Cresapp 11 real property appraisal for taxation purposes

Mod II

Real Property Appraisal for Taxation Purposes

REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization

Mod II

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

Mod II

Why is revenue potential of land-based taxes not fully harnessed?

• • • •

Mod II

failureto identify property tax base no land inventory outdated land inventory and property tax base assessmentsnot reflected in current market values • poor collections • lack of political will • failureto mobilizeand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

Mod II

Guidelines for real property taxes …

Classification of Real Property • • • • • • •

Residential Agricultural Commercial Industrial Mineral Timberland Special

REAL PROPERTY TAXES Seminar-Workshop on Resource Mobilization

Mod II

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

Mod II

Mod II

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

Mod II

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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Mod II

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

Mod II

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

Mod II

Mod II

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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Mod II

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):

Mod II

• 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

Mod II

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

Mod II

Mod II

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

Mod II

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