Owning property in the Philippines comes with the responsibility of paying the annual property tax.
Knowing whether or not properties can be exempt from the payment of real estate property tax will be most helpful to all parties.
Real Estate Property Tax
The Real Estate Property Tax (REPT) is imposed on land, buildings and improvements, inclusive of machineries and equipment. The tax is based on the assessed value of property, levied annually and should be paid by property owners to their city or municipal treasurer’s office. Otherwise, failure to do so will lead to the imposition of corresponding penalties.
The REPT is one of the major sources of revenues of local government units (LGUs). They are entitled to collect this tax pursuant to Republic Act No. 7160 or the Local Government Code of the Philippines (LGCP).
Who needs to declare?
Everyone who acquires real property or undertakes any improvement on real property should prepare and file a sworn statement declaring the true value of the property or improvement within sixty days from the acquisition, or upon completion or occupancy of the improvement whichever comes first.
These properties shall be appraised at the current and fair market value.
(For more information about Real Estate Property Taxes, please refer to the author’s December 24, 2021 article titled “Everything you need to know about Amilyar” (propertyreport.ph).
Exempt properties and entities
Certain properties and parties, however, are exempt from the payment of such tax, based on Section 234 of the LGCP. These include:
Real Properties Owned by the Government. Real properties owned by the Republic or any of its political subdivisions except when these properties’ beneficial use had been granted for consideration or otherwise to a taxable person. If the said government-owned property is granted to a taxable individual, the exemption no longer applies and the property becomes subject to REPT.
Real Property used by Religious, Charitable, and Educational Institutions. “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,” are tax-exempt. Unfortunately, property ownership in itself is not a ground for such exemption from the payment of taxes.
Machineries and Equipment. “All machineries and equipment that are actually, directly, and exclusively used by local water districts, and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power” are also tax-exempt.
Properties owned by registered Cooperative/s. Real properties owned by duly-registered cooperatives under Republic Act No. 6938 or the Cooperative Code of the Philippines are likewise exempt from payment of tax.
Machinery and Equipment used for Pollution Control. Similar to the real properties used for water distribution and power generation, machinery and equipment used for pollution control and environmental protection are also exempted from tax, given the government’s emphasis to protect the environment.
Filing for Tax Exemption
Under Section 206 of the LGCP, taxpayers who claim to be entitled to such exemption must file with their local government unit (LGU) sufficient documentary evidence as proof of exemption within thirty days from the date of the declaration of said real property.
If the required evidence is not submitted within the period prescribed, the property shall be listed as taxable. However, should the property be proven to be tax exempt, it can subsequently be dropped from the LGU’s assessment roll.
References used include “Real Property Taxation (Book II – Real Property Taxation) Republic Act 7160 – Local Government Code, Annotated by Atty. Florecita P. Flores and Antonio A. Avila, Jr.”; and “Real Property Tax Exemptions in the Philippines” (lamudi.com.ph).
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Henry L. Yap is an architect, fellow in environmental planning, fellow in real estate management, and one of the undersecretaries of the Department of Human Settlements and Urban Development.