Bureau of Local Government Finance Opinion

July 19, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Renato P. Dragon No. 15 Tamarind Road South Forbes Park, Makati City S i r: This refers to your letter dated January 3, 2006 requesting assistance from this Bureau regarding the issuance of a new tax declaration by the City Assessor's Office of Paraaque City, in the name of Magdiwang Realty Corporation and Fil Homes Realty Development Corporation without having to submit a certificate of payment of the Capital Gains Tax (CGT) from the Bureau of Internal Revenue (BIR) on the two (2) parcels of land located in Barangay San Isidro, Sucat, Paraaque City described as follows: TCT No. LOT No. AREA IN SQ. MTS. 71065(21712) 1-C-2 50,000 71066(21713) 1-C-3 47,042 In your attached letter dated December 6, 2005 you alleged that: 1. In August of 1983, or about twenty three (23) years ago, the said companies, namely, Magdiwang Realty Corporation and Fil Homes Realty Corporation bought from Pilipinas Development Corporation (PDC), the abovementioned two (2) parcels of land; acIHDA 2. All the requirements of the City Assessor's Office of Paraaque City needed for the issuance of a new tax declaration have been complied with, except the submission of the proof of payment of Capital Gains Tax issued by the BIR; and 3. What the companies have in their possession are the Deed of Sale documents and not the proof of payment of CGT on the sale that occurred 23 years ago. A close reading of the attached documents submitted by the City Treasurer and City Assessors' Offices both of same city, reveal the following: 1. That the subject two (2) parcels of land were declared in the name of Amado Buenaventura under Tax Declaration Nos. E-011-04259 and E-011-04260 effective 1994. 2. That per attached computerized Statement of Account submitted by the Treasurer's Office, real property tax on the subject properties has not been paid (including penalties) amounting to P5,295,970.16 as of March, 2006. 3. That a Notice of Levy was reflected in the said Tax Declaration Nos. E-011-04295 and E-011-04260 stating: "Levy in favor of the Local Government of Paraaque City in accordance with R.A. 7160, Section 258 of the Local Government Code of 1991 with date of the Instrument November 11, 2001 and date of the Inscription November 22, 2001." In this connection, attention is invited to Section 246 of R.A. No. 7160, otherwise known as the Local Government Code of 1991 which reads as follows: "Section 246. Date of Accrual of Tax. The real property tax for any year shall accrue on the first (1st) day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien , mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax." (emphasis supplied) aSDHCT Clearly real property tax constitutes a lien on the property itself and not on the owner thereof, and is extinguished only upon the payment of the delinquent tax. Stated differently, the real property tax attaches to and is a direct lien upon the property itself. Unpaid taxes remain collectible as long as the property exists, until full payment, whether such property is in the possession of the delinquent taxpayer or any subsequent owner. Moreover, attention is invited to Ministry Order No. 61-80 dated July 21, 1980 of the then Ministry of Finance, the pertinent portion of which reads as follows: "xxx xxx xxx "Accordingly, you are hereby directed that effective immediately no registration of document of sale or transfer of ownership or tax declarations over unregistered real properties owned by individuals shall be effected by any Provincial, City or Municipal Assessor without certification from the Commissioner of Internal Revenue, or his duly authorized representative, that said sale or transfer has been reported and the final capital gains tax due thereon, if any, as prescribed in BP BLG. 37, has been duly paid." Therefore, even if the said company bought the subject two (2) parcels of land twenty three (23) years ago, the payment of Capital Gains Tax is still required before a transfer of ownership or issuance of a new tax declaration is effected. Additionally, Section 258 of R.A. No. 7160, otherwise known as the Local Government Code of 1991 provides as follows: "Section 258. Levy on Real Property. After the expiration of the time required to pay the basic real property tax or any other tax levied under this Title, real property subject to such tax may be levied upon through the issuance of a warrant on or before, or simultaneously with the institution of the civil action for the collection of the delinquent tax. The provincial or city treasurer, or a treasurer of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of the property or person having legal interest therein, the description of the property, the amount of the tax due and the interest thereon. The warrant shall operate with the force of a legal execution throughout the province, city or municipality within the Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent owner of the real property or person having legal interest therein, or in case he is out of the country or cannot be located, to the administrator or occupant of the property. At the same time, written notice of the levy with the attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or a municipality within the Metropolitan Manila Area where the property is located, who shall annotate the levy on the tax declaration and certificate of title of the property, respectively. "xxx xxx xxx." Further, it is worth mentioning that the refusal of the City Assessor of Paraaque City to issue the requested tax declaration unless proof of payment of the CGT is submitted, is in compliance with BLGF Memorandum Circular No. 18-2004 dated December 20, 2004, copy attached, which ruled in part as follows: "xxx xxx xxx "Accordingly, unless the Deed of Sale executed . . ., conveying the . . . real properties . . . is finally registered with the Register of Deeds . . ., that Office could not effect the cancellation and transfer of the . . . tax declarations. "It is understood that the . . . requirements . . . should likewise be complied with, viz. : "1. That the real property taxes due on the subject lot be fully paid; "2. That the corresponding tax on the transfer of ownership has been paid; and "3. That the certification of payment of the capital gains tax issued by the Bureau of Internal Revenue is presented to that Office." Lastly, it is recommended that you make representations with the Sangguniang Panlungsod of Paraaque City as to the most practical remedies that can be resorted to, such as entering into a Compromise Agreement, as suggested by the city Treasurer thereat under his letter of November 24, 2003. A copy of the said Compromise Agreement is attached herewith for your ready reference. We trust that we have enlightened you on the matter. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director