Course: Real Estate Taxation

Objective: To introduce to students the concept of Real Estate Taxation both in the
National and Local implementation and how this learning be use in every Real Estate
transaction.
Module: 3
Week: 9

PART I NATIONAL TAXATION IN REAL ESTATE

I.I. Introduction to Taxation

History of Taxation
• During the reign of Egyptian Pharaohs
• Scribes as tax collectors
• In Greece
• A tax referred to as Eisphora was imposed only in times of war
• In Athens
• A monthly tax called Metoikon was collected to foreigners
• Ancient Greek Taxation
• Taxation was used as an emergency power. Additional resources
gained from war were used to refund tax previously collected from
the people
• Earliest taxes in Rome
• Taxes known as Portoria were customs duties on imports and
exports
• Augustus Caesar introduced the inheritance tax to provide
retirement funds for the military. The tax was five percent on all
inheritances except gifts to children and spouses
• In England
• Taxes were first used as an emergency measure
• Taxes on income or capital were a recent development as a result
of increasing government intervention in the economy
• In the Philippines
• The pre-colonial society, being communitarian, did not have taxes
• In Modern Industrial Nations
• The government designates a tax base (such as income, property
holdings, or a given commodity)
• A Tax Law is a body of rules passed by the legislature by which the
government acquires a claim on tax payers to convey, transfer and
pay to the public authority

Taxation
• The system of compulsory contributions levied by a government or other qualified
body on people, corporations and property in order to fund public expenditures.
• An inherent power of the state to raise income and to demand enforced
contributions for public purposes.

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Purposes of Taxation
• to raise revenues for public needs so that persons can live in a civilized society
• The government increase taxes in order to stabilize prices and stimulate greater
production.
• An instrument of fiscal policy influences the direction and structure of money
supply, investments, credits, production, interest rate, inflation, prices and in
general, of the national economy

Characteristics of a Sound Tax system

• Fairness
• Clarity and Certainty
• Convenience
• Efficiency

Effects of Taxation
• Personal Income Tax which is presumed to fall entirely on the legal taxpayers
influences decisions to work, save, and invest. These decisions affect other
people.
• Corporate Income Tax may simply result to lower corporate profits and dividends.
It may reduce their income of all owners of property and businesses. The
company may move toward raising the prices of their products

Taxation in the Philippines

• The legislative branch enacts laws to continually revitalize the taxation policy of
the country

• BIR (Bureau of Internal Revenue)

– Mandated to comprehend the assessment and collection of all national
internal revenue taxes, fees and charges so as to promote a sustainable
economic growth
– Taxation in the Philippines

• Republic Act No. 8424 (Comprehensive Tax Reform Act of 1997)

– Tax Payer: any person subject to tax whose sources of income is derived
from within the Philippines
– TIN (Taxpayer Identification Number) is required for any individual
taxpayer

• Tax Reforms:
– Lower income tax rates to enhance the competitiveness of the Philippines
in the region
– Removal of areas which provide avenues for tax avoidance and abuse
– Exemption of OFWs from payment of tax for income earned outside the
Philippines
– Simplification of the tax system which encourages payments from tax
payers including those from the underground economy

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 • Taxes are collected within a particular period of time know as taxable year
• This is the calendar year or the fiscal year that covers an
accounting period of 12 months ending on the last day of any
month other that December.

Kinds of Taxes
• Income Tax
– Tax on all yearly profits arising form property, possessions, trades or
offices
– Tax on a person’s income, emoluments and profits
• Donor’s Tax
– Tax imposed on donations inter-vivos or those made between living
persons to take effect during the lifetime of the donor.
• Estate Tax
– Tax on the right of the deceased person to transmit property at death
• Value-added Tax (VAT)
– Tax imposed and collected on every sale, barter, exchange or transaction
deemed sale of taxable goods, properties, lease of goods, services or
properties in the course of trade as they pass along the production and
distribution chain
• Capital Gains Tax
– Tax imposed on the gains presumed to have been realized by the seller
for the sale, exchange or other disposition of real property located in the
Philippines, classified as capital assets
• Excise Tax
– Tax applicable to specified goods manufactured in the Philippines for
domestic sale or consumption
– Specific tax: imposed on certain goods based on weight or
volume capacity or any other physical unit of measurement
(Specific tax = volume x tax rate)
» Alcohol products, petroleum products, tobacco
products
– Ad valorem tax: imposed on certain goods based on selling
price or other specified value of the goods
(Ad valorem tax = selling price x tax rate)
» Mineral products, automobiles
• Documentary Tax
– Tax on documents, instruments, loan agreements and papers,
agreements evidencing the acceptance, assignments, sale or transfer of
an obligation, rights or property incident thereto
• Withholding tax
• Expanded withholding tax:
– A system of collecting taxes whereby the taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the
payer on said income.

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 • Final withholding tax:
– A system of collecting taxes whereby the amount of income tax withheld
by the withholding agent is constituted as a full payment of the income tax
due form the payer on the said income. The payer is not required to file an
income tax return for the particular income.
– Withholding tax
• Withholding tax for compensation income:
– Commonly referred to as pay as you go or pay as you earn.
– A method of collecting the income tax at source upon receipt of the
income.
– Shifting the incidence of taxation
– Shifting taxation is the process of passing the burden of the tax to others.
– A tax can be shifted when the taxpayer is able to obtain a higher price for
something he sells or when he pays a lower price for a commodity he
purchases.

Tax Evasion
• When there is fraud through pretension and the use of other illegal devices to
lessen one’s taxes, there is tax evasion
– Under-declaration of income
– Non-declaration of income and other items subject to tax
– Under-appraisal of goods subject to tariff
– Over-declaration of deductions

I.II. Real Estate Taxation

Classifications of Real Property:

Capital Asset:

trade or business, and which are not included among the real properties
considered as ORDINARY ASSETS under the National Internal Revenue Code
(NIRC).

Characteristics of Real Property:

Ordinary Asset:
inventory on hand at the close of the taxable
year;
primarily for sale to customers in the ordinary course of his trade or
business;

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 used in trade or business which is subject to the allowance for
depreciation; or
used in trade or business.

Income Tax:
-
Capital Asset
-
Ordinary Asset

References:

Roa, G.C. (2015). Realty Taxation and Assessment. Comprehensive Real Estate
Seminar. Cagayan de Oro City, Philippines.

Frivaldo, J.C. (2015). Comprehensive Review for Real Estate Taxation. Comprehensive
Real Estate Seminar. PAREB-DBRFI. Davao City, Philippines.

Punzalan,R. et.al. (2013) Comprehensive Real Estate Appraisal Seminar and Training.
Philippine Association for Realty Appraiser Inc.

Implementing Rules and Regulations, Local Government Code of 1992.

National Internal Revenue Code of 1997

Revenue Memorandum Circular 1-1998, 55-2011

Tax Reform for Acceleration and Inclusions and Revenue Regulations (RR 13-2018)