Bureau of Local Government Finance Opinion

December 20, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned thru the ICO-Regional Director, Bureau of Local Government Finance, Department of Finance, Region XII, No. 157 Sinsuat Avenue corner Gonzalo Javier Street, Cotabato City, to Ms. Elvira Q. Rafael, ICO-Provincial Treasurer of South Cotabato, Koronadal City, relative to her letter dated July 7, 2008, soliciting this Bureau's guidance regarding the correct computation of interest on delinquent real property tax in light of the Supreme Court decision in the case of Secretary of Finance vs. Ricardo Ilarde, et al. , G.R. No. 121782, May 9, 2005, the gists of the ruling of which are as follows: "Note that under Section 66 of P.D. No. 464, to maximum penalty for delinquency in the payment of real property tax shall in no case exceed twenty four per centum of the delinquent tax . Upon the other hand, Section 4(c) of the challenged Joint Assessment Regulations No. 1-85 and Local Treasury Regulations No. 2-85 issued by respondent Secretary (formerly Minister) of Finance provides that 'the penalty of two percent (2%) per month of delinquency or twenty-four percent (24%) per annum as the case may be, shall continue to be imposed on the unpaid tax from the time the delinquency was incurred up to the time that the delinquency is paid for in full.' As adeptly observed by the trial court, the penalty imposed under the assailed Regulations has no limit inasmuch as the 24% penalty per annum shall be continuously imposed on the unpaid tax until it is paid for in full unlike that imposed under Section 66 of the Real Property Tax Code where the total penalty is limited only to twenty-four percent of the delinquent tax ." (underscoring supplied) SAcaDE xxx xxx xxx ". . . for purposes of computation of the real property taxes due from private respondent for the years 1986 to 1991, including the penalties and interests, is still Section 66 of the Real Property Tax Code of 1974 or P.D. 464. The penalty that ought to be imposed for delinquency in the payment of real property taxes should, therefore, be that provided for in Section 66 of P.D. No. 464, i.e. , two per centum on the amount of the delinquent tax for each month of delinquency or fraction thereof, 'but in no case shall the total penalty exceed twenty-four per centum of the delinquent tax.' " Accordingly, the penalties imposed by respondents City Treasurer and Assistant City Treasurer of Iloilo City on the property of private respondents are valid only up to 24% of the delinquent taxes . The excess penalties paid by the private respondent should, in view of that, be refunded by the latter. "However, from 01 January 1992 onwards, the proper basis for the computation of the real property tax payable, including penalties or interests, if applicable, must be Rep. Act No. 7160, known as the Local Government Code, which took effect on the 1st of January 1992 23(23) inasmuch as Section 534 24(24) thereof had expressly repealed P.D. No. 464 or the Real Property Tax Code." (underscoring supplied) CIETDc The foregoing ruling of the Supreme Court stated clearly that the rate of interest of delinquent real property tax that accrued prior to January 1, 1992, is two percent (2%) per month or a maximum rate of twenty four percent (24%), pursuant to the provisions of Section 66 of P.D. No. 464. Hence, Section 4 (c) of Joint Assessment Regulations No. 1-85 and Local Treasury Regulations No. 2-85, implementing a rate beyond 24% or a cumulative computation of penalty was found in violation of Section 66 of P.D. No. 464, as said regulations allow a limitless application of interest upon the delinquent real property tax. For delinquent real property tax that accrued beginning January 1, 1992, the computation of the interest thereon is governed by the provisions of Section 255 of R.A. No. 7160, as follows: "SEC. 255. Interests on Unpaid Real Property Tax . In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the periods as provided in Section 250, or when due as the case may be, shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, that in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months." EHaDIC Section 255 above provides that the maximum rate of interest applied on delinquent real property tax that accrued upon the effectivity of R.A. No. 7160 or on January 1, 1992, is 2% per month, but not exceeding 36 months or the maximum rate of 72%. All told, unpaid real property tax that accrued prior to January 1, 1992, are imposed an interest of 2% per month, or a maximum rate 24% , accordance with the law then enforced which was P.D. No. 464, while unpaid real property tax that accrued on January 1, 1992 onwards are imposed an interest of 2% per month, but not exceeding 36 months or a maximum rate of 72% in accordance with the governing law which is R.A. No. 7160, that repealed P.D. No. 464. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director