Learn: LGU Taxation

Overview

Welcome, future CPAs and local taxation experts! In this session, we'll unravel the core concepts of local government unit (LGU) taxation in the Philippines, focusing on real property tax, community and professional taxes, assessment procedures, remedies, and collection mechanisms. Our goal is to clarify not just the "what", but the "why" and "how" behind each principle—arming you with the reasoning skills to tackle any related question. By the end, you'll have a clear grasp of tax bases, limits set by law, taxpayer and LGU rights, and the step-by-step approach to solving practical problems in this area.

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Concept-by-Concept Deep Dive

Real Property Taxation: Liability and Rates

What it is:
Real property tax is a local tax imposed on owners of land, buildings, and other improvements within an LGU's jurisdiction. It's a cornerstone of LGU revenue, funding public services and infrastructure.

Key Components:

• Taxpayer Liability: The registered owner or, in some cases, the person with legal interest (like usufructuaries or administrators) bears the primary obligation for payment.
• Tax Rates: The Local Government Code (LGC) sets maximum rates, which vary depending on whether the property is in a province, city, or municipality within Metro Manila.

Calculation Recipe:

1. Identify the Assessed Value: Start with the fair market value, apply the appropriate assessment level (depends on property type and location).
2. Apply Tax Rate: Multiply the assessed value by the tax rate imposed by the LGU, ensuring it does not exceed LGC-prescribed maximums.
3. Include Additional Levies: Consider additional taxes (e.g., Special Education Fund) if applicable.

Common Misconceptions:

• Confusing the fair market value with the assessed value.
• Assuming uniform rates apply nationwide; rates differ by locality and property class.

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Tax Bases and Assessment Factors

What it is:
The tax base for real property tax is not simply the market price. It’s the ‘assessed value’—a figure derived from valuation and assessment procedures established by law.

Subtopics:

• Fair Market Value vs. Assessed Value:
  • Fair Market Value (FMV): The price a property would fetch in an open market.
  • Assessed Value: FMV multiplied by the assessment level (a percentage set by the LGU according to property type).
• Assessment Levels:
  • These percentages are set by ordinance and differ for residential, commercial, industrial, and special properties.
• Assessment Process:
  • The municipal or city assessor determines FMV, applies assessment levels, and issues assessment notices.

Calculation Recipe:

1. Obtain the FMV from the latest LGU schedule of values.
2. Multiply by the relevant assessment level to get the assessed value.
3. Use this as the tax base for computation.

Common Misconceptions:

• Using FMV as the direct tax base.
• Overlooking the impact of property reclassification on assessment levels.

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Deadlines, Appeals, and Remedies

What it is:
Taxpayers and LGUs have specific rights and remedies regarding assessments and collections. Timely action is crucial—deadlines for appeals and remedies are strictly enforced.

Subtopics:

• Assessment Appeals:
  • Taxpayers may contest assessments they believe are erroneous or excessive.
  • Appeals must be filed within a fixed period after receiving the assessment notice.
• Collection Remedies:
  • LGUs have administrative (e.g., levy, distraint) and judicial options for collecting unpaid taxes.
  • Not all collection tools are administrative; some require court action.

Step-by-Step Approach:

1. Upon Receiving Assessment: Review the facts, check for errors.
2. Appeal Window: Know the statutory period (often 60 days, but always check the current LGC).
3. Filing an Appeal: Submit to the Local Board of Assessment Appeals, following procedural requirements.

Common Misconceptions:

• Believing appeals can be filed at any time.
• Assuming all LGU remedies are administrative.

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Penalties, Interests, and Non-Payment Consequences

What it is:
Failure to pay due taxes triggers surcharge and interest, compounding the taxpayer’s liability over time.