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  • Essential Guide to Paying Professional Tax Annually

    “Professional is not a label you give yourself – it’s a description you hope others will apply to you.”

    – David Maister, Author and Former Harvard Business School Professor

    Sample Professional Tax Receipt (PTR) issued by a local government unit in the Philippines

    By Realttorney®

    Ti auguro un buon anno nuovo! It is the second day of the new year. For some, it is back to work. Others are still in vacation mode until Sunday, January 5 — which we Catholics in the Philippines celebrate as the Feast of the Epiphany. For the rest of the country, this coming Sunday is the final day of the Christmas season.

    Whether you are working now or still vacationing, a real estate service practitioner must be reminded of legal compliance that must be made at the beginning of every new year. Before the effectivity of the Ease of Paying Taxes Act, licensed real estate brokers and accredited real estate salespersons would visit the Bureau of Internal Revenue to pay the annual registration fee of Five Hundred Pesos, under BIR Form No. 0605. But that is no more today.

    In this article, we will focus on the payment of the professional fee to your Local Government Unit. What is it? Who pays it? And why do we need to pay an annual professional tax?

    Section 139 of Rep. Act No. 7160, otherwise known as the “Local Government Code of 1991”, provides the legal basis for provinces to impose and collect professional tax on each person engaged in the exercise or practice of his/her profession.

    Meanwhile, cities are also authorized to impose professional tax under Section 151 of the Local Government Code, which provides that a city may levy taxes, fees, and charges that a province or municipality may impose.

    So now, what is a professional tax, and who pays it? It is a tax imposed by the provincial or city government on each person engaged in the exercise or practice of his or her profession.

    The professional tax is paid by anyone who is legally authorized to practice a profession in the Philippines. This is interpreted to mean all professions that are supervised by the Professional Regulation Commission (PRC) and required to take and pass a licensure examination.

    Kindly note that any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter, as may be provided under a duly enacted local ordinance.

    Furthermore, professionals exclusively employed in the government shall be exempt from the payment of this tax, unless he/she has been duly authorized to practice the profession outside of his/her official functions.

    When do you pay professional tax? The professional tax shall be payable annually, on or before the thirty-first (31st) day of January. Any person first beginning to practice a profession after the month of January must, however, pay the full tax before engaging therein. The Sanggunian concerned may, for a justifiable cause or reason, extend the time of payment of such taxes, fees, or charges, without surcharges or penalties, but only for a period not exceeding six (6) months.[1]

    Where do you pay the professional tax? The payment of the professional tax shall be made to the province or city where the professional practices his/her profession or has his/her principal office is maintained, in case one practices the profession in several places.

    Please remember that a professional who has paid the corresponding professional tax is entitled to practice his/her profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession.

    In the case of Intestate Estate of Jose Uy v. Atty. Pacifico M. Maghari III (A.C. No. 10525, September 1, 2015), the Supreme Court stated that “with the professional tax receipt number, [authorities] can verify if the same person is qualified to engage in a profession in the place where he or she principally discharges his or her functions.”

    How much professional tax do we pay? Professionals shall pay an amount not to exceed PhP 300.00, Philippine currency, or the rate provided under a duly enacted local ordinance, subject to adjustment not exceeding ten percent (10%) every five (5) years.[2]

    What if I have several licenses from different professions? A line of profession does not become exempt even if conducted with some other profession for which the tax has been paid. Thus, an attorney who is also a licensed real estate broker must pay the professional tax imposed for each profession, if he/she is to practice both professions.

    What do I need to present before I pay the professional tax? To collect the tax, the provincial treasurer or his/her duly authorized representative shall require from such professionals their current annual registration cards issued by the competent authority before accepting payment of their professional tax for the current year.

    Finally, according to Local Finance Circular No. 001-2019 of the Department of Finance, the PRC shall likewise require the professionals to present proof of the annual payment of professional tax before registration of professionals or renewal of their licenses. This proof of payment is called the Professional Tax Receipt, or simply PTR.

    But is this being practiced by the PRC in its main office and in its regional offices? Share your experience in the comment section.

    After reading all the above, if you are an accredited real estate salesperson you may be wondering that since you are not required by Rep. Act No. 9646 to take and pass a licensure examination, do you still need to pay the professional tax?

    The answer is a resounding YES. Why? Because an accredited real estate salesperson is a type of Real Estate Service Practitioner (RESP) according to Section 3 of the Real Estate Service Act (RESA).

    Section 38 of RESA requires all real estate service practitioners to indicate the certificate of registration, professional identification card, PTR number, and APO receipt number, and the date of issuance and the duration of validity on the documents he/she signs, uses, or issues in connection with the practice of his/her profession.

    The penultimate question that needs to be addressed here is about the payment of business permits for those RESPs who operate a realty office – whether outside their place of residence or within their home office.

    As a professional who has already paid my professional tax, am I still required to pay business tax to the LGU?

    Section 6 of the Local Finance Circular No. 001-2019 of the Department of Finance states that a professional who has paid his/her professional tax shall be exempt from the payment of business permit fee in the operation of his/her office.

    However, a professional shall still be required to secure a business permit, at no cost, from the concerned LGU during the registration of office and renewal thereof, subject to a duly enacted local ordinance.

    Finally, if upon verification, a professional is actually engaged in selling, trading, or distributing any article of commerce of whatever kind, or involved in the function of trade, or undertakes any business activity that does not constitute the practice of profession, according to applicable law/s governing the practice of such profession, he/she shall be liable to pay the annual local business tax (LBT) to the city or municipality concerned, pursuant to the applicable rates provided under Sections 143 and 146 of the LGC, and as may be provided under a duly enacted local ordinance.

    Now that you know everything that you need to know about professional tax, when will you get yours? Remember, compliance with Section 38 of RESA is mandatory for all licensed real estate brokers and accredited real estate salespersons. Failure to do so will subject us to disciplinary sanctions by the PRBRES.

    Would you want to risk that?

    Hence, the final question here is, when will you pay your professional tax? I suggest that you do it on or before the end of next Friday. Don’t wait until the deadline. Be different. Comply as soon as you can.

    Have a successful and abundant year to everyone.

    ——-

    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.

    [1] Section 167 [Time of Payment] of the Local Government Code of 1991.

    [2] Section 191 [Authority of Local Government Units to Adjust Rates of Tax Ordinance] of the Local Government Code of 1991.

  • 5 Critical Things to Know About the Real Property Valuation and Assessment Reform Act

    “Per World Bank estimates, the Philippines’ real property taxes account for only 0.37% of the Gross Domestic Product (GDP) with an overall collection efficiency of 71%.”

    – OIC-Director Brenda L. Miranda, BLGF Local Fiscal Policy Service

    House approves the Real Property Valuation and Assessment Reform Bill (https://blgf.gov.ph)

    By Realttorney®

    Sometime on April 2-4, 2013, ranking officials of our Department of Finance (DOF) presented “Property Tax Reforms in the Philippines” during the Fourth IMF-Japan High-Level Tax Conference at Hotel Nikko, Tokyo, Japan. During this event, the Philippines identified eight (8) Issues and Challenges regarding our property-related tax administration system.

    The eight are as follows: (1) lack of uniform property valuation systems and methodology; (2) outdated real property values; (3) political interference in property valuation; (4) limited use of information technologies in the appraisal process; (5) multiple taxes on property ownership and transfers; (6) relatively high transfer taxes, which discourage formal transactions; (7) weak enforcement of property-related taxes; and (8) no provision for formal education and training of assessors/appraisers

    The promulgation and adoption of DOF Department Order No. 37-09 [Philippine Valuation Standards, 1st Edition] on October 19, 2009, continues to address the first item above, while the passage of Rep. Act No. 9646 addressed the last item on the list.

    Meanwhile, the various Joint Memoranda of the DOF and the DILG enjoined all Local Government Units (LGUs) regarding the regular preparation of Schedule of Market Values (SMV) and the conduct of general revision of property assessment in their respective jurisdictions.

    Way back on May 12, 2012, the House of Representatives passed the Valuation Reform Bill [House Bill No. 6044] to address most of the 8 Issues and Challenges mentioned above. However, the Senate of the Philippines failed to pass the counterpart bill at that time until recently.

    In the 2022 State of the Nation Address (SONA), Pres. Marcos, Jr. identified the Real Property Valuation and Assessment Reform Act (RPVARA) as one of his Administration’s priority legislations, and a key tax reform under the Comprehensive Tax Reform Program under the Duterte Administration.

    On December 12, 2022, the House of Representatives passed on third and final reading, the Real Property Valuation and Assessment Reform bill [House Bill No. 6558]. Thankfully, this time, the Senate of the Philippines had counterpart bills on hand.

    In the Explanatory Note of Senate Bill No. 897, filed by Sen. Pia S. Cayetano on July 26, 2022, she stated that “there are various agencies conducting or requiring property valuation, with each agency using their own system and methodology of valuation” of the economy, including the real estate industry. Understanding these implications is crucial for real estate professionals, investors, and policymakers.

    Senate Bill No. 2386 was passed on the third and final reading on March 11, 2024, via a unanimous vote by all 23 Senators present. Both Houses of Congress ratified the final version of the bill on March 20, 2024. The President approved the bill as Republic Act No. 12001 on June 13, 2024.

    As a real estate service practitioner (RESP), what do you need to know about this crucial tax reform program that was signed into law in June 2024?

    1. Updated and Fairer Property Valuation: According to RPVARA, it is the policy of the State to promote the development of a just, equitable, and efficient real property valuation system. Thus, it aims to establish uniform appraisal standards and procedures. This should lead to more accurate and consistent valuations across the country, reducing unfair tax burdens on property owners.

    According to Ma. Pamela Quizon, Director of the Bureau of Local Government Finance (BLGF), this reform bill will address the current inefficiencies in the system such as overlapping valuation. She stressed that there are currently 23 national government agencies requiring valuations of 1,715 LGUs.

    However, each government agency uses its own systems and methodologies which is causing wide disparities between zonal values, market values, and private appraisers’ values. Thus, leading to varying and multiple values for the same parcel of land or real property.

    RPVARA strengthened and expanded the powers and functions of the BLGF as the primary or lead implementing agency of this reform bill. The BLGF shall be the agency responsible for ensuring that valuations or revaluations are completed per standards outlined in the RPVARA.

    Finally, under the RPVARA, an updated schedule of market values (SMV) will be used as the basis for local and national land and property-related taxes. There shall be only one valuation for a specific real property.

    The SMV refers to a table of base unit market values for all kinds of real property, except machinery within an LGU, prepared by assessors according to existing laws, rules and regulations. LGUs are mandated to update SMV and its revision once every 3 years under Section 219 of the Local Government Code of 1991, as amended.

    2. Transparency and Efficiency: RPVARA shall develop and maintain the Real Property Information System (RPIS). This is an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declarations in the country and on the cost of construction or renovation of buildings and other structures, and on prices of plant, machinery, and equipment.

    For this purpose, the BLGF shall require the mandatory submission of necessary documents from the concerned officials or employees of government agencies and instrumentalities, and LGUs. Towards this end, the BLGF shall establish mechanisms for the electronic submission of the required documents. Upon the creation of the RPIS, the private sector may access the database subject to the guidelines of the BLGF and the payment of a reasonable amount as an administration fee.

    This electronic database will centralize data on real estate transactions and shall be an important tool for all valuers – especially private appraisers who can now accurately prepare Appraisal Reports based on actual data of “comparables” in a given property location. No more educated guesses with the aid of Google and real estate listing sites.

    3. Streamlined Government Services: The RPVARA mandates all LGUs to automate their real property tax administration operations, such as but not limited to, tax mapping technology, maintaining software-enabled valuation systems, undertaking regular data cleansing, and computerized records management, with the guidance of the BLGF, in coordination with the Department of Information and Communications Technology (DICT). This could benefit the clients of RESPs involved in transactions requiring these services.

    Moreover, automating processes through the RPIS could expedite government activities related to property, such as right-of-way acquisition and land transfer tax administration which will redound to the benefit of its stakeholders.

    4. Taxpayer Relief: Republic Act No. 12001 grants a two-year amnesty on penalties, surcharges, and interest on real property taxes and special levies that were unpaid before the Act took effect (Section 30). The amnesty may be availed of within two years after the Act’s effectivity. A delinquent owner may pay the taxes in one lump sum or in installments. The amnesty does not apply to properties already sold at public auction for tax delinquency, properties whose delinquencies are covered by a compromise agreement, or properties subject to pending court cases on real property tax delinquencies. As noted above, this provision was not indicated in SBN 2386 or HBN 6558, but it appears in the enacted law, and it is a welcome addition to this important piece of legislation.

    This provides an opportunity for clients to settle outstanding tax obligations without extra charges and fend off the levy of the property and its public auction by the concerned LGU. It is a timely relief for landowners as they battle the effects of inflation and high-interest rates from 2021 up to the present. Because the window runs for two years from the Act’s effectivity, clients should confirm the exact deadline with the concerned LGU.

    5. Increase Collection of Real Property Taxes: The reform will broaden the tax base for local and national property and property-related taxes. With a wider tax base, the collection of real property taxes is expected to increase based on updated property values, which is most important to increase collection efficiency, and overall tax revenue by LGUs and the Bureau of Internal Revenue (BIR).

    Oftentimes, outdated property values result in unrealized revenues and socio-economic benefits from delayed projects, and conflicting land values which result in right-of-way (ROW) compensation problems, lengthy court litigations arising from valuation disputes, delayed projects, and cost overruns.

    With the increased collection efficiency, it is expected that LGUs will be able to translate this into better basic services for its constituents and critical infrastructure projects by the National Government based on the increased revenue-based national real property transfer taxes.

    With fairer valuations and a more transparent system, RPVARA would lead to a steady increase in market values of real properties in the Philippines at regular intervals without increasing the tax rates or introducing new taxes. Therefore, it is incumbent on RESPs to advise our clients as to the timing of such increases to take advantage of relatively low prices when they desire to purchase real properties.

    In conclusion, the Real Property Valuation and Assessment Reform Act brings several positive changes in the valuation system and the real estate sector in the Philippines in general. The reform bill shall implement a more efficient valuation system and will use a single valuation base, which will eliminate wide disparities caused by overlapping valuations.

    This would lead to consistency in real property valuation as well as the predictability of valuation. As such, the adoption of true market-based values for taxation purposes will increase revenues without necessarily adopting new tax measures.

    RPVARA endeavors to increase the capacity of the government to generate revenues from real property through the RPT, national government real property transfer taxes, and other related taxes. In addition, RPVARA aims to reduce government costs particularly unnecessary expenses incurred due to conflicting appraisals which lead to court litigations, project delays, and cost overruns.

    As RPVARA aims to implement uniform standards and efficient processes in the real property tax system, the government hopes that this will instill more confidence in the country’s real estate industry. In the end, the government desires to motivate and inspire real estate investors and public confidence because the valuation is done professionally, properly, and following current local and international standards.

    ——-

    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.