Tax Evasion PH: Why You Should Declare the Real Selling Price of a Property

​Underdeclaring a Property’s Selling Price Can Put You in Tax Trouble

For many Filipinos, investing in real estate is the ultimate goal. Whether you’re buying your first home, flipping properties, or acquiring rental assets, real estate offers long-term growth and financial security. But before you seal the deal and sign the deed of sale, there’s one crucial thing you should know: underdeclaring the property’s selling price is illegal and can get you into serious tax trouble.

What Is Underdeclaration in Real Estate?

Underdeclaration happens when the buyer and seller agree on a selling price – say, PHP 5 million – but only declare PHP 3 million in the Deed of Sale submitted to the Bureau of Internal Revenue. This tactic is usually done to reduce taxes like the Capital Gains Tax and the Documentary Stamp Tax. However, this practice is a form of tax evasion, and yes, it’s a criminal offense in the Philippines.

How the BIR Determines Property Value?

You can’t just declare any amount you want when transferring property ownership. The BIR uses the zonal value or the fair market value of a property to compute taxes. This means even if you underdeclare, the BIR will still assess taxes based on the higher value between your declared price and the zonal value. Zonal values are regularly updated and published by the BIR based on the property’s location, classification, and other factors. If the declared selling price is way below the zonal value, that’s a red flag for the BIR – and it could trigger an audit.

Legal and Financial Consequences

Under the National Internal Revenue Code, specifically Section 254, willfully attempting to evade taxes, like by underdeclaring the property value, can result in:

• A fine of PHP 500,000 to PHP 10 million.
      
• Imprisonment of 6 to 10 years.

The BIR can also impose surcharges, interest penalties, and temporarily shut down businesses involved in the transaction through programs like Oplan Kandado. With the digital transformation of BIR processes, including electronic tax filing and property databases, it’s becoming harder to game the system.

Evidence for Tax Evasion

Tax evasion may be filed against the seller who did not declare the real price of the sold propertyeven if the buyer agreed to underdeclare it. The BIR can find out about the underdeclaration if there’s proof that shows the real transactions. Some pieces of evidence can be used to prove that the seller and buyer declared a price that is undervalued through the following:

• Receipts and bank transfers that show a higher amount.
      
• Email and chat conversations that confirm the real price.
      
• Notarized agreements and side contracts.
      
• Complaints from either the seller or buyer, and other witnesses.
      
• Asset declarations do not match the records of sale.

Final Thoughts

​If you’re planning to invest in real estate, always play it straight. Declare the true selling price, know the zonal value of the property, and consult with a licensed real estate broker if needed. You may contact us at the REALS Corporation official website or Facebook page. Our professional real estate agents in Baguio City will help you make informed decisions before buying or selling a property in the Philippines.

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