REAL

PROPERTY
ASSESSMENT AND TAXATION
AND RELATED PROVISIONS OF THE
LOCAL GOVERNMENT CODE OF 1991
(RA 7160)

ENGR. ALFONSO T. NONATO, REB, REA

GUIDING PRINCIPLES IN THE APPRAISAL &
ASSESSMENT OF REAL PROPERTY (Sec 198)
1. Real property shall be appraised at its current and
fair market value;
2. Real property shall be classified for assessment
purposes on the basis of its actual use;
3. Real property shall be assessed on the basis of a
uniform classification within each local government
unit;
4. The appraisal, assessment, levy and collection of
real property tax shall not be let to any private
person; and
5. The appraisal and assessment of real property shall
be equitable.
DIFINITIONS OF TERMS (Sec. 199)
Actual Use – refers to the purpose for which the property is
principally or predominantly utilized by the
person in possession thereof.

Assessment – is the act or process of determining the

value of a property, or proportion thereof
subject to tax, including the discovery, listing,
classification, and appraisal of properties.

Assessment Level – is the percentage applied to the Fair

Market Value to determine the taxable value
(better known as Assessed Value) of the
property.
Fair Market Value – is the price at which a property
may be sold by the seller who is not
compelled to sell and the buyer who is
not compelled to buy.

Assessed Value – is the fair market value of the

property multiplied by the
assessment level.

FORMULA FOR ASSESSED VALUE :

AV = MV x AL where: AV = Assessed Value
MV = Market Value
AL = Assessment Level
 LISTING OF REAL PROPERTY IN THE
ASSESSMENT ROLLS (SEC. 205)

• All real property within the jurisdiction of LGU

concerned shall be listed in the tax rolls whether
exempt or taxable.
• For undivided real property:
 Deceased person > in the name of the estate
or heirs/devisees without designating
individually;
 Other than deceased person > in the name of
one or more co-owners.
  Taxes and obligation shall be severally and
proportionately imposed among the person in
interest.
• For corporation, partnership, or association same
manner as that of an individual.
• Real property owned by the Republic of the
Philippines, its instrumentalities or political
subdivisions, shall be listed, valued and assessed
to the grantee or possessor when the beneficial
use has been granted for consideration or
otherwise, or of the public entity if such property
has been acquired or held for resale or lease.
PROOF OF EXEMPTION OF REAL PROPERTY
FROM TAXATION (SEC. 206)
REGULATIONS IN CLAIMING TAX EXEMPTION:
 Within (30) days from the date of the declaration
of real property;
 Presentation of sufficient documentary evidence,
such as, corporate charter, title of ownership,
articles of incorporation, by laws, contracts,
affidavits, certification and mortgage deeds and
similar documents.
NOTE: Failure to comply with the regulations within
the period herein prescribed, the same shall be
listed as taxable in the tax rolls, however, if proven
to be tax exempt, it shall be drop from the tax
rolls.
NOTIFICATION OF TRANSFER OF REAL PROPERTY
OWNERSHIP (SEC. 208).
 It is the duty of the transferor/seller to notify
provincial, city, or municipal assessor concerned within
(60) days from the date of such transfer. As
requirements, the following shall be submitted:
 Deed of conveyance
 Transfer Certificate of Title (for titled property)
 Realty tax clearance
 Transfer tax fee certification
 Approved survey plan
 Certificate Authorizing Registration (CAR)
Preparation of Schedule of Fair Market Values (Sec.212)
Updating the Schedule of Fair Market Values of
properties is essential in the updating of the
market values of real properties for assessment
purposes.
Sec 219 of this Code, requires the LGU concerned
to conduct general revision of property
assessment every (3) years thereafter from 1994
when the general revision was first conducted
after this Code was enacted into law. The conduct
of general revision of real property assessment is
mandatory.
Assessment Levels (Sec. 218)
The assessment levels to be applied to the market
value of real property to determine the assessed
value shall be fixed by ordinance of the Sangguniang
Panlalawigan, Sangguniang Panlungsod or
Sangguniang Bayan of MMA at the rates not
exceeding the following:
a) On Lands:
CLASS ASSESSMENT LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
 CLASS ASSESSMENT LEVEL
Industrial 50%
Mineral 50%
Timberland 20%
b) On Buildings and Other Structures:
(1) Residential
FMV AL
Over Not Over
175,000.00 O%
175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%
 FMV AL
Over Not Over
750,000.00 1,000,000.00 30%
1,000,000.00 2,000,000.00 35%
2,000,000.00 5,000,000.00 40%
5,000,000.00 10,000,000.00 50%
10,000,000.00 60%
(2) Agricultural
FMV AL
Over Not Over
P 300,000.00 25%
300,000.00 500,000.00 30%
500,000.00 750,000.00 35%
750,000.00 1,000,000.00 40%
1,000,000.00 2,000,000.00 45%
2,000,000.00 50%
 (3) Commercial and Industrial
FMV AL
Over Not Over
P 300,000.00 30%
300,000.00 500,000.00 35%
500,000.00 750,000.00 40%
750,000.00 1,000,000.00 50%
1,000,000.00 2,000,000.00 60%
2,000,000.00 5,000,000.00 70%
5,000,000.00 10,000,000.00 75%
10,000,000.00 80%
 (4) Timberland
FMV AL
Over Not Over
P 300,000.00 45%
300,000.00 500,000.00 50%
500,000.00 750,000.00 55%
750,000.00 1,000,000.00 60%
1,000,000.00 2,000,000.00 65%
2,000,000.00 70%
d) On Machineries
CLASS AL
Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80%

d) Special Classes
Assessment levels for all land, buildings, machineries
and other improvements.
Actual Use Assessment Levels

Cultural 15%
Scientific 15%
Hospital 15%
Local Water District 10%
Gov’t owned or controlled
corporations engaged in
the supply and/or generation
and transmission of electric
power. 10%
 Maximum Assessment Levels
The Local Gov’t Code provides for the maximum
assessment levels for all types of property, hence, the
Sangguniang Panlalawigan, Sangguniang Panlungsod or the
Sangguniang Bayan of MMA need to enact an ordinance
fixing the assessment level for LGU.

Two Major Considerations in this policy decisions:

1. Amount of revenue the LGU needs to generate
for its operation and delivery of public service;
2. The level of tax burden sharing that the LGU
would like to impose on its constituents.
(Political decisions)
 This assessment levels can be decreased or
increased at rates to be fixed by ordinance,
provided that it shall not be made effective in
between the general revision of assessment
periods.
Elements of the Assessment Process

The four most important elements in the assessment

process are:
1. Classification of real property
2. Actual use
3. Assessment levels
4. Assessed value

 The Classification of Real Property provides

the foundation of equity and uniformity in
realty taxation. Taxes are imposed uniformly
upon the same classes of property within the
territorial jurisdiction of LGU levying taxes.
 Actual Use is the basis for the assessment of real
property regardless of where the property is located,
whoever owns it and whoever uses it. To underscore
the controlling influence of actual use, lands located
in an area of mixed uses, are appraised at uniform
values as fixed on the schedule of values, regardless
of whether the property is use for commercial,
residential or industrial purposes.
On the other hand, private appraisers
follow methods and techniques which are applied
differently for residential and commercial purposes.
Thus, the result would be two different appraised
value.
 The Assessment Level (Sec. 218) are fixed on the
basis of actual use of the property. Assessment
levels are applied uniformly on each of the classes
of property within each taxing jurisdiction.

 The Assessed Value (taxable value) results from the

application of the assessment level to the market
value of the property which when multiplied by the
tax rate equals the tax due.
ACTUAL USE OF REAL PROPERTY AS BASIS OF
ASSESSMENT (Sec. 217)
Actual use is unique feature of real property taxation
in the Philippines. It emphasizes the use of the
property rather than ownership, as real property tax
is in essence a tax on the property and not on the
owner.

Residential apartments located within a highly

commercial district is classified and assessed as
residential the same being actually use for
habitation.
 Although, it provides income for the owner
in the form of rentals from the lessees, is
classified and assessed as residential since the
property is used by the tenants as their place of
residence.
Real property owned by religious institution
is taxable, if the same is not actually, directly, and
exclusively used for religious purposes.
On the other hand, building owned by
private individual or corporation which is leased
to religious organization and is actually used for
religious services is exempt from real property tax.
Likewise, a building rented by educational institution
shall not be subject to real property tax.
A parcel of land occupied by building used both for
residential and commercial purposes shall be assessed
on the basis of the predominant use of the building.
A case where a four storey building, the 2nd to the
4th floor is occupied and actually used for educational
purposes while the 1st floor is used for full-time
commercial operations.

Question: do we apply the predominant use rule

and consider the whole building exempt?
 Section 28(3), Article VI, of the 1987
Constitution and Sec. 234 (b) of R.A. 7160
similarly provided that “all lands, buildings
and other improvements which actually,
directly, and exclusively (emphasis added)
used for educational purposes” shall be
exempt from real property taxes.
 The predominant use rule in this case
cannot be applied, since, it did not satisfy
the condition required by the
constitution and other statutes.
 SPLIT ASSESSMENT in this case may
be applied meaning the first floor of
the building will be classified and
assessed separately from the other
floors of the building. The first as
commercial and taxable and the
second to the fourth floors, as
exempt property.
Rate of Property Tax - Basic Tax & Special
Education Fund ( Sec 223 & 235).
Tax rate are to be set forth by a local ordinance with
maximum rates as follows:
1. For Province – not exceeding one (1%) percent of
the assessed value of the property.
2. For Cities and MMA – not exceeding two (2%)
percent of the assessed value of the property.
3. In addition to the basic real property tax, LGUs
may levy and collect an annual tax of 1% which
shall be accrue exclusively to SEF
Formula :
Tax Due = Assessed Value (AV) x Tax Rate (TR)
Accrual, Collection, and Installment Payment
of Real Property Tax ( Sec. 246, 247 & 250)
The real property tax for any year shall accrue on the
1st day of January and from that date it shall
constitute a lien on the property which shall be
superior to any other lien, mortgage, or
encumbrance of any kind whatever, and shall be
extinguished only upon the payment of delinquent
tax. The tax may be paid in (4) quarterly installments
which shall be paid on or before the last day of the
quarter.
Tax discount for Advance and Prompt Payment
(Sec. 251)
For purposes of implementing the provisions of Sec.
251 of this Code:
 Prompt Payment – 10%
 Advance Payment – 20%

Payment under protest (Sec. 252)

 To entertain the protest, the taxpayer must pay
the tax and on the tax receipts annotated the
words “paid under protest.”
Additional Ad Valorem Tax on Idle Lands and its
Coverage (Sec. 236 & 237)

 In addition to the Basic Tax, an annual tax on idle

lands at a rate of not exceeding 5% of the
assessed value of the property may be imposed
by the LGUs.
 For purposes of taxation, idle lands shall include
the following:
1. Agricultural lands more than (1) hectare in
the area, suitable for cultivation, dairying,
inland fishery and other agricultural uses, ½
of which remain uncultivated or
unimproved.
Exemption: lands planted to permanent
or perennial crops with at least (50)
trees to a hectare and land used for
grazing purposes.
2. Lands other than agricultural located in
the city or municipality more than
(1,000) sq. meters in area, ½ of which
remain unutilized or unimproved.
2. Regardless of land area, residential
lots in subdivisions.
Idle Lands Exempt from Tax (Sec. 238 & 239)
 Conditions for granting exemptions:
 Force Majeur
 Civil disturbance
 Natural calamity
 Any cause or circumstances which
physically or legally prevents the owner
from cultivating, improving and utilizing the
same.
Listing of idle lands to be done by the assessor,
who shall keep an updated records within his area
of jurisdiction. The treasurer shall be furnished
with a copy who shall notify the owner.
General Revision of Assessment and
Property Classification (Sec. 219)
The provincial, city, and municipal assessor
shall undertake a general revision of real
property assessments within (2) years after
the effectivity of this Code and every three
years thereafter.

Local Assessment Regulation No. 1-92 –

governs the rules in the conduct of general
revision of real Property Assessment.
Purpose:
1. To equalize and update their valuation.
2. To rediscover properties which have
been lost from the assessment rolls.
3. To purge from the assessment rolls the
duplication of property assessments
(double assessments).
4. To purge from the tax rolls property
assessments of those properties which
no longer exist or have been destroyed.
 When is general revision of real property
assessment considered completed?
All field works have been completed.
Field Appraisal and Assessment
Sheets have been prepared and
approved.
Notices of Assessments are sent to
the owners.
Classes of Real Property for Assessment
Purposes (Sec. 215)
For purposes of assessment, real
property shall be classified as :
 Residential
 Agricultural
 Commercial
 Industrial
 Mineral
 Timberland
 Special
Special Classes of Real Property (Sec. 216)
 Hospitals
 Cultural
 Scientific
 Local Water Districts
 GOCC – rendering services in the supply
and generation of water and/or generation
and transmission of electric power.
Note: Utility of this properties shall be
actual, direct and exclusive.
Date of the Effectivity of Assessment or
Reassessment. (Sec. 221)
1. All assessments or reassessments made after the
1st day of January of any year shall take effect on
the 1st day of January of the succeeding year.
2. Reassessment due to partial destruction, revised
tax declaration shall be issued to cancel the tax
declaration covering the original assessment and
shall take effect at the beginning of the quarter
next following the reassessment.
3. For total destruction, issued Notice of
Cancellation of Assessment
Assessment of Property Subject to Back Taxes
(Sec. 222)
Real property declared for the 1st time shall be
assessed for the period during which it would have
been liable but in no case for more than ten (10)
years prior to the date of initial assessment.
Provided, however, that such taxes shall be
computed on the basis of applicable schedule of
values in force during the corresponding period.
Provided further that the total tax liability shall
include the current year in addition to the ten (10)
years back taxes.
 If such taxes are paid on or before the end
of the quarter next following the date the
notice of assessment was received by the
owner or his representative, no interest for
delinquency shall be imposed thereon;
otherwise, such taxes shall be subject to an
interest at the rate of two percent (2%) per
month or a fraction thereof until such taxes are
fully paid.
Notice of New or Revised Assessment (Sec 223)

When real property is assessed for the 1st time or

when an existing assessment is increased or
decreased, the provincial, city, or municipal assessor
shall within 30 days (emphasis added) give written
notice of such new or revised assessment to the
person in whose name the property is declared. The
notice may be delivered personally or by registered
mail or through the assistance of the punong
barangay in the last known address of the person to
be served.
Purpose of service of notice of assessment:

Although the real property tax is levied against the

property, it is the owner who pays the tax. Before
the tax liability is fixed, the property owner is
entitled to a hearing on the assessment of the
property; notice and hearing constitute part of due
process (not strictly judicial) in taxation. If the
owner is not satisfied with the action of the assessor
in the assessment of the property, the said owner
can resort to the appeals process provided in Sec.
226. If he does not appeal within the said period,
he will be deprived of his right to be heard by the
Board of Assessment Appeal.
Depreciation Allowance for Machinery (Sec.
225)

For purposes of assessment, a machinery

shall have a depreciation allowance at a rate
of not exceeding 5% of its original cost or its
replacement or reproduction cost, as the case
maybe, for its year of use. However, if the
machinery is still useful and in operation, the
remaining value shall be fixed at not less than
(20)% of such original , replacement or
reproduction cost.
Local Board of Assessment Appeals (Sec. 226).
There shall be organized in each LGU a Local
Board of Assessment Appeals (LBAA). Any owner or
person having legal interests in the property who is
not satisfied with the assessment by the assessor
may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the
LBAA. Its compositions :
 Registrar of Deeds – Chairman
 Provincial Prosecutor – Member
 Provincial Engineer – Member
 Note:
 The chairman have the power to designate any
employee of the province or city to serve as the
secretary of the board.
 All of them shall have no additional
compensation.
Action of the Board.

 The Board shall decide the appeal within (120) days

from the date of receipt of such appeal
 If the owner or person having legal interest or the
assessor who is not satisfied with the decision of the
of the Board may, within (30) days after receipt of
the decision of said Board, appeal to the Central
Board of Assessment Appeal.
SAMPLE PROBLEM # 1

Compute the assessed value & basic tax due the city
government of a lot where a residential house of Mr.
Juan Dela Cruz is situated.
Location: Jose Abad Santos St., Davao City
Classification = commercial
Lot Area: 200 Sq. Meters
Ord. No. 040-07
SFMV : P2,000/Sq.M.
 Answer:

FMV = 200 x 2,000

= P4,000,000

Assessment Level = 10%

Assessed Value = P4,000,000 x .10

= P400,000
Tax Due = P400,000 x .025
= P10,000
SAMPLE PROBLEM # 2

Compute the yearly Assessed Value of a commercial

machinery which was bought at an Original Cost of
Php5,000,000.00 and was installed and operational
in 2010. If the yearly depreciation allowance is 4%,
compute the yearly Assessed Value of the machinery
up to 2013.
Answer:
From the table of assessment level

Machinery used for commercial :

Assessment Level = 80%
Depreciation rate = 4% per year for 3 years
= 12%
Value of Machinery = Original Cost –Depreciation
Cost
= P5,000,000- (.12 X 5,000,000)
= P4,400,000
Assessed Value = 4,0000,000 x .80
= P3,200,000
SAMPLE PROBLEM # 3
Compute the basic tax due the city government
of real property (land and improvement):
Location: GSIS Height Subd. , Davao City
Land area = 500 sq. meters
UV = 2,000.00/sq. meter (SMV 2007)
Classification = Residential
2 storey building:
1st Floor Area = 100 sq.meters. - hardware
2nd Floor Area = 250 sq. meters. - family dwelling
BUCC – Php10,000/sq. meter.
Answer:
FMV (Land) = 500 sq.m. x 2,000 per sq.m.
= P1,000,000
FMV (Building) = 350 sq. m. x 10,000
= P3,500,000
Assessment level :
For land : 10%
For building : 40% ( Between P2,000,000 to P5,000,000)
Building use for residential dwelling)
Assessed Value :
Land : P1,000,000 x .10 = P 100,000
Building : P3,500,000 x .40 = 1,500,000
Total Assessed Value = P 1,600,000
Tax Due = P1,600,000 x .025
= P40,000
Sample #6
• A (3) storey commercial building situated at
the J. P. Laurel Avenue, Davao City:
• 1st Flr = 4,000 sq. meters > Office space
• 2nd Flr = 3,500 sq. meters> computer school
• 3rd Flr = 3,000 sq. meters > worship service
• BUCC = 8,000/sq. meter
Compute the market value of the property
and annual tax due to the government.
PROCESS:
 Determine the type of building.
 Locate the equivalent unit base construction cost (UBCC) in
the Schedule of Fair Market Value (Ordinance).
 Apply the UBCC to derive the market value.
 Determine the actual or the predominant use of the building.
 Apply the equivalent assessment level (Ordinance).
 Compute the assessed value of the building.
 Determine the tax effectivity.
 Compute the tax due.
 Send Notice of Assessment of tax payment. (Treasurer)