Mod II
Real Property Appraisal for Taxation Purposes
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Property taxation is largest tax source at local levels.
RPT
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
60% of local revenues (1980-1991)
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BUT, still far below its potential ! • Just 65% of total assessed value
Total RPT collected
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Regretful situation because . . . • Land is most important , tangible asset of LGU • RPT is most impt revenue base -- productive -- appreciates with urban expansion inflation -- stable tax
and
Many opportunities to maximize potential and productivity. REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Although highly regulated, you still have maneuvering space.
Your powers and options
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
restrictions
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Why is revenue potential of land-based taxes not fully harnessed? • • • •
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failureto identify property tax base no land inventory outdated land inventory and property tax base assessmentsnot reflected in current market values • poor collections • lack of political will • failureto mobilizeand manageland resources REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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That’s why we’re here . . .
Explore: • how you can avoid or solve these • how to maximize potential of your land resources REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Real property is… lands, buildings, machineries, improvements on land lands, buildings, roads, and constructions trees,plants, and growing fruits all attached in fixed manner: statues, etc machineries, receptacles, implements animal houses, fertilizersused in land, etc mines, quarries, slag dumps contractsfor publicworks REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Article 415, Civ il Code
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For tax purposes, what is machinery?sec 199 (o), LGC • machines, instruments, or apparatus attached permanently or temporarily to real property • physical facilities for production, with mobile, self-powered, and self-propelled installations and accessories, provided: -- directly & exclusively used for industry or activity -- needed for mfng, mining, logging, commercial, industrial or agricultural purposes REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Guidelines for real property taxes ... Fundamental Principles (Sec 198, LGC)
current and fair market value uniform classification not let to any private person equitable
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Guidelines for real property taxes … Classification of Real Property • • • • • • •
Residential Agricultural Commercial Industrial Mineral Timberland Special
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Guidelines for real property taxes … Important Characteristics •
local tax: control and responsibility of Sanggunian of province or city preparation and approval of schedule of values -- determination of assessment levels, tax rates, discounts, penalties --
• a tax on the property • annual tax which accrues on January 1 REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Real Property Tax Administration is critical to maximize land potential. RPTA consists of 4, inter-dependent stages: Property identification or taxmapping
Appraisal and assessment
Records conversion and management REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Real property tax is generic name for 4 types of landbased taxes: •
basic real property tax
•
School Education Fund (SEF)
•
idle land tax
•
special levy
Remember: • Basic RPT, SEF, idle land tax may be imposed by provinces, cities, and municipalities within MMA •
Special levy may be imposed by the LGU that funded improvement
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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How are proceeds from real property taxes shared? Tax
Provincial sharing
City sharing
Basic RPT
Province Municipality Barangay
35% 40% 25%
City 70% Barangay 30%
SEF
Prov. Sch Board Mun. Sch Board
50%
City Sch Board
50%
Idle land tax
Province
100%
City 100%
Special levy
Province
100%
City 100%
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
00%
There’s no mystery to computing tax due on real property. • Formula is very simple. • But, to maximize RPT productivity, you need to understand
DYNAMICS OF REAL PROPERTY TAXATION REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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A simple, standard formula for computing tax due for real property: Tax due =
(Market Value x Assessment Level x Tax Rate) + Penalty/Discount
assessed value
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Determining RPT due is Sanggunian call:
(Market Value x Assessment Level x Tax Rate) + Penalty/Discount
LGC (Sec 218) & Sanggunian Assessor REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
LGC (Sec 255) & Sanggunian LGC (Sec 251) & LGC (Sec 233) & Sanggunian Sanggunian
Assessment levels and tax rates not fixed ratios or constants! • Code only sets maximums • You may adjust downward
Manipulating assessment levels and tax rates is your legislative prerogative !
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Market values must approximate current market prices. Setting market values is technical job of assessor. Downward manipulation of market values: • distorts a basic economic indicator • causes many future problems: - - expropriation - - zonal valuation - - taxes on transfer of real property • creates a source of petty graft
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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An important key to making real property taxes more productive . . .
INSULATE MARKET VALUES FROM POLITICS.
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Tax rates for land-based taxes (Sec 233) : Tax
Base
Provincial Tax Rate
City Tax Rate
Basic real property tax
assessed value
maximum of 1%
maximum of 2%
Special Education Fund
assessed value
1%
1%
Idle land tax
assessed value
not exceed 5%
not exceed 5%
Special levy
assessed value
not exceed 60% of actual project cost & improve-ments
not exceed 60% of actual project cost & improve-ments
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Characteristics of 4 types of real property taxes (RPT): Basic real property tax • shared up to barangay level • covers land, bldg, machineries and other improvements on land • levied on values at a rate not exceeding 1% for provinces and 2% for cities • collections accrue to all-purpose general fund
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Characteristics of 4 types of real property taxes: • Special Education Fund • supports public education • tax rate is 1% of assessed value • billed and accounted for separately • local school board determines allocation
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Characteristics of 4 types of real property taxes (RPT): • Idle land tax • annual levy on assessed value • tax rate should not exceed 5% of assessed value of property plus basic RPT • municipalities do not share • punitive tax REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Land is “idle” if: (sec 237, LGC)
• Agri land of more than 1 hectare, 1/2 remains uncultivated or unimproved Except: -- land planted to crops with at least 50 trees/ha -- grazing lands
• Agri land in a city or municipality more than 1000m2, 1/2 not used or improved • Residential lots in subdivisions not used or improved
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Characteristics of 4 types of real property taxes (RPT): • Special levy: an opportunity to recover cost of infra projects • applied on land benefited by public works project or improvements funded by LGU • paid within quarter following effectivity of ordinance imposing levy • proceeds of collections accrue to the general fund REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Conditions for special levy: • No specific tax rate, but shld not exceed 60% of actual cost of project and improvements, including cost of land acquisition • Tax may be structured on basis of project cost, project benefits, and period of acquisition • May use differentiated rates depending on project benefits derived by individual lots • Does not apply to some types of lands REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Special levy does not apply to lands owned by (or characterized as):
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• Republic of the Phil or any of its political subdivisions unless beneficial use granted to taxable entity • Charitable institutions, churches, mosques, convents, and land exclusively used for religious, charitable or educational purposes • Duly registered cooperatives under RA 6938 • Remainder of land portions donated to LGU for construction of such projects or improvements
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Exemptions from RPT (Sec 234): Land owned by: • govt unless official use granted to taxable entity • charitable & religious institutions, and land exclusively used for religious, charitable or educational purposes • duly registered cooperatives under RA 6938 Machinery & eqpt exclusively used by local water districts & GOCCs in supply & distribution of water & electricity Machinery and eqpt used for pollution control & environmental protection REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
A tax discount is a privilege that must be legislated . . . It’s not automatic. Mod II
2 types of discounts : • “Prompt payment” maximum 10% discount on annual tax due • “Advance payment” maximum 20 % discount on annual tax due
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Penalty rates are: Penalty for delinquency: Payment of interest rate of 2% per month (or a fraction thereof) on the unpaid amount, until delinquent tax is fully paid However: • Total interest on unpaid tax or portion thereof must not exceed 36 months (3 years) REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
Why is revenue potential of land-based taxes not fully harnessed? • • • •
failureto identify property tax base no land inventory outdated land inventory and property tax base assessments not reflected in current market values
• poor collections • •
lack of political will failureto mobilize and manageland resources
REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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How good is your collection? 2 measures of ef ficiency: • Collection ef ficiency ratio CE = current year collection from basic and SEF current year collectible (basic and SEF)
• Cost to collection ratios REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization
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Cost to Collection Ratios (CCR) • CCR 1 – CCR for the current tax 100% of Assessors Office + 20% of Treasurer's Office Expenses current year’s collection, basic tax
• CCR 2 -- CCR for the current tax and preceding years’ taxes 100% of Assessors Office + 20% of Treasurer's Office Expenses Total collections, current and preceding years + penalties + SEF REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization