What is Transfer Tax?

Last updated on October 5, 2012 by Jay Castillo | Filed Under: Real Estate Taxes, Transfer
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A transfer tax is imposed on tax on the sale, donation, barter, or any other mode of
transferring ownership or title of real property at the maximum rate of 50% of 1% (75% of
1% in the case of cities and municipalities within Metro Manila) of the total consideration
involved in the acquisition of the property or of the fair market value in case the monetary
consideration involved in the transfer is not substantial, whichever is higher. This is
pursuant to Section 135 of the Local Government Code of 1991 (LGC).

You need to pay the transfer tax because the evidence of its payment is required by the
Register of Deeds of the province concerned before registering any deed. This is also
required by the provincial assessor before cancelling an old tax declaration and issuing a
new one in its place. Please do not confuse the transfer tax which is paid to the local
government with the transfer taxes due to the BIR (which may either be donors or
estate taxes).

Disclaimer: While great effort has been taken to ensure the accuracy of the discussion here
as of its writing, this is not intended to replace seeking professional services. Always consult
with your tax attorneys and read up on the relevant laws and regulations also.

Who should pay

The payment of the transfer tax is the responsibility of the seller, donor, transferor, executor
or and administrator.

When to pay
The deadline for payment is sixty (60) days from the date of the execution of the deed or
from the date of the decedents death. Please note too that notaries public are required to
furnish the provincial treasurers with a copy of any deed transferring ownership or title to
any real property within thirty (30) days from the date of notarization.

Surcharges and penalties for late payments (as per section 168 of RA 7160)
 Surcharge No more than twenty-five percent (25%) of the amount of taxes, fees or
charges not paid on time
Penalty No more than two percent (2%) per month of the unpaid taxes, fees or
charges including surcharges, until such amount is fully paid, but in not to exceed thirty-
six (36) months or seventy-two percent (72%).
Where to pay
The transfer tax is to be paid at the Treasurers Office of the city or municipality where the
property is located.

Requirements
In general, the requirements for the payment of transfer tax are the following:

Certificate Authorizing Registration from the Bureau of Internal Revenue;

Realty tax clearance from the Treasurers Office; and
Official receipt of the Bureau of Internal Revenue (for documentary stamp tax).
Transfer Tax Rates
With regard to the transfer tax rates, please click on the links to see the different transfer tax
rates and documents required to transfer the registration of a property. You have to check
the rates on a per city or per municipality basis as the LGC only provides for the maximum
rates. Click on the links below for the transfer tax rates of major cities.

Manila
Caloocan [I have no idea why the transfer tax rate in Caloocan is 82.5% of 1%]
Cebu
Davao
Las Pinas
Makati
Mandaluyong
Marikina
Pasig
Quezon City
The http://www.doingbusiness.org site is so cool. You can learn about the requirements for
registering property, etc., with cost and estimated time to complete.
Transfer Tax Base
In the case Romulo D. San Juan vs. Ricardo L. Castro, in his capacity as City Treasurer of
Marikina City [G.R. No. 174617 dated December 27, 2007], one of the issues was the
proper computation of the transfer tax base. In this case, petitioner San Juan conveyed real
properties to a corporation in exchange for its shares of stock[1]. Using as basis Section
135 of the LGC, San Juan wanted to pay the transfer tax based on the consideration stated
in the Deed of Assignment. Respondent Castro, as the Treasurer, informed him that the tax
due is based on the fair market value of the property. Petitioner Castro protested the
Treasurers computation in writing, which the Treasurer also denied in writing. Petitioner
Castro then filed a Petition for mandamus and damages against the Treasurer praying that
he be compelled to accept payment of the transfer tax based on the actual consideration of
the transfer/assignment.

The bone of contention was the proper interpretation of Section 135 of the LGC which
provides:

SECTION 135. Tax on Transfer of Real Property Ownership. (a) The province may
impose a tax on the sale, donation, barter, or on any other mode of transferring ownership
or title of real property at the rate of not more than fifty percent (50%) of the one percent
(1%) of the total consideration involved in the acquisition of the property or of the fair market
value in case the monetary consideration involved in the transfer is not substantial,
whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A.
No. 6657[2] shall be exempt from this tax. xxx

Petitioner San Juan took the position that the transfer tax base should be the total
consideration involved, because the intention of the law is not to automatically apply the
whichever is higher rule. He argued that it is only when there is a monetary consideration
involved and the monetary consideration is not substantial that the tax rate is based on the
higher fair market value. His argument was that since he received shares of stock in
exchange for the real properties, there was no monetary consideration involved in the
transfer.

Respondent Castro, on the other hand, took the position that the transfer tax base should
be the fair market value, because it is higher than the monetary consideration San Juan
received in exchange for his real properties. Castro argued that monetary consideration as
used in the LGC does not only pertain to the price or money involved but also, as in the
case of donations or barters, to the value or monetary equivalent of what is received by the
transferor, which, in this case, Castro argued to be the par value of the shares of stock San
Juan transferred in exchange for shares of stock.

As anticlimactic as this may sound, the Court did not rule squarely on the correct
computation of the transfer tax base because it held that a Petition for Mandamus was not
the correct remedy. Mandamus lies only to compel an officer to perform a ministerial duty
(one which is so clear and specific as to leave no room for the exercise of discretion in its
performance) but not a discretionary function (one which by its nature requires the exercise
of judgment).

Sample Computation
Considering that there is still an issue as to the proper computation of the transfer tax base,
I suggest that we not delve into the various interpretations of Section 135 of the LGC and
simply multiply the transfer tax rate by the higher amount between the consideration paid
and the fair market value.

Lets take for example a residential condominium in Antipolo with a floor area of 50sqm and
a Selling Price (SP) of Php2.0M. The existing market value as per Tax Declaration is
currently at Php 1M.

Since SP is higher than the Market Value, we shall use SP to compute the transfer tax:

Antipolo City Transfer Tax Rate: 0.75% [that is, 75% of 1%]

Transfer Tax = 0.75% x 2,000,000 = Php15,000

What if you dont agree with the Treasurers computation?

Assuming you disagree with the tax assessment made by a local treasurer, you may file a
written protest thereof pursuant to Section 195 of the LGC, which provides:
SECTION 195. Protest of Assessment. When the local treasurer or his duly
authorized representative finds that the correct taxes, fees, or charges have not been paid,
he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from
the receipt of the notice of assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the assessment shall become final and
executory. The local treasurer shall decide the protest within sixty (60) days from the time of
its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall
issue a notice cancelling wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly
with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the
denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within
which to appeal with the court of competent jurisdiction, otherwise the assessment becomes
conclusive and unappealable.

In the case earlier discussed, the Petitioner protested in writing against the assessment and
Respondent denied it in writing as well. Petitioner should thus have either: 1) appealed the
assessment before the court of competent jurisdiction, or 2) paid the tax and then sought a
refund.

In my view, the Petitioner San Juan could have made another argument, that is, assuming
that the monetary consideration would be equivalent to the par value of the stocks (which
is still lower than the fair market value), that value is substantial and thus, there is no need
for the whichever is higher provision to kick in. Anyway, hopefully this issue would be
decided upon squarely soon as there are really a lot of tax-free exchanges occurring and
we really need guidance on the computation of transfer tax. Perhaps one day a taxpayer
and his tax attorneys may decide to bring this issue up until the Supreme Court for a final
decision.

Taking everything into consideration, personally, unless the difference in tax that you need
to pay is really significant, it would be better to follow the computation of the Treasurer.
Filing a case in court would require filing fees and fees for tax attorneys, not to mention
taking up much of your time. If you will not pay the transfer taxes, you cannot transfer the
title to your name and this would lead to problems with your buyer and the closing of your
sale transaction. Weigh your options first before heading to battle. In real estate, as in
everything, closing the deal fast is key