If property is tax exempt at the beginning of the year
because its use at the time is confined actually, directly and
exclusively to religious, charitable or educational purposes,
the exemption covers the entire year, even assuming that
sometime during that year the use of that property ceases
to be for the above-mentioned purposes.
If at the beginning of the year, the property is taxable
because at that point in time, the use is for non-exempt
purpose, the taxable status continues for that entire year
even if at a certain time during that year it is used for
religious, charitable or educational purposes.

RULE APPLIED WHERE THE PERSON ASSESSED IS NEITHER


OWNER NOR USER CONCORDIA LIM CASE
In the case of Testate Estate of Concordia Lim V. City of
Manila, it was held that the unpaid tax attaches to the
property and is chargeable against the person who had
actual or beneficial use and possession of it regardless of
whether or not he is the owner. To impose the real property
tax on the subsequent owner who was neither the owner
nor the beneficial user of the property during the designated
periods would not only be contrary to law but also unjust.
Therefore the tax liability that was paid by the heir of
Concordia Lim under protest maybe refunded by the city
government, however they are not entitled to
reimbursement from respondent GSIS because 1. GSIS is
exempt from payment of real property tax and 2. The tax
should be on actual use of the property. If there is anyone
liable, the law and applicable jurisprudence point to the
lessees of land owned by the government-owned and
controlled corporations. In this case, the court can only
declare the non-liability of a right to refund. The court

JUICY NOTES

cannot rule on the liability of the lessees whose identities


are not even clear because they were never impleaded.
APPRAISAL AND ASSESSMENT
Appraisal
Appraisal is the act or process of determining the value of
property as of a specific date for a specific purpose, [Sec.
199(e), Local Government Code]
Appraisal of real property
All Real property, whether taxable or exempt, shall be
appraised at the current and fair market value prevailing in
the locality where such property is situated.
Declaration of Real property
1. Declaration by owner or administrator once every three
years during the period from January 1 to June 30, [Sec.
202, Local Government Code].
2. Declaration of property by assessor when taxpayer refuses
or fails for any reason to make declaration within the time
prescribed, [Sec. 204, Local Government Code].
3. Declaration
covering
acquired
real
property
or
improvements within 60 days after the acquisition of such
property or upon completion or occupancy of the
improvement, whichever comes earlier, [Sec. 203, Local
Government Code].
4. Notice of transfer of real property ownership within 60 days
from date of transfer, [Sec. 208, Local Government Code].
5. Other administrative requirements.
Assessment Roll
This is a listing of all real property, whether taxable or
exempt, located within the territorial jurisdiction of the local
government unit concerned.
All provincial, city, or municipal assessors are required to
prepare and maintain in every province and city an
Assessment Roll.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 6

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Real property shall be listed, valued, and assessed in the


name of the owner or administrator, or anyone having legal
interest in the property.

The use of the comparative sales approach would lead to


inequitable results.

Schedule of fair market values


Local assessors shall prepare a schedule of fair market
values for the different classes of property situated in their
respective LGUs for enactment by ordinance of the
sanggunian concerned.
The schedule shall be published in a newspaper of general
circulation in the locality or, in the absence thereof, posting
in two conspicuous and publicly accessible places, [Sec.
212, Local Government Code].
Assessment is the act or process of determining the value of
a property, or proportion thereof, subject to tax, including
the discovering, listing, classification, and appraisal of
properties, [Sec. 199(f), Local Government Code].

Actual use as basis for assessment


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, [Sec. 217, Local
Government Code].

Assessment level
Assessment level is the percentage applied to the fair
market value to determine the taxation value of the
property, [Sec. 199(g), Local Government Code].
Assessment value
Assessed value is the fair market value of the real property
multiplied by the assessment level. It is synonymous to
taxable value. [Sec. 199(h) Local Government Code].
Fair Market Value
Fair market value is the price at which a property may be
sold by a seller who is not compelled to sell, and bought by
buyer who is not compelled to buy, [Sec. 199 (l) Local
Government Code].

Reyes v. Almanzo: Both the income approach and the


comparative sales approach are valid methods of
ascertaining proper tax. However, in the case at bar, the
income approach should have been used due to the effect of
the Rent Control Law on the lease of the involved properties.

Actual use
Actual use refers to the purpose for which the property is
principally or predominantly utilized by the person in
possession thereof,[Sec. 199(b) Local Government Code].
Classes of real property for assessment purposes
1. Residential
2. Agricultural
3. Commercial
4. Industrial
5. Mineral
6. Timberland
7. Special
Residential land
Land principally devoted to habitation, [Sec. 199(u) Local
Government Code].
Agricultural land
Land devoted principally to the planting of trees, raising of
crops, livestock and poultry, dairying, salt making, inland
fishing and similar aquacultural activities, and other
agricultural activities, [Sec. 199(d) Local Government Code].
Commercial land
Land devoted principally for the object of profit and is not
classified as agricultural, industrial, mineral, timber, or
residential land, [Sec. 199(i) Local Government Code].

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 7
Industrial Land
Land devoted principally to industrial activity as a capital
investment and is not classified as agricultural, commercial,
timber, mineral or residential land, [Sec. 199(n) Local
Government Code].
Mineral land
Lands in which minerals, metallic, or non-metallic, exist in
sufficient quantity or grade to justify the necessary
expenditures to extract and utilize such materials, [Sec.
199(p) Local Government Code].
Special classes of real property
All lands, buildings, and other improvements thereon
actually, directly, and exclusively used for hospitals, cultural
or scientific purposes, and those owned and used by 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 shall be classified as special,
[Sec. 216, Local Government Code].
Assessment of property subject to back taxes
Real property declared for the first time shall be assessed
for taxes for the period during which it would have been
liable but in no case for more than 10 years prior to the date
of initial assessment.
Assessment of machinery
The fair market value of a brand new machinery is its
acquisition cost.
In other cases, its adjusted value (depreciation).
Lopez v City of Manila enumerated the procedural steps in
computing real property tax, as follows:
1. Ascertain the assessment level of the property
2. Multiply the market value by the applicable assessment
level of the property

JUICY NOTES

3. Find the tax rate which corresponds to the class of the


property and multiply the assessed value by the applicable
tax rates.
FORMULAE:
Market Value x Assessment Level = Assessed Value
Assessed Value x Rate of Tax = Real Property Tax

COLLECTION OF TAX
Date of accrual of tax and tax lien
The real estate tax for any year shall accrue on the first 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 the delinquent tax.
[Section 246, Local Government Code]
Payment of real property tax in installments
The owner of the real property or the person having legal
interest therein may pay the basic real property tax and the
additional tax for the special education fund thereon without
interest in four (4) equal installments; except the special
levy, the payment of which shall be governed by an
ordinance of the sanggunian concerned. [Section 250, Local
Government Code]
Tax discount
In case of payment in advance of the basic real property tax
and additional SEF tax, sanggunian may grant a discount in
an amount not exceeding 20% of the annual tax due.
[Section 251, Local Government Code]
Prescriptive periods of collection
The basic real property tax and any other tax levied under
the Local Government Code shall be collected within five (5)
years from the date they become due.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 8

In case of fraud or intent to evade payment of the tax, such


action may be instituted for the collection of the same
within ten (10) years from the discovery of such fraud or
intent to evade payment.

Interruption of the prescriptive period for collection


1. The local treasurer is legally prevented from collecting the
tax.
2. The owner of the property or the person having legal
interest therein requests for reinvestigation and executes a
waiver in writing before the expiration of the period within
which to collect.
3. The owner of the property or the person having legal
interest therein is out of the country or otherwise cannot be
located.

JUICY NOTES

Notes on levy on real property


Notices and publication, as well as the legal requirement for
the sale are mandatory, the failure of which can invalidate
the sale.
An auction sale, even if preceded by posting, publication
and advertisement, but without actual notice to the
delinquent taxpayer, is void. The notice must be given to
the person who had therefore declared the property for tax
purposes.
Redemption of one who is not entitled thereto is ineffectual.

Remedies for collection


1. administrative action through levy
The remedy of levy can be pursued by putting up for sale
only the real property subject to tax. The personal liability is
on the owner of the real property at the time the tax
accrues.

REMEDIES OF THE TAXPAYER

2. judicial action
A formal demand for the payment of the delinquent tax is
not required for the initiation of either remedy.
The collection of local taxes may be enforced through either
or both the above mentioned remedies, alternatively or
simultaneously, and the use or non-use of either remedy
shall not be a bar to avail of the other remedy.

Assessment appeals
Procedure for protest of imposition of real property tax
1. Payment under protest
No protest shall be entertained unless the taxpayer first
pays the tax. [Section 252(a), Local Government Code]
The protest in writing must be filed with the local treasurer
within thirty (30) days from payment of the tax. [Section 252(a),
Local Government Code]
Treasurer must decide the protest within sixty (60) days
from receipt thereof. [Section 252(a), Local Government Code]

Procedure for levy


1. Notice of delinquency- Posted and published
2. Warrant of levy Mailed and served
3. Advertisement After 30 days from service of Warrant of
Levy
- Posting and Publication
4. Auction sale

2. Appeal to the Local Board of Assessment Appeals


(LBAA)
Section 252(d) provides that In the event that the protest
is denied or upon the lapse of the sixty-day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as
provided for in Chapter 3, Title Two, Book II of this Code, which
refers to the procedure for assessment appeals.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 9

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Any owner or person having legal interest in the property


who is not satisfied with the action of the local treasurer may,
within sixty (60) days from date to receipt of the written notice of
assessment, file a petition under oath with the Local Board of
Assessment Appeals. [Section 226, Local Government Code]
The LBAA shall decide the appeal with one hundred twenty
(120) days from the date of receipt of such appeal. [Section 229,
Local Government Code]

Special levies authorized

3. Appeal to the Central Board of Assessment Appeals


(CBAA)
Owner or person having legal interest may appeal decision
of the LBAA to the CBAA within thirty (30) days from receipt of the
decision of the LBAA. [Section 229, Local Government Code]

Additional levy on real property for the special education


fund

4. Appeal to the Court of Appeals


Decision of the CBAA may be appealed, through a verified
petition for review, to the Court of Appeals within fifteen (15) days
from receipt of CBAA decision. [Rule 43, Rules of Court]
5. Appeal to the Supreme Court
Decision of the Court of Appeals may be appealed, through
a verified petition for review, to the Supreme Court within fifteen
(15) days from receipt of decision of the CA. [Rule 45, Rules of
Court]
Tax refund or credit
Taxpayer may file tax refund or credit when assessment is
illegal or erroneous and the tax is accordingly reduced or
adjusted.
File a written claim for refund or credit for taxes and
interests with local treasurer within two (2) years from the
date the taxpayer is entitled to such reduction or
adjustment.
The treasurer must decide the claim for refund or credit
within 60 days from receipt thereof.
If denied, taxpayer has same remedies as protest. (LBAA,
CBAA, CA, SC)
ADDITIONAL LEVIES ON REAL PROPERTY

1. Additional levy on real property for the special education


fund or SEF [Section 235, Local Government Code]
2. Additional ad valorem tax on idle lands [Section 236, Local
Government Code]
3. Special levy by local government units [Section 240, Local
Government Code]

A province, city or a municipality within the Metro Manila


area may levy and collect an annual tax of one percent (1%)
on the assessed value of real property which shall be in
addition to the basic real property tax.
The proceeds thereof shall exclusively accrue to the Special
Education Fund created under Republic Act NO. 5447.

Additional ad valorem tax on idle lands


A province or city or a municipality within the Metro Manila
area may levy an annual tax on idle lands at the rate not
exceeding five percent (5%) of the assessed value of the
property which shall be in addition to the basic real property
tax.

What are considered idle lands?


1. For agricultural lands
a. One hectare and one half (1/2) of which remain
uncultivated or unimproved is considered idle land.
b. However, agricultural land with at least 50 planted
trees to a hectare or used for grazing purposes are
not considered idle lands.
2. Non-agricultural lands
a. Where land is more than 1,000 square meters and
one half (1/2) of which remain unutilized or
unimproved, it is considered idle land.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
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b.

The same is applicable to residential lots in


subdivisions
which
remain
unutilized
and
unimproved.

Exemption from idle lands tax


Exemptions are given due to:
1. force majeure,
2. civil disturbance;
3. natural calamity; or
4. any cause or circumstances which physically or legally
prevents the owner or person having legal interest from
improving, utilizing or cultivating the same.
Special levy by local government units
A province, city or municipality may impose a special levy
on the lands compromised within its territorial jurisdiction
specially
benefited
by
public
works
projects
or
improvements by the LGU concerned.
The special levy shall not exceed (60%) of the actual cost of
such projects and improvements, including the costs of
acquiring land and such other real property in connection
therewith.
It shall not apply to lands exempt from basic real property
tax and the remainder of the land, portions of which have
been donated to the LGU concerned for the construction of
such projects or improvements.
Need for public hearing and publication before enactment of
ordinance imposing special levy.
Special levy accrue on the first day of the quarter next
following the effectivity of the ordinance imposing the levy.
[Section 240, Local Government Code]
Who may remit tax? (Condonation of Real Property Taxes)
1. President public interest so requires
2. Sanggunian resolution
a. failure of crops
b. substantial decrease in the price of products
c. calamity

EXERCISES
TAXATION):

(LOCAL

TAXATION

JUICY NOTES
AND

REAL

PROPERTY

Local Taxation: Power to Impose (2003)


In order to raise revenue for the repair and maintenance of the newly
constructed City Hall of Makati, the City Mayor ordered the collection
of P1.00, called "elevator tax", every time a person rides any of the
high-tech elevators in the city hall during the hours of 8:00 a.m. to
10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is the "elevator tax"
a valid imposition? Explain.
No. The imposition of a tax, fee or charge or the generation of
revenue under the Local Government Code shall be exercised by the
SANGUNIAN of the local government unit concerned through an
appropriate ordinance (Section 132 of the Local Government Code).
The city mayor alone could not order the collection of the tax; as
such, the "elevator tax" is an invalid imposition.
Considering the provisions of Article X, Section 5 of the 1987
Constitution, can we now say that in the Philippines, local
government units have the inherent power to tax? Discuss
No. While the power of local government units to tax is a power
that is expressly granted, vested, and guaranteed by the 1987
Constitution, still, the power of local government units to tax could not
be considered as inherent. Inherent taxing power belongs only to the
State, not to its political subdivisions. It is only the State which may
exercise the power of taxation even absent any Constitutional grant.
What is the principle of pre-emption in local taxation?
The principle of pre-emption states that when the national
government (through Congress) elects to tax a particular area, it is
impliedly withholding from the local government the power to tax the
same field (Victorias Milling Co., Inc. v. Municipality of Victorias, Negros
Occidental, No. L-21183, 27 September 1968).
Under the present local government code, the principle of preemption was explicitly made to apply, as evidenced by Section 133
thereof (Common Limitations of the Local Taxing Power).
What is the Residual Power to Tax of Local Government Units?
The residual power to tax is provided under Section 186 of
the Local Government Code, viz.:
Local government units may exercise the power to levy taxes, fees or
charges on any base or subject not otherwise specifically enumerated
herein or taxed under the provisions of the National Internal
Revenue Code, as amended, or other applicable laws: Provided, That the
taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided,
further, That the ordinance levying such taxes, fees or charges
shall not be enacted without any prior public hearing conducted for

Chapter 11: REAL PROPERTY TAXATION. Page 10 of 12

TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 11
the purpose.
The City of Cebu passed an ordinance imposing a tax of P5.00
on every kilo of lechon taken out of the City. Is the tax valid?
No, it is not valid. Section 133 of the Local Government Code
clearly proscribes the imposition of a tax by local government units
concerning all articles that are going in or out, or passing through, the
territorial jurisdiction of the local government unit.
K is engaged in the business of producing mineral water. In
order to trim down the cost of operations, K decided to
produce her own plastic bottles for her mineral water. K is
producing the said plastic bottles exclusively for her mineral
water business.
The City of Cebu, where K has her principal place of business,
enacted an ordinance levying taxes on the business of
producing mineral water. It also enacted an ordinance levying
taxes on the production of plastic bottles. K asked your learned
advice whether or not she should pay the said taxes. Discuss
your advice.
I would advise K to pay the tax on her business of
producing mineral water, but not on her production of plastic bottles.
This is because her main line of business is the production of mineral
water, for which she is liable for the local business tax. On the other
hand, her production of plastic bottles is done exclusively for her
mineral water business; hence, the same should not be treated as a
separate business. It is well-settled that where a taxpayer is engaged
in a distinct business and, as a feature thereof, in an activity merely
incidental which serves no other person or business, the incidental
activity should not be separately or additionally taxed.
Real Property Taxation: Fundamental Principles (1997)
State the fundamental principles underlying real property taxation in
the Philippines.
SUGGESTED ANSWER:
The following are the fundamental principles governing
real property taxation:
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.
Real Property Taxation; Exempted Properties (2006)
What properties are exempt from the real property tax?

JUICY NOTES

SUGGESTED ANSWER:
The following properties are exempt from the real property
tax (Section 234, Local Government Code):
(1) Real property owned by the REPUBLIC OF THE PHILIPPINES or any of its
political subdivisions 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, mosques,
non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious,
charitable or educational purposes;
(3) All machineries and equipment that are actually, directly and
exclusively used by LOCAL WATER UTILITIES and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(4) All real property owned by duly REGISTERED COOPERATIVES as
provided for under R.A. 6938; and
(5) Machinery and equipment used for POLLUTION CONTROL and
ENVIRONMENTAL PROTECTION.
Property Tax; Reqts; Auction Sales of Property for Tax
Delinquency (2006)
Quezon City published on January 30, 2006 a list of delinquent real
property taxpayers in 2 newspapers of general circulation and posted
this in the main lobby of the City Hall. The notice requires all owners of
real properties in the list to pay the real property tax due within 30 days
from the date of publication, otherwise the properties listed shall be sold at
public auction.
Joachin is one of those named in the list. He purchased a real property in
1996 but failed to register the document of sale with the register of Deeds
and secure a new real property tax declaration in his name. He alleged
that the auction sale of his property is void for lack of due process
considering that the City Treasurer did not send him personal notice. For
his part, the City Treasurer maintains that the publication and posting of
notice are sufficient compliance with the requirements of the law.
1. If you were the judge, how will you resolve this issue?
SUGGESTED ANSWER:
I will resolve the issue in favor of Joachin. In auction sales
of property for tax delinquency, notice to delinquent landowners and to the
public in general is an essential and indispensable requirement of law, the
non-fulfillment of which vitiates the same (Tiongco v. Phil. Veterans ). The
failure to give notice to the right person i.e., the real owner, will render an
auction sale void (Tan v. Bantegui, City Treasurer of Q.C. v. CA).
2. Assuming Joachin is a registered owner, will your answer be the
same?

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
(PROF. CABANEIRO) A2011 12
SUGGESTED ANSWER:
Yes. The law requires that a notice of the auction sale must
be properly sent to Joachin and not merely through publication

JUICY NOTES

(Tan v. Bantegui,,October24, 2005; Estate of Mercedes Jacob v. CA, Dec.


22, 1997).

Chapter 11: REAL PROPERTY TAXATION. Page 12 of 12