Real Property Tax Increase in the Philippines: How RPT Is Computed and When Rates Can Be Raised

Introduction

Real Property Tax (RPT) is a fundamental revenue source for local government units (LGUs) in the Philippines, imposed on land, buildings, machinery, and other improvements affixed to the land. It plays a crucial role in funding local services such as infrastructure, education, and health. However, increases in RPT often spark public concern due to their impact on property owners. This article explores the computation of RPT, the mechanisms for raising rates, and the legal safeguards in place, all within the Philippine legal framework. Understanding these elements is essential for property owners, investors, and policymakers to navigate tax obligations and potential adjustments.

Legal Basis for Real Property Tax

The primary legal foundation for RPT is Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC). This law devolves taxing powers to LGUs, allowing provinces, cities, and municipalities to levy RPT within specified limits. The LGC outlines the scope, computation, and administration of RPT, ensuring uniformity while granting flexibility to local authorities.

Supporting laws include:

Republic Act No. 9640 (2009), which amended certain provisions of the LGC to adjust assessment levels for residential properties.
Department of Finance (DOF) issuances, such as Department Order No. 14-92, which provides guidelines for property assessment.
Supreme Court decisions, like in City of Manila v. Colet (G.R. No. 120051, 2014), which clarify the constitutionality of RPT impositions and emphasize due process in assessments.

RPT is an ad valorem tax, meaning it is based on the value of the property, and it adheres to constitutional principles of uniformity, equity, and public purpose under Article VI, Section 28 of the 1987 Philippine Constitution.

Scope of Real Property Subject to RPT

Real property taxable under the LGC includes:

Land: Agricultural, residential, commercial, industrial, or special classes.
Buildings and Improvements: Structures permanently attached to the land, enhancing its utility or value.
Machinery: Equipment used for industrial, agricultural, or commercial purposes, whether fixed or movable if essential to operations.

Exemptions are provided for properties owned by the government, charitable institutions, churches, and those used for religious, charitable, or educational purposes (LGC, Section 234). Machinery used in agriculture or aquaculture by registered cooperatives is also exempt. Idle lands may be subject to additional taxes, while special classes like timberlands or mineral lands have tailored rules.

Computation of Real Property Tax

RPT computation follows a structured formula, ensuring transparency and predictability. The process involves three key components: fair market value (FMV), assessment level, and tax rate.

Determination of Fair Market Value (FMV)

FMV is the price a willing buyer would pay a willing seller in an arm's-length transaction. It is determined by the provincial, city, or municipal assessor based on:

Schedules of FMV approved by the Sangguniang Panlalawigan (for provinces), Sangguniang Panlungsod (for cities), or Sangguniang Bayan (for municipalities).
Factors such as location, zoning, actual use, and comparable sales data.
Zonal valuation for land and unit construction costs for buildings and machinery.

The LGC mandates a general revision of FMV schedules at least once every three years (Section 219). Assessors use mass appraisal techniques, incorporating data from the Bureau of Internal Revenue (BIR) zonal values where applicable, though BIR values are for national taxes like capital gains and not binding on RPT.

Assessment Levels

The assessed value is a percentage of the FMV, determined by assessment levels set in the LGC or adjusted by local ordinance. These levels vary by property classification and value brackets to promote progressivity.

Standard assessment levels under the LGC (Section 218, as amended):

Residential Land:
- Up to P175,000: 0%-20%
- Over P175,000 to P10,000,000: Graduated up to 50%
- Over P10,000,000: 60%
Agricultural Land:
- Up to P300,000: 40%
- Higher brackets up to 50%
Commercial/Industrial Land:
- Up to P300,000: 50%
- Higher up to 80%
Buildings and Improvements: Similar graduations, e.g., residential buildings up to 25% for low-value, up to 60% for high-value.
Machinery: Generally 80% for commercial/industrial, but lower for agricultural.

LGUs may adjust these levels via ordinance, but not more frequently than once every three years, and adjustments must not exceed the LGC maxima (Section 219).

Tax Rates

The basic RPT rate is applied to the assessed value:

Provinces: Not exceeding 1% (Section 233).
Cities and Municipalities in Metropolitan Manila: Not exceeding 2% (Section 235).

These are maximum rates; actual rates are set by local ordinances. For example, many cities like Quezon City or Makati set rates at or near 2% for urban properties.

Formula for RPT Computation

The basic formula is:

Assessed Value = FMV × Assessment Level

Basic RPT = Assessed Value × Tax Rate

Example: A residential property in a city with FMV of P5,000,000, assessment level of 20%, and tax rate of 2%:

Assessed Value = P5,000,000 × 20% = P1,000,000
Basic RPT = P1,000,000 × 2% = P20,000

Additional Levies on Real Property

Beyond the basic RPT, LGUs may impose:

Special Education Fund (SEF): An additional 1% on assessed value, earmarked for public education (Section 235).
Idle Lands Tax: Up to 5% on assessed value for unproductive lands, to discourage speculation (Section 236). Idle lands are those cultivable but uncultivated, or improved but unused.
Special Levies for Public Works: Up to 60% of project cost, spread over affected properties (Section 240).
Ad Valorem Tax on Machinery: Included in RPT for certain equipment.

These add-ons can significantly increase the total tax burden.

When and How RPT Rates Can Be Raised

RPT increases can occur through adjustments in tax rates, FMV revisions, or assessment levels. The LGC balances LGU revenue needs with taxpayer protection by imposing frequency limits, caps, and phasing mechanisms.

Adjustment of Tax Rates

LGUs have authority to set or adjust tax rates via ordinance, up to the LGC maxima (Section 191). However:

Adjustments cannot occur more frequently than once every five years.
Each adjustment cannot exceed 10% of the existing rate.

For instance, if a city's current rate is 1.5%, it can raise it to no more than 1.65% after five years. This applies to basic RPT rates but not necessarily to additional levies like SEF, which is fixed at 1%.

Ordinances must undergo public hearings and approval by the Sanggunian, with publication requirements for validity.

Revision of Fair Market Value Schedules

The most common trigger for RPT increases is the general revision of FMV schedules, mandated at least once every three years (Section 219). This updates values to reflect market changes, such as inflation or development.

Assessors propose new schedules based on market data.
The Sanggunian approves via ordinance.
Revisions can lead to substantial increases if property values have risen.

However, revisions must be equitable and based on actual use, not potential use unless reclassified.

Adjustment of Assessment Levels

LGUs may enact ordinances to adjust assessment levels within LGC limits (Section 218). Adjustments:

Can only be made once every three years.
Must promote fair distribution of the tax burden.

For residential properties, RA 9640 capped levels at lower rates for lower-value properties to ease the burden on ordinary homeowners.

Limitations and Phasing of Increases

To prevent tax shocks, the LGC includes safeguards:

Cap on Assessment Increases: Any increase in assessed value due to revision cannot exceed 1,000% of the previous assessment (Section 233). If it does, the excess is phased in at 10% per year until fully implemented.
Phased Implementation: For general revisions, if the new tax exceeds the old by more than 100%, the increase is phased over three years: one-third in the first year, two-thirds in the second, and full in the third (though this is subject to interpretation in practice).
Relief Measures: LGUs may grant tax amnesties, discounts for early payment (up to 20%), or exemptions for calamity-affected properties (Section 276).
Appeal Process: Property owners can contest assessments before the Local Board of Assessment Appeals (LBAA), then Central Board of Assessment Appeals (CBAA), and finally the courts (Sections 226-231).

Violations of these limits can render ordinances invalid, as seen in cases like Allied Banking Corp. v. Quezon City (G.R. No. 197590, 2014), where excessive increases were struck down.

Collection, Payment, and Penalties

RPT accrues on January 1 each year and is payable annually or quarterly (Section 246). Discounts apply for advance or prompt payment, while penalties include 2% monthly interest (up to 72%) and potential auction of delinquent properties (Sections 254-260).

The treasurer handles collection, with proceeds shared: 35% to province, 40% to municipality/city, 25% to barangay for land; adjusted for buildings and machinery.

Challenges and Recent Developments

Common issues include outdated FMV schedules in many LGUs, leading to under-taxation and revenue shortfalls. The DOF has pushed for regular revisions to align with current market values, but resistance arises from political sensitivities.

In practice, increases often coincide with economic growth areas, like urban centers. The COVID-19 pandemic prompted temporary relief, such as extensions under Bayanihan Acts, highlighting flexibility in crises.

Property reclassification (e.g., agricultural to residential) can indirectly raise taxes by applying higher assessment levels and rates.

Conclusion

RPT in the Philippines is a dynamic tax, computed through FMV, assessment levels, and rates, with built-in mechanisms for increases via ordinances and revisions. While LGUs have autonomy to raise rates for fiscal needs, strict limits ensure protection against arbitrary hikes. Property owners should monitor local ordinances, participate in hearings, and utilize appeals to safeguard their interests. A balanced approach to RPT adjustments fosters sustainable local development while maintaining equity.