December and January are usually the months when local governments give discounts to early payers of the Amilyar. It is a good time to take advantage of such offers as it means savings for real property owners. But what is the Amilyar? How is it computed and when should it be paid?
Amilyar is the colloquial term for the Filipino word “Amilyaramiyento” or real property tax, derived from the Spanish word “Amillaramiento”.
While this tax is one of the most important local revenue sources, the lack of understanding among various stakeholders affected the local governments’ collection efforts as well as the property owners’ desire to fulfill their annual tax payment obligation.
Computation
Real properties subject to tax include land and all improvements such as buildings, machineries and equipment, whether they are permanently or temporarily attached to the land.
According to Republic Act No. 7160 or the Local Government Code of 1991, all provinces, cities and municipalities are mandated to assess and collect real property taxes, unless the property owner or property itself is specifically exempted by law. The properties are assessed based on a uniform classification adopted by each local government unit (LGU).
But unlike buying land, the amount to be paid to the government is not the Fair Market Value (FMV). Rather, it forms the basis of the assessment, a term referring to the “process of determining the value of the property for the purpose of taxation.” All Sanggunians are required to adopt their schedule of market values and be updated every three years.
In the assessment of land, the classification is differentiated by class like residential, commercial, agricultural, industrial, special, i.e., educational, cultural, scientific and institutional facilities like schools and hospitals, timber and mineral lands, among others. These land classifications are further divided into sub-classes, as much as five per class. As an example, lots located within and outside of residential subdivisions are assessed differently despite all being residential lands or of similar size.
Once the land has been classified, the corresponding assessment level is applied. The assessment level is a percentage of the FMV or as shown in the schedule on the Tax Ordinance used to determine the taxable value of the property.
Residential lots and timber lands are assessed at 20 percent level, agricultural lots at 40 percent, commercial, industrial, and mineral lands at 50 percent, special classes like cultural, scientific and hospitals at 15 percent and water and power utilities at 10 percent. In case of multiple uses, it is based on predominant use.
Improvements are assessed based on a schedule of costs, reckoned either on acquisition, replacement or reproduction. A luxury residential condominium unit is expected to be assessed higher than a socialized or tenement unit. Machineries used for manufacturing production are also assessed based on its purchase price, subject to depreciation over time.
The basis from which taxes are assessed is the assessment value. It is determined using the fair market value multiplied by the class’ assessment level. To illustrate: Fair market value of P5 million multiplied by Residential Assessment Level (20 percent) = Assessment Value of P1 million.
Property tax rates
Current law allows Metro Manila cities and municipalities to charge a basic property rate not to exceed two percent of the assessment value while provinces are allowed to levy a basic rate not to exceed one percent. These are approximately four times higher than the rates in the old Real Property Tax Code under Presidential Decree No. 464.
In addition, the Metro Manila cities, municipalities, and provinces are allowed to charge an extra one percent tax for Special Education Fund, above the basic property tax rate. Thus, properties within our premier metropolis face up to three percent in property taxes.
Cities/municipalities and provinces are allowed to impose an Idle Land Tax at a rate not to exceed five percent of the assessment value. Idle land includes residential lots of more than 1000 sq. meters, half of which is unutilized or unimproved, or agricultural land/other agricultural uses, of more than a hectare in size, half of which is uncultivated or unimproved (excluding grazing land). Other than the Idle Land Tax, the local governments may also impose special levies on improvements funded by them.
To illustrate:
2% Basic Property Tax P20,000
1% Special Education Fund P10,000
Total Real Property Tax P30,000
When to pay
Real property tax accrues every January 1, but payments may be made over four equal quarterly installments. Based on the above example, the amount due per quarter is P7,500.
To entice real estate owners, “advance discounts” not to exceed 20 percent are given if the tax is paid ahead of the quarter/s, while “prompt discounts” are given if the quarterly tax due is paid not later than the last day of the current quarter. Assuming you avail of the maximum discount above, you can save P6000.
However, since local government Sanggunians are allowed to promulgate their own discounts and payment schedules, it is best to consult your LGU as to the specific discounts to maximize your tax savings.
Do not take the property tax for granted. A two percent penalty per month, but not to exceed 36 months, shall be imposed for failing to promptly pay the real estate tax.
So pay your tax early and enjoy a substantial discount.
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Henry L. Yap is an Architect, Environmental Planner, Real Estate Practitioner and former Professorial Lecturer.