REAL

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

LEGAL BASIS:
Sec. 5, Article X of the 1987 Constitution provides that:
Each local government unit shall have the power to
create its own source of revenue and to levy taxes, fees,
and charges subject to such guidelines and limitations
as the Congress may provide consistent with the basic
policy of local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local governments.
Sec. 197 of LGC. Scope This Title shall govern the
administration, appraisal, assessment, levy and
collection of real property tax.
Sec. 200 Administration of Real Property Tax.- The
provinces and cities, including the municipalities within
the Metropolitan Manila Area, shall be primarily
responsible for the proper, efficient and effective
administration of the real property tax.

GENERAL CONCEPTS AND

PRINCIPLES IN REAL PROPERTY
VALUATION
This subject presents an overview of
general concepts and principles
relevant to real property valuation in
the context of the law and of
economics, and introduces real
property characteristics, property
rights, property ownership and other
significant issues to provide general
information about real property.

 Concepts of Property and Land

Property a legal concept
encompassing all the interests, rights
and benefits related to ownership. It
consists of private rights of ownership,
which entitle the owner to a specific
interest or interests in what is owned.
To distinguish between real estate, a
physical entity and its ownership, a
legal concept, the ownership of real
estate is called real property.
Ownership and interest in an item
other than real estate is referred to as
personal property.

Land the earth surface, theoretically, land can

include the space beneath the surface which
extends to the centre of the earth, and the space
above which extends to the sky. Valuation of the
land as if vacant and of land and improvements to
or on the land is an economic concept. Whether
vacant or improved, land is also referred to as real
estate. The ownership of the land and the rights
attached to the ownership are subject to the laws
of a particular country.
Real Estate the land and all things that are natural
part of the land, e.g., trees and minerals, as well
as all things that are attached by people, e.g.,
buildings and site improvements.

All permanent building attachments such as

plumbing; heating and cooling systems;
electrical wiring; and built-in items like
elevators, or lifts, are also part of the real
estate in general terms, although elevators
may be assessed separately for RPT
purposes. Real Estate includes all
attachments, both below and above the
ground.
Realty a term used to distinguish either real
property or real estate from items of
personal property.

Real Property is defined as a real

estate plus the rights, interests,
and benefits inherent in the
ownership of real estate. Some
defined it as a bundle of rights
with which the ownership of real
estate is granted. The property
rights are the ones valued and sold
not the actual land or realty. In
other words, a real property owner
does not own the land itself, but
owns an estate, or interest in the

Bundle of Rights
Ownership in real property/estate
Control
Exclusion
Possession
Disposition
Enjoyment
Use/will
Give/dedicate
Exploit/cultivate
Lease
Mortgage/encumber

Major Rights
The right of possession of the
property
The right of enjoyment of the
property
The right to control the
propertys use
The right to exclude others from
the property
The right ot disposed of the
property

There may also be potential limitations

upon
ownership rights to real property. These
factors that limits ownership rights are:
Eminent Domain
Police Power of the State
Escheat
Taxation
Concepts of Appraisal and Value

Appraisal/Valuation is the act or process of

estimating the value of a property as of a
specific date for a specific purpose. It is an
estimate of opinion of value, usually
market value or value as defined by the
appraiser. It is made as of a specific date
and is a conclusion which results from a
logical and orderly analysis of facts.
Value the American Institute of Real Estate
Appraisers Appraisal Terminology
Handbook, 1981 edition defined value as
the present worth of future benefits
arising out of ownership to typical users
and investors.

Value is an economic concept referring to

the amount most likely to be agreed upon
by buyers and sellers in an open market
transaction. The economic concept of value
reflects the markets view of the benefits
that accrue to one who owns the good or
receives the services as of the effective
date of valuation. Thus, value is not a fact,
but as estimate of the likely price to be
paid for a good or service available for
purchase at a given time.

Market Value the estimated amount for

which a property should exchange on the
date of valuation between a willing buyer
and a willing seller in an Arms Length
Transaction after proper marketing
wherein the parties had each acted
knowledgeably, prudently, and without
compulsion.
Cost is the amount of money needed to
acquire, produce, create or manufacture an
item of property. it includes material, labor,
equipment, contractors st is the amount
of money needed to acquire, overhead and
profits, and fees.

It represents a measure of past or

prospective expenditures in
money, labor or interest in
acquiring or producing a
commodity.
Price is the actual total amount of
money paid by a buyer to a seller
of property for the purchase of
goods or item of property.
Utility a relative or comparative
term rather that an absolute
condition that refers to the degree

The utility of agricultural land is

measured by its productive capacity.
If the land has development
potential, its productivity is
measured by how it will support a
residential, commercial, industrial, or
mixed use.
Optimum utility is achieved for some
property if operated on an individual basis.
Other property has greater utility if
operated as part of a group of properties,
or held and managed within the aggregate
or portfolio of properties.

Utility is generally measured from

a long-term perspective, ordinarily
over the useful life of a property or
group of properties. When a
property may not have readily
discernable degree of utility at the
date of valuation, full disclosure of
the value definition, supporting
data and extent of special
assumptions or limiting conditions
is required.

FUNDAMENTAL 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.

1. In its strict sense, this fundamental principle

# 1 should be the basis for computing the
realty taxes. However, this would translate into
higher realty taxes that would undermine the
capacity of the taxpayer/property owner to
pay, thus, the principle number one was
apparently extended to clarify that the current
and fair market values shall be based on the
duly approve ordinance. The law provides that
the SFMV as prepared and approved by the
local sanggunians shall be the controlling basis
for the appraisal of the real property.
[Reyes v. Almanzor, G.R. No. 49839, April
26 1991, 196 SCRA 322]

2. Is it lawful for a local government unit to enact

an ordinance containing a proviso directing that
the real property tax be based on the actual
amount reflected in the deed of conveyance or
the prevailing BIR zonal value?
A crucial legal query decided by the Supreme
Court in a recent case of Allied Banking
Corporation v. the Quezon City Government, G.R.
No. 154126, October 11, 2005, 472 SCRA 303.
In its ruling, the court explained:
Real properties shall be appraised at the current
and fair market values prevailing in the locality
where the property is situated and classified for
assessment purposes on the basis of its actual
use.

 Local Assessment Regulation (LAR) No. 1-92

suggests three approaches in estimating the fair
market value, namely: a) the sales analysis or
market data approach; b) the income
capitalization approach; and c) the replacement
or reproduction cost approach.
It is invalid not only because it mandates an
exclusive rule in determining the fair market
value but more so because it departs from the
established procedures in the LAR and unduly
interferes with the duties statutorily placed upon
the assessors by completely dispensing with his
analysis and discretion which the LGC and the
regulations require to be exercised. An ordinance
that contravenes any statute is ultra vires and
void.

Using the consideration in the deed of

conveyance to assess and appraise real
properties is not only illegal since the
appraisal, assessment, levy and collection of
real property tax shall not be let to private
person, but it will completely destroy the
fumdamental principle in the real property
taxation that real property shall be classified,
valued and assessed on the basis of its actual
use regardless of where located, whoever owns
it, and whoever uses it.
Allowing the parties to a private sale to dictate
the fair market values of the property will
dispense with the distinctions of actual use
stated in the LGC and in the regulations.

3. Property of the same kind must

belong to its proper class and must
be appraised uniformly and subject
to the same assessment level and
taxed at the same rate within the
territorial jurisdiction of the taxing
authority or the local government
unit
4. This applies to all local taxes and
strengthens the fundamental rule in
local taxation that collection of local
taxes, fees, charges and other

Thus, to use the monetary consideration

in the deed of conveyance to assess or
appraise real properties is not only
violation to the related fundamental
principle but is tantamount to an appraisal
and assessment of real property by
private person.
5. In order to be equitable, it must be based
on fair standards, hence the related
principle, that real property shall be
assessed on the basis of a uniform
classification within each LGU without
unjust or improper discrimination.

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

Prior to the conduct of the general revision

of property assessments, the local
assessors shall prepare a schedule of fair
market values (SFMV) which is a list of
items or table of information relative to fair
market values for various classes of real
property within the corresponding local
government units to be enacted into an
ordinance by the local sanggunian
concerned.

The SFMV will then be published in a

Newspaper of general circulation or
posted in a conspicuous public places
within the locality.
The process of preparing this
schedule of market values is
provided in Chapter 4 of the Mass
Appraisal Guidebook, Bureau of Local
Government Finance, 2010.

Assessment Levels
The assessment levels (AL) or percentages
provided for in Section 218 are not the
end factors on which real property taxes
are computed. Rather, these AL are
multiplied with the fair market value of the
real property sought to be assessed,
whereby, the resulting product being the
assessed or taxable value on which the
property taxes are based and computed.

The assessment levels set by the

Local Government Code is the
maximum imposable levels, since the
Local Sanggunians are mandated
through legislative action will enact
an appropriate ordinances that will
determine real property assessment
levels in their respective territorial
jurisdictions.

1). On Land
Class
Residential
Agricultural
Commercial
Industrial
Mineral
Timberland

Assessment
level
20%
40%
50%
50%
50%
20%

2). On Buildings and Other Structure:

a) Residential:
FMV
Over

A
Level
Not Over
P175,000.00

0%

175,000.00

P300,000.00

10%

300,000.00

500,000.00

20%

500,000.00

750,000.00

25%

750,000.000

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%

b). Agricultural
Fair Market Value
Not Over
P300,000.0
0
P300,000.0 500,000.00
0
500,000.00 750,000.00
750,000.00 1,000,000.
00
1,000,000.0 2,000,000.
0
00

A
Level

Over

25%
30%
35%
40%
45%

C). Commercial or Industrial

Fair Market Value
Over
Not Over
P300,000.0
0
P300,000.0 500,000.00
0
500,000.00 750,000.00
750,000.00 1,000,000.0
0
1,000,000.0 2,000,000.0
0
0
2,000,000.0 5,000,000.0

A Level
30%
35%
40%
50%
60%
70%

d). Timberland
Fair Market Value
A Level
Over
Not Over
P300,000.
45%
00
P300,000. 500,000.0
50%
00
0
500,000.0 750,000.0
55%
0
0
750,000.0 1,000,000.
60%
0
00
1,000,000. 2,000,000.
65%

3). On Machineries
Classs
Agricultur
al
Residentia
l
Commercia
l

Assessment
Level
40%
50%
80%

4). Special Classess:

Assessment Levels for all lands, buildings,
machineries and other improvements.
Actual Use
Cultural
Scientific
Hospital
Local Water
District
GOCC engaged in
the supply and/or
generation and
transmission of
electric power.

Assessment Level
15%
15%
15%
10%

10%

MAXIMUM ASSESSMENT LEVELS

The Local Govt 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

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

in

the

. 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.

 The Assessment Level 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; while market
value is the product of multiplying the unit
value or base unit construction cost to an
area of the land or floor area of a building.

 For land: MV = Arealand x Unit

Value
For building: MV = Areafloor x BUCC
Formula:
AV = MV x AL
where:

AV Assessed Value
MV Market Value
AL Assessment Level

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.

It underscores 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 purposes is
exempt from real property tax.
Likewise,
a
building
rented
by
educational institution shall not be

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.

Case Problem:
Compute the tax due the
government. Is the building taxable
or exempt?
1,000 sq. meters = Area (1st Flr)
3,000 sq. meters = Area (2nd to 4th
Flr)
BUCC = P10,000.00/sq. meter
Tax Rate = 2% (1% basic % 1%
SEF)
Formula:

MV = A x BUCC
= 1000 x t

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 whatsoever, 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, of which
remain uncultivated or unimproved.

EXCEMPTION:
1.

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, of which
remain unutilized or unimproved.
3. 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 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. 192 governs the rules in the conduct of
general
revision
of
real
Property
Assessment.

PURPOSES:
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

Valuation of Real Property (Sec. 220)

Sec 220 delineates the authority of the
local assessors to classify, appraise and
assess real property to only three
circumstances where:
1). Real property is declared and listed for
taxation purposes for the first time;
2). There is an ongoing general revision of
property classification and assessment; or
3). A request is made by the person in
whose name the property is declared.

For this purpose the local assessor shall

make the classification, appraisal and
assessment of the real property listed and
described in the declaration regardless of
any previous assessment or taxpayers
valuation on such property. The assessment
having been made cannot be increased of
decreased more often than once every 3
years except in the following instances:
1. New improvements substantially
increasing the value of the said property;
or
2. When there is any change in its actual
use.

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.

APPRAISAL AND ASSESSMENT OF

MACHINERY
The appraisal and assessment of
machinery is dependent essentially,
on its condition of existence, whether
brand-new or old (secondhand), and
particularly on its state of origin,
whether imported or locally made. If
brand-new, its FMV is the acquisition
cost. If old, the FMV is determined by
dividing the remaining economic life
of the machinery by its estimated
economic life and multiply by

If imported, the acquisition cost

includes: a) freight; b) insurance; c)
bank and other charges; d) arrastre
and handling; e) duties and taxes; f)
charges and the present site
(installation cost). The foreign
currency cost is converted to peso
cost based on the conversion rates
as determined by the Bangko
Sentral.

Depreciation Allowance for Machinery

All kinds of machinery depreciate through time of
continual usage. This related Section provides for
the annual depreciation allowance that decreases
the value of machinery consequently reducing the
realty tax payable on such machinery. For every
year of use, the machinery may be depreciated
for assessment purposes at the rate not
exceeding 5% of its original cost or reproduction
or replacement cost, as the case may be.
However, LGC decrees that the remaining value ot
depreciated value shall be fixed at 20% of the
original cost as long as the machinery is useful
and in operation.

Reappraisal of Old Imported Machinery

Formula:
MV = RCN x REL/EL
REL = EL minus Years in Use
RCN = AC x FC2/FC1 x PI2/PI1
RCNLD = RCN x REL/EL
MV = RCNLD
Therefore:
MV = AC x FC2/FC1 x PI x REL/EL
FC2 foreign exchange rate (year of appraisal)
FC1 foreign exchange rate (date acquired)
PI2 Price Index during the year of appraisal
PI1 Price Index during the year of acquisition

Locally made machinery

RCNLD= AC x *PI2/PI1 x REL/EL
*from
NEDA
WHERE:
RCN Reproduction/Replacement Cost New
OC Original Cost
EL Economic life
REL Remaining economic life
PI Price Index (optional-to be used when
information is available)
% Depreciation = 1/EL x 100%

ILLUSTRATION:
A unit of machinery was acquired and installed in 2000.
Re-appraisal year = 2006
Compute the Assessed Value and annual tax.
Economic Life = 30 years
AC = $200,000.00
Acquisition
Insurance = $20,000.00
Cost
Arrastre and handling
Cost of installation
Convert to Peso
AC = 200,000.00 x 44 = P8,800,000.00
Insurance = 20,000.00 x 44 = P880,000.00
Formula:
MV = RCNLD
RCNLD = AC x FC2/FC1 x REL/EL

RCNLD = 9,680,000 x 44/52 x [30-6]/30

RCNLD = MV = 6,552,615.00
Assessed Value = Market Value x
Assessment Level
AV = 6,552615 x 80%
AV = Php5,242,092.00
Tax DUE = AV x Tax Rate
= 5,242,092 x 2%
Tax DUE = Php104,841.85

PESO PER DOLLAR RATES

YEAR

AVERAGE RATE

2000

44.1938

2001

50.9921

2002

51.6036

2003
2004
2005
2006

54.2033
55.9408
55.9000
52.0000

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.
Board shall decide the appeal within (120)
ActionThe
of
the Board.
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 Board may, within (30) days
after receipt of the decision of said Board,
appeal to the Central Board of Assessment
Appeal.

ADDENDUM

Rules in the Assessment of Real

Property
A. All real properties, whether taxable or
exempt, shall be appraised at the
current and fair market value prevailing
in the locality where the property is
located.
B. The appraisal of real property shall be
based on the latest Schedule of Fair
Market Values (SFMV), as embodied in
an
ordinance
passed
by
the
sanggunians.

C.

Appraisal of real property

declared for the 1st time shall be
listed, classified, and valued on
the basis of the SFMV (either for
land or building), and shall be
subject to back taxes (if
applicable) of not exceeding 10
years from the year of initial
assessment. Thus, the property
shall be liable to Tax payment
for a maximum of 11 years
including the current year. The
schedule of values applicable for

Illustration:
A. Land declared in 2015. Assumed all
supporting documents are submitted.
Basic Data:
Area : 10,000 square meters
Class: Agri ( coco land)
Subclass: 1st Class
5 kms to all weather road
12 kms to local trading center
SFMV: Coco land
2000 - P 57,200/Hec.
2007
74,360/Hec

SFMV Coco Trees (100 TREES)

2000
500/tree
2007
650/tree
COMPUTATION OF VALUE:
LAND APPRAISAL
Classificati
on

SubClass

Actual
Use

Area

Unit
Value

Base
Market
Value

Agricultur
al

1st

Coco
land

1.0000

57,200

57,200

Total

57,200

PLANT AND TREES APPRAISAL

Kind

Number of trees
planted
Total

Coco trees

Base
Market
Value

500

50,000

Non- Bearing
Bearin
g

100
Total

Unit
Value

100
Total
107,200.00

VALUE ADJUSTMENT FACTOR

50,000 P

Base
Market
Value

Adjustme
nt Factor

%
adjustme
nt

Value
adjustme
nt

Market
Value

107,200

All weather
road

-3%

3,216

93,264

5 kms to
AWR

-4%

4,288

12 kms to
LTC

-6%

6,432

PROPERTY ASSESSMENT
Actual Use

Market Value

Assessment
Level

Assessed
Value

Agri

93,264

40%

37,305

Total

37,305

Taxablex Exempt
Effectivity
2004
of Assessment Qtr Yr

LAND APPRAISAL
Classificat
ion

Subclass

Actual
Use

Area

Unit
Value

Base
Market
Value

Agri

1st

Coco
land

1.0000

74,360

74,360

PLANT AND TREES APPRAISAL

Total
Kind

Number of trees
planted
Total

Coco Trees

100

Nonbearing

74,360.00

Unit
Value

Base Market
Value

650

65,000

Bearing
100

Total

65,000
Total

139,360.00

VALUE ADJUSTMENT FACTOR

Base
Market
Value

Adjustmen
t Factor

%
adjustmen
t

Value
adjustmen
t

Market
Value

139,360.00

All weather
road

-3%

4,181

121,243

5kms to
AWR

-4%

5,574

12 kms to
LTC

-6%

8,362

PROPERTY ASSESSMENT
Total
Actual Use
Agri

-13%
18,117
Market Value
Assessment
Level
121,243
Total

40%

121,243
Assessed
Value
48,497.00
48,497.00

Taxable
Exempt
Effectivity
2008
of Assessment Qtr
Yr

Property Assessment
Actual Use

Market Value

Assessment
Level

Assessed
Value

Agri

139,360.00

11%

15,330.00

Total

15,360.00

Taxable x Exempt
Effectivity
2008
of assessment
Qtr Yr

RULES FOR THE ASSESSMENT OF LAND

1. Lands actually and principally used
for
residential,
agricultural,
commercial, industrial or mineral
purposes shall be classified and
valued according to the schedule of
unit base market values and
assessed at their corresponding
levels of assessment, which shall be
fixed through an ordinance by the
Sanggunian concerned.

2. Lands located in mixed land uses

such
as
residential
with
commercial and industrial, the
predominant use of the lands in
that area shall govern the
classification,
valuation
and
assessment
thereof.
If
the
predominant use is residential, all
lands in that area shall be
assessed as residential; and so
on.

3. A lot or parcel of land classified

and appraised as residential and
commercial or industrial purposes
shall be assessed on the basis of
the predominant use of the
building or buildings.
4. Vacant lands shall be assessed
like similar lands in the locality.
5. Lands owned by the local water
districts and government owned
and
controlled
corporations
rendering essential public services

of
water
and/or
generation
and
transmission of electric power, located in
residential, commercial or industrial area
shall be assessed as special property at
10% assessment level applied to the
market value.
6. Lands actually, directly and exclusively
used
for
religious,
charitable
or
educational
purposes
located
in
residential, commercial or industrial
areas shall be assessed as residential,
commercial or industrial, as the case
may be. In mixed land uses, the
predominant use shall prevail.

Exemptions from real property tax:

1. Real property owned by the republic of the
Philippines or any of its political subdivision
except when the beneficial use thereof has
been granted for consideration or
otherwise, to a taxable person.
2. Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosque, nonprofit or religious
cemeteries and all lands, buildings and
improvements actually, directly and
exclusively used for religious, charitable
and educational purposes.

3. All machinery and equipment that are

actually, directly, and exclusively used
by Local Water District and
government-owned and controlled
corporation engaged in the supply and
distribution of water and/or generation
and transmission of electric power.
4. All property owned by duly registered
cooperatives as provided for under RA
6938.
5. Machinery and equipment used for
pollution control & environmental
protection.

Section 234 exempts certain

properties from real property taxes.
The exemptions are based on the
ownership, character or use of
the property.
Ownership Exemption. Exempted
from realty taxes on the basis of
ownership are real properties owned
by: a) the Republic, b) a province, c)
a city, d) a municipality, e) a
barangay, f) registered cooperatives.

Character Exemptions. Exempted

from realty taxes on the basis of their
character: a) charitable institution, b)
houses and temples of worship like
churches, parsonage or convents
appurtenant thereto, c) non-profit or
religious cemetery.
Usage Exemptions. Exempted from
realty taxes on the basis of the
actual, direct and exclusive to
whichthey are devoted are: a) all
lands, buildings and improvements

actually, directly and exclusively

used for religious, charitable and
educational purposes; b) all
machineries and equipment actually,
directly and exclusively used by local
water districts or by GOCC engaged
in the supply of water and/or
generation and transmission of
electric power; and c) all machinery
and equipment used for pollution
control and environmental
protection.

THE TAX DECLARATION

The tax declaration is one of the principal and
vital records that is prepared and kept by the
assessors in connection with real property tax
assessment. It contains all pertinent
information about a parcel or unit of real
property subject of the assessment, which
include the name of the owner or
administrator of the property, unit base
value, market value, assessment level,
assessed value and the year of the effectivity
of the assessment, and all details necessary
for real property tax assessment.

The Significance of Tax

Declaration
It is a valid proof of claim of
ownership
Important depository of property
information
Every property unit has separate tax
declaration
It is issued not independently of the
Field Appraisal and Assessment
Sheet.

Instances when Tax Declaration are Prepared

and Issued
When a general revision of assessments is
conducted
When a newly discovered real property is
declared for the first time
When there is reassessment made due to
correction of errors in land area based on the
Title (Original or Transfer Certificate of Title),
introduction of additional improvements, partial
destruction of property, gross illegality of
assessment or major change in classification or
actual use
When there is change in ownership of real
property.

Issuance of Tax Declaration Involving

Real Properties Being Declared for the
First Time
Untitled Land
Requirements:
A survey plan prepared by a duly
licensed Geodetic Engineer duly
approved by the Land Management
Bureau (LMB) of the DENR.
A certification from the CENRO
stating among others that the land
is within the alienable and
disposable area.

 Untitled Land
An affidavit of ownership and/or Sworn
Statement declaring the Market Value of
Real Property file by owner or administrator;
Affidavit that the applicant is in long,
continuous and notorious possession of the
property.
A certification fron the barangay captain
that the declarant is the present possessor
and occupant of the land and the
certification of the adjoining owners duly
sworn to by the barangay captain and/or the
municipal mayor
An ocular inspection/investigation report by
the assessor or his duly authorized
representative.

Land owned by Indigenous People

Requirements
Affidavit of Assessment
Tribal Chieftains
Certification/Barangay Captain
Certification
Sworn Statement
Certification of the authorized
officer of the NCIP
Sketch plan with accurate
coordinates

For Titled Property

Certified true copy of free patent,
homestead or miscellaneous sales
application.
Certified true copy of Original
Certificate of Title file with the
ROD (electronics copy).
Approved Survey Plan

For Property with Approved Patent

Requirements:
Certified true copy of free
patent, homestead or
miscellaneous sales application.
Certified true copy of approved
patent by PENRO
Approved survey plan
Certified true copy of
transmittal by PENRO.

Transfer of Tax Declaration

Requirements
Certified true copy of Transfer Certificate
of Title (electronic copy), if titled property
.
Deed of Conveyance.
Realty Tax Clearance issued by the
Municipal Treasurer
Certification of the Provincial Treasurer of
the Tax on Transfer of ownership (RRC
Form 1)
Certificate Authorizing registration (CAR)
by the BIR.
Approved Survey Plan ( consolidation or
subdivision)

 References:
Local Government Code /RA 7160.
Training Course on Real Estate Appraisal ProgramModule I. Theory and Practice of Valuation
National engineering Center
University of the Philippines
Urban Institute of Real Estate
Comprehensive Notes & Reviewer
Manual on Real Property Appraisal and
Assessment Operation
The Essentials of Local Government and Real
Property Taxation
Real Estate Taxation , Ownership, Titling, Interests
Atbp.

CORRUPTION KILLS
END

Sample Problem #1

An imported machinery is installed

and in operation in 2000. Compute
its RCN in the General Revision of
property assessment in 2006.
Tax due = Php251,392.00
Solution:
MV = RCNLD
MV = RCN x REL/EL
RCN = MV x EL/REL

EQ. 1

AV = MV x AL
MV = AV/AL
EQ. 2
TD = AV x TR
AV = TD/TR
EQ. 3
Subst. 2 to 1
RCN = AV/AL x EL/REL
EQ. 4
Subst. 3 to 4
RCN = [TD/TR]/AL x EL/REL
RCN = [251,392/2%]/80% x 30/24
RCN = 19,640,000.00` ans

SAMPLE PROBLEM # 2
A Floating Dry Dock anchored at the
shipyard of GSMW, Inc. at Tinoto, Maasim,
Sarangani Province was purchased in
2006. It was installed in 2007 and was
operational on July 20, 2008. Compute the
Original Cost (OC) when the tax due
(Basic & SEF) the government is
Php276,480.00 for 2010, the year of the
effectivity of assessment. Economic Life is
25 years.

Formula:
RCNLD = AC x Local Index x [EL N]/EL
Original Cost = Acquisition Cost = RCNLD
RCNLD = MARKET VALUE
MARKET VALUE (MV) = AV/AL
AV = TAX DUE/TAX RATE
Soln:
AV = TAX DUE/TAX
= 276,480.00/2%
= 13,824,000.00
RCN = MV = AV/AL AC = P18,000,000 Original Cost
= 13,824,000.00/80%
= 17,280,000.00
AC= MV = 17,280,000/[(25-1)/25]

SAMPLE PROBLEM # 3
Compute the yearly Assessed Value of a
commercial machinery which was bought
at an Original Cost of Php5,000,000.00
and was operational in 2010. If the
estimated economic life is 25 years, how
much is the yearly depreciation allowance,
and the yearly Assessed Value of the
machinery up to 2015?

SUPPLEMENTAL FORM
Yr
Asses
sed

MV

AV

2010

5,000,00
0
4,800,00
0
4,600,00
0
4,400,00
0

4,000,00
0
3,840,00
0
3,680,00
0
3,520,00
0

% EffecDep tivity
0

2010

2011`

2012

12

2013

Soln:
Given:
Php5,000,000.00 = Acquisition Cost
Yearly Depreciation Allowance = 1/25x100% = 4%
Estimated Economic Life = 25 years
Assessed Value = MV x AL
1
MV=RCNLD = AC x IP2/IP1 x REL/EL
where: REL =EL-N
MV = 5,000,000 x 1 x 25/25
MV = 5,000,000
AV = 5,000,000 x 80%
AV = 4,000,000.00
Tax Effectivity :
YEAR 2010

RCNLD = 5,000,000 x 25-1/25

RCNLD = 4,800,000
AV = 4,800,000 x 80%
AV = 3,840,000.00
Tax Effectivity:
YEAR 2011

SAMPLE PROBLEM # 4
Compute the assessed value of a lot where
a residential house of Mr. Juan Dela Cruz
is situated.
Location: Santiago Blvd., Gen. City
Lot Area: 1,000 Sq. Meters
Ord. No. 29-2010
SFMV - Commercial: P10,000/Sq.M.
SFMV - Residential : P8,000/Sq.M.

SOLN:
AV = MV x AL
MV = AREA x UNIT VALUE
MV = 1,000 x 10,000
MV = Php10,000,000.00
AV = MV X AL (Resl)
AV = 10,000,000 x 20%
AV = Ph2,000,000.00

SAMPLE PROBLEM # 5

Compute the Assessed Value of a (2)

storey building; What is its taxability?
Location: Leon Llido-National H-way, GSC
1st Floor Area = 1,000 sq.m. bookstore/groceries/burger house
2nd Foor Area = 2,500 sq. m. computer
school
UBCC Php12,000/Sq.M.

Given:
1st Flr = 1,000 sq. meters commercial
2nd Flr = 2,500 sq. meters institutional
MV(F1) = 1,000 x 12,000 = P12,000,000
AV (F1)= 12,000,000 x 80% =
P9,600,000.00
MV (F2) = 1,500 x 12,000 = P18,000,000.00
AV = MV x AL
AVF2) = 18,000,000 x 80% =
P14,400,000.00
AV(F2) = 18,000,000 x 0% = 0
Taxability = Taxable

SAMPLE PROBLEM #6

What will be the assessed value of

the commercial building which was
completed and occupied in 2007 if
the degree of maintenance
poor?
Dep is
Table
for
Taxable Year Effectivity = ?building
Age
%dep
Area = 400 sq. meters
0-2
3
UBCC = Php12,500.00 3-5
6
6-8
9-12
13-16

10
15
19

SOLUTION:
MV = A X UBCC
MV = 400 X 12,500
MV = Php5,000,000.00
Age of building in 2015 = 8 years
Apply depreciation base on table = 10%
MV =Php5,000,000 X (100-10)%
= 4,500,000.00
AV = MV X AL
AV = 4,500,000.00 X 70%
AV = Php3,150,000.00
Taxable year effectivity = 2008

SAMPLE PROBLEM # 8
What is the assessed value of a 2 storey
building with an total floor area of 500 sq.
meters? F1 Area = 230 sq, meters
groceries. F2
= Residence; BUCC =
P8,500
Solution:
AV = MV X AL
AV = 4,250,000 X 40%
MV = UBCC X AREA
AV =
P1,700,000.00
MV = 8,500 X 500
MV = P4,250,000.00

Sample Problem # 9
An agricultural land with an area of 24.6250
hectares surveyed in 1974 was notoriously
cultivated with 2,000 coco trees from 1970. It
was issued patent in 1975 and registered with
the Register of Deeds in 1976. In 2014, the
owner requested the local assessor to issue tax
declaration as required by the Rural Bank for
loan purposes. Compute the back taxes of the
property. What is the effective taxable year?
P250,000/Hec.- SFMV 2008
P650/tree SFMV 2008
P180,000/Hec. SFMV 2000
P500/tree SFMV 2000

Soln:
MV = A x Unit Value
MV = 24.6250 x 250,000 = P4,925,000.00
(SFMV2008)
MV = 2,000 x 650 = P1,300,000.00 (coco trees)
AV = [4,925,000 + 1,300,000] x 13% = P809,250.00
MV = 24.6250 x 180,000 = P4,432,500 (SFMV 2000)
MV = 2,000 x 500 =P1,000,000.00 (coco trees)
AV = [4,432,500 + 1,000,000] x 11% = P597,575.00
Tax Effectivity = 2005
TD = AV x Tax Rate
TD = 597,575 x 2% x 3 = P35,854.50 (2005-2007)

2008 2015
TD = 809,250 x 2% x 8 = P129,480.00
Total = 129,480 + 35,854.50
=P165,334.50

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.
Sent Notice of Assessment to Tax Payer
(Assessor)