Real-property tax revisited

Published on Wednesday, 21 November 2012 18:46

Written by Atty. Rodel C. Unciano / Tax Law for Business

WITH barely over a month before year 2012 finally concludes and with only a single semester left prior to the 2013 elections, local officials across the country are now busy crafting some revenue measures, with the objective of raising additional revenues within their territorial jurisdictions. This is especially significant considering that Filipinos will once again exercise their right of suffrage to render their verdict on the fitness of government officials to stay further in office. This early, some well meaning politicians are in a hurry to beat the last minute chance of improving revenue collections in their respective areas, so they can have something to capitalize on when the campaign period begins.

With the end objective of increasing revenue collections in their territorial jurisdictions, local officials in many cities and provinces in the country are now inviting taxpayers to pay their local taxes on time, and to the extent of offering a discount for advance payment, as may be legally permissible. A discount on the advance payment of real property taxes is permissible under the Local Government Code of 1991. Real property tax comprises much of the revenues that can be generated by local government units (LGUs), and if collected properly, could improve the revenue collections of an LGU, and thus—an added handsome image to the local officials concerned.

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Real-property tax accrues on the first day of the year but the taxpayer may pay the same on a later date. Under the Local Government Code, real-property tax may be paid without interest in four equal installments, the first installment to be due and payable on or before March 31, the second installment, on or before June 30, the third installment, on or before September 30, and the last installment on or before December 31. Section 251 of the Code allows a discount at a maximum rate of 20 percent of the annual tax due, if the basic real property tax and the additional tax accruing to the Special Education Fund are paid in advance. For some LGUs, the maximum discount of 20 percent is granted if the real property tax due is paid before January 1 of the following year. After January 1, a discount on advance payment is usually granted but at a lower discount rate.

Taxpayers contemplating on paying their real-property tax in advance, at a discounted rate, should however exercise caution, and see to it that the offer of a discount is authorized under a duly enacted ordinance. The discount privileges do not automatically go with the advance payment. There has to be an ordinance granting a discount for the advance payment. In an attempt to collect real-property taxes early, some LGUs simply pass a resolution granting discount privileges to taxpayers who pay their real property taxes in advance. This is so because, sometimes, it is not easy to pass an ordinance, especially if the members of the sanggunian concerned belong to different political parties. The Local Government Code, however, requires that an ordinance should be passed for the purpose of granting a discount on the advance payment of real-property taxes. A resolution is not sufficient to authorize the grant of a discount.

The Supreme Court, in G.R. 156684, has categorically ruled that a resolution and an ordinance are not synonymous, being that an ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a lawmaking body on a specific matter. Further, the Court said, an ordinance possesses a general and permanent character, but a resolution is temporary in nature. Additionally, the two are enacted differently—a third reading is necessary for an ordinance, but not for a resolution. Hence, taxpayers should ascertain that the offer of a discount for the advance payment of real-property tax is authorized through a duly enacted ordinance, and not merely through a resolution.

Real-property tax paid at a discounted rate, without the required ordinance, is unauthorized, and is not binding to the LGU concerned. Hence, the same may expose the taxpayer to possible real property tax assessment later on, especially if the administration or local officials who granted the discount will not win in the next elections. Succeeding administration or local officials may not honor the payments made at a discounted rate, and may proceed to assess the taxpayer with deficiency taxes, plus interest. So, what could have been a big savings to the taxpayer can turn out to be a disaster and a blunder, if the discount availed of had not been authorized through a duly enacted ordinance. Taxpayers are therefore forewarned to verify if there is such an ordinance that grants a discount for the advance payment of real property taxes, before proceeding to avail the same.

The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member firm of World Tax Services Alliance.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at rodel.unciano@bdblaw.com.ph or call 403-2001 local 140.