A Filipino Homebuyer’s Guide on Real Property Taxation

Resilience might be one of the qualities tied up with Filipino nationality. We, Filipinos, are very hardworking compared to other nations. Aside from the low labor costs in our country, Filipinos are preferred in the field of business process outsourcing (BPO) because of their unique and commendable traits towards their assign work and responsibilities. Knowing the employment conditions and difficulty of finding one, our fellowmen are not choosy with the jobs to take. The most important thing for the working population is to earn enough for their family and answer their daily expenses. Aside from having enough for one’s daily necessities, it is normal for the working population to save money for worthy and long-term investments like availing a real property particularly a residential home. But did you know that when you buy a home, the costs incurred do not stop after your purchase? Having a home is a commitment towards regular tax payment. Income tax is just one of the taxes imposed by our government and other nations. Like in any nation, property tax is also imposed in the Philippines. If you plan on purchasing your first residential property, this is one of the most important things to learn aside from the necessary fees to pay on acquiring and registering your home. Here are some of the useful information on the property tax in the Philippines.

What is Property Tax (Definition and Features)

                Property tax, also known as real property tax, is imposed on real property ownership of Filipino citizens. In Filipino, this is called amilyar. The levy of such is made possible under the Local Government Code of the Philippines or Republic Act No. 7160 as it gave power to provinces, cities or municipalities within Metropolitan area to impose a tax on real property owned by its citizens. Real properties include land, building, machinery, and other improvements. Generally, this type of tax imposed to the owners of the property regardless of the purpose or usage of such. The amount to be paid is based on the assessment of local government units. It is first assessed through the determination of the fair market value of the property to be taxed. After that, the assessment level will be determined and compared to the fair market value and zonal value of the Bureau of Internal Revenue.

                In Section 233 of the Local Government Code of 1991, it stated the basic real property tax rates depending on the area where the property is situated. For properties in provinces, 1% is the rate of tax to be paid while for those situated in cities or municipalities, a higher rate of 2% is imposed on property ownership. Other types of government fees might be charged based on the monetary value of the real property tax you will be paying like a 1% special education fund (SEF), ad valorem tax of 5% for idle lands, and special assessment for recovering the costs of public improvement that heavily benefited the real property.

                For owners, it is important to know that real property tax liability accrues at the very start of each calendar year which is January 1. Now, property owners have a choice whether to pay such on an annual or quarterly basis. If the owner chooses to pay on a quarterly basis, here are the important deadlines for the payment of your installment on real property tax.

  1. First Installment – March 31
  2. Second Installment – June 30
  3. Third Installment – September 30
  4. Fourth Installment December 31

Although, it must be noted that there is a benefit if you avail the annual basis on paying your taxes. Normally, local government units impose discount rates of up to 20% depending on the allowed rate.  You do not have to worry if you overpay your taxes because a credit or refund can be availed within two (2) years from the date of adjustment. However, a credit or refund must be applied as it needs to be carefully assessment by the local government unit to prove its legitimacy as taxes are the lifeblood of government agencies and the government itself.

Tax Exemption on Real Properties in the Philippines

                Not all real properties are taxed in the Philippines. This may be a tax incentive for the owners as those non-taxable owners are providing a service for the public welfare. Doing a service for the benefit of the majority makes it a valid reason to be exempted on some government fees. The Section 234 of the Local Government Code of 1991 identifies the types of properties exempted from incurring tax. However, a proof of exemption should be secured as the law strictly prohibits unlawful or illegal exemptions. Here are the exempted properties for property tax in the Philippines.

  1. Those government-owned properties except when its purpose is for the benefit of a taxable person
  2. Real properties owned by religious, charitable, and educational institutions provided such is used for their operations
  3. Those properties owned by local water districts, government owned or controlled corporations (GOCC) engaged in supply and distribution of water and electricity
  4. Real properties owned by cooperatives
  5. Machines and equipment used for environment protection

Is there a tax benefit on owning a home?

                 In an international setting, other countries provide tax benefit for first-time home purchasers. In the Philippines, there is a tax benefit as well. However, it is not that felt until the time of the death of the owner. When an individual dies, his or her owned properties, also known as estate, is subject to transfer to the appropriate heirs. Such transfer of ownership is taxable. The monetary value of the deceased owner’s estate is grossed to determine the amount of estate tax that must be imposed. Having a family home is a deduction in the computation of the gross estate.

                Based on the Article 152 and 153 of Family Code of the Philippines, a family home is a dwelling house that includes a land on which it is situated. It is where the owner and his or her family lives for a long time as certified by the barangay. Temporary absence on your family home does not remove your right to avail this tax benefit. The law states that the maximum amount of allowed family home deduction is PHP 10,000,000. Any excess is taxable and only one family home is allowed to be registered for deduction.

                Clearly, other than a deduction on computing a deceased’s gross estate, no tax benefits can be enjoyed by the owner of the property. However, there are reforms that are promising for potential homeowners in the future.

Proposed Changes on Property Tax in the Philippines

                Last 2014, Senator Sonny Angara proposed Senate Bill no. 2148 which purposely gives tax incentives to qualified first-time homebuyers. This is similar to those imposed on first time home buyers in foreign countries. The main feature of this bill is the home mortgage interest relief. It aims to aid Filipinos in financing and acquiring their first family home by letting the interest payments be an allowable deduction to gross income which in effect lowers the income tax to be paid by the potential homeowner. This bill recognizes the growing popularity of affordable house and lot offerings by real estate developers such as Bria Homes, Camella Homes and many more. If this bill is passed into law, it is hoped that the house shortage problem in the country will be lessened and encourage more individuals to acquire their own homes instead of renting from other people. Currently, many financing methods are available when you want to purchase your home like Pag-IBIG housing loan and bank loans. However, up to this year, the bill had no progress, but another proposal is being pushed by the past Duterte administration for the benefit of the property owners. The proposal is known as Real Property Valuation and Assessment Reform Act. It seeks to upgrade the outdated and complicated property valuation and assessment system of the Philippines. If these proposed changes are passed into law, it will surely benefit Filipinos because of the tax benefits offered when you own a home. It does not only urge you to invest but encourages you more because it is more affordable than before. More potential home investors entail a growing local real estate industry and may address housing problems in the Philippines.