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TRJ 2007 Vol XIX No 1: Analysis of the Revenue Performance of Local Taxes on Real Properties, CYs 2001-2005

The study reviews the revenue performance of taxes on real property imposed by local government units (LGUs) from 2001 to 2005. It looks into the productivity of the revenue sources of LGUs over the last five years as they strive to become self-reliant and financially stable communities. Presently, local taxes on real property consist of the basic real property tax (RPT), special education fund (SEF) tax, special levy, transfer tax and the idle land tax. The role of property taxes as a major revenue source of LGUs owes to the fact that land which is the primary object of property taxation is permanent and a stable revenue source. Property related taxes are imposed on all forms of real property such as land, buildings, improvements and machinery. However, real properties owned by the government, charitable institutions, churches, cooperatives, and those that are used in the supply and generation of water and electric power as well as equipment for pollution control and environmental protection are exempted from the tax. Among the property taxes, the basic RPT and the SEF tax were the chief revenue sources accounting for a combined share of 94.40% of the total property tax revenues for the period under the review. The transfer tax contributed 5.33%, while the special assessment and the idle land tax made meager contributions of only 0.21% and 0.06%, respectively, to the total. Per type of property tax, the basic RPT increased by 12.55% annually. During the five-year period, it contributed an average of 6.17% to the total LGU revenue. On the other hand, the SEF tax accounted for about 6.05% of the total LGU revenues in CYs 2001-2005 while the tax on transfers of real property ownership, idle land tax and special levy contributed only less than one percent to the total local revenues. By local government level, cities generated the biggest share of total property tax revenue, followed by municipalities and provinces. The highest growth rate was also registered by cities at an average of 12.85% annually. On the other hand, provinces and municipalities registered an annual average growth of 11.54% and 10.12%, respectively. The proliferation of business and commercial establishments in the cities resulted in higher property values as well as tax yields. By region, NCR remained the biggest contributor to total property tax revenues, followed by Regions IV and III. The concentration of most high-end properties in the NCR has contributed much to its substantial share of property tax revenues. In terms of growth, Region II registered the fastest growth rate among the regions, followed by Regions I, IX and III. In general, property related taxes imposed by local governments grew during the five-year period (2001-2005), and the basic RPT remains the major contributor to aggregate revenues. However, a further assessment of these taxes shows that their full potential as an important source of local government revenue has not been fully attained on account of the problems afflicting the administration and collection of these taxes. Making these taxes become more productive sources of local government revenues requires the recognition of such problems as well as the development of reform measures for their resolutions. LGUs on their part must have the political will to pursue such reforms, since mandates or legislative innovations can only be sustained with their support and cooperation.

National Tax Research Center
Authors Keywords
National Tax Research Center; real property tax; Local Government Units (LGUs);
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Published in 2007 and available in the NTRC or Downloaded 147 times since November 25, 2011
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