Taxes are fun, says no one ever. But the inconvenient truth is that if you want to own a house one day, you need to understand taxes, apart from of course paying them. It’s true what they say that there are only two absolute things in the world: death and taxes. And there is no escaping them.
If you have a property or a condo, you have to familiarize yourself with real estate property taxes or just real property tax or real estate tax, depending on where you come from. They are practically the same thing, dealing with immovable property such as land or structures attached to the ground.
Why do you need to pay it? When? And how much? If you are a newbie investor who thought getting a bank loan is the end of it, well, you surely have more to add on your plate. You have to know property tax rates, assessed value of property, ad valorem tax, interest rates, etc. You think this is a losing battle? Don’t be too quick to give up.
Let this newbie investor’s guide to property tax in the Philippines (and other relevant updates) guide you.
Let’s start with the tax reform program that was recently passed by Congress. Does it have any effect on property taxes? As of the moment, it has none. Package 1 of the Tax Reform for Acceleration and Inclusion Act (TRAIN) of the Department of Finance focuses on personal income tax. The bill states that the government shall no longer impose taxes for workers with an income of not over PHP250, 000 a year. The part with effect on property is Package 3 and details are still being finalized.
The closest effect it has on property is rentals. If you plan to invest and rent out a property, this could be valuable to you. Rent taxes in the Philippines, the DOF explained in a statement, is not a cause for concern. It says that house rentals of Php 10,000 and below “rented out by smaller property owners with annual revenues not exceeding the proposed VAT threshold of Php 3 million a year remain exempted” from value-added tax (VAT). This means “a property owner with rental of Php 9,000 a month needs to own at least a 28-door property, which is equivalent to a small building, to breach the VAT threshold.” Renters, then, who pay Php 9,000 monthly rent will not be paying VAT.
Real estate tax in the Philippines or simply Real Property Tax (RPT) is a tax that you pay annually if you own a property. It is imposed by the Local Government Unit as specified under the Local Government Code. RPT is a way to increase funding for the LGU for it provide basic public services. For it to not be abused, ceiling and limits on tax rates were set.
RPT for any year shall accumulate on the first day of January and shall constitute a lien or public record or legal claim on the property. Non-payment could be a ground to auction off the property.
It probably boils down to this: how much?
The RPT rate for Metro Manila is 2% and 1% for provinces. If you are wondering how to compute real property tax, the formula is fairly simple: RPT = RPT rate x assessed value. What is assessed value? It is fair market value of the property multiplied by the assessment level, which is fixed through ordinances. It is the percentage applied to the fair market value to arrive at the taxable value of the property. Assessment level can be as high as 20% for residential properties and 50% for commercial properties.
The owner of the property settles the RPT at the city or municipal treasurer’s office in either full or installment basis. If you wish to pay it in full, pay on or before January 31. If you want to pay in tranches, you have to settle your RPT on or before the last day of each quarter and remember four important dates: on or before March 31, June 30, September 30, and December 31.
Apart from cash, what else would a condo owner need to bring to the city treasurer’s office?
Bring a copy of your latest tax declaration and copies of official receipt. If you are a first time payor, get a copy of the previous year’s tax declaration and official receipts from your condo’s developer. These are usually turned over to you upon turnover. You can also check with your bank if you applied for a loan.
You will also need to supply copies of the new (current year) tax declaration or declaration of real property and copies of the official receipts or certification. Bring valid IDs too.
In case you don’t know, there is a way to lower your taxes. If you want your real estate tax computation to be a bit lower, pay early. If the basic RPT and additional taxes are paid in advance, the LGU may grant a discount not exceeding 20% of the annual tax due. Discount rates usually differ per city or municipality.
Failure to pay the real property tax on time will subject owners to late payment interest rate of 2% to 72% on the unpaid amount depending on the months of delay.
Paying taxes may seem like a daunting task, but you can soften the blow by educating yourself on rates, computation, property values, and availing as much discount as possible. Let not taxes discourage you from owning a property and fulfilling a lifelong dream. All it takes is some education in fulfilling your obligation to your country and community.