BIR Ruling [DA-067-03]

March 4, 2003 BIR RULING [DA-067-03] R.A. No. 7279 S-20-067-2000 Acerhomes Development Corporation 7th Floor, Summit One Tower 530 Shaw Boulevard Mandaluyong City Attention: Mr. Ricardo G. Ong Chief Financial Officer Gentlemen : This refers to your letter dated February 13, 2003 requesting for exemption from the payment of capital gains tax on the sale of parcels of land pursuant to Republic Act (R.A.) No. 7279, otherwise known as the Urban Development and Housing Act of 1992. It appears from the documents submitted that Adelaido De Guzman married to Rosita De Guzman; Mylene T. Lim married to Arthur Lim; Misael Adelaida F. Soliman married to Ferdinand Soliman; Andres V. Genito, Jr. married to Ludivina L. Genito; Samuel Madrid married to Belen Madrid; and Catalina Bautista married to Joaquin F. Manahan are the registered owners of the following properties, all located in San Isidro, Rodriguez, Rizal, thus: Owner TCT No. Area (sq.m.) Adelaida De Guzman married to Rosita de Guzman 422616 27,147.50 434140 851 Mylene T. Lim married to Arthur Lim 422617 27,147.50 Misael Adelaida F. Soliman married to Ferdinand Soliman 434138 12,327 Andres V. Genito, Jr. married to Ludivina L. Genito N-69476 25,814 Samuel Madrid married Belen Madrid 434134 11,950 Catalina Bautista married to Joaquin F. Manahan 434136 2,703 107,940 ====== that the said properties will be sold to Acerhomes Development Corporation, a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines; that portion of the said land shall be developed into socialized housing to be known as Eastwood Homes pursuant to R.A. No. 7279; and that the said project have been duly approved for development under R.A. No. 7279 by Engr. Manuel T. Orogo and Hon. Pedro S. Cuerpo, Municipal of Rodriguez, Rizal. In reply, please be informed that under Section 5(B) of Revenue Regulations No. 11-97, a developer of a proposed subdivision project shall be required to develop an area for socialized housing equivalent to at least twenty percent (20%) of the total subdivision area or total subdivision project cost at the option of the developer, within the same city or municipality whenever feasible and in accordance with the standards set by the HLURB under existing laws. The balance housing development required under Section 18 of R.A. No. 7279 may also be complied with by the developers concerned in any of the following manner: (a) Development of new settlement; (b) Slum upgrading or renewal of areas for priority development either through zonal improvement programs or slum improvement and resettlement programs; (c) Joint venture projects with either the local government units or any of the housing agencies; or (d) Participation in the community mortgage program. Pursuant to Section 20 of R.A. No. 7279, pertinent portion of which reads: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; (3) Value-added tax for the project contractor concerned; xxx xxx xxx" the owners of the raw land are exempt from the payment of capital gains tax on the conveyance of the said properties for use in the aforesaid socialized housing project. Upon application for exemption, a lien on the titles of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are to be applied or are being applied to socialized housing project pursuant to R.A. No. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, within six (6) months after this issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the property and shall start the development of the socialized housing project within one (1) year after the approval of the Development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed and paid by the buyer/developer. On the other hand, once registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A. No. 7279, as the developer of the properties used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lot or lots only) shall be exempt from project-related income taxes, and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98 implementing Section 57(B) of the Tax Code of 1997. It shall be understood that to be tax-exempt, the selling price per lot or house and lot shall not exceed P150,000.00, in accordance with Revenue Regulations No. 9-93, as amended by Revenue Regulations No. 11-97, implementing R.A. No. 7279 [maximum of P180,000.00 per unit pursuant to Section 5.1 of Memorandum of Agreement on Housing Finance entered into by and between the Housing and Urban Development Coordinating Council (HUDCC), and Department of Finance (DOF), Department of Budget and Management (DBM), the Government Service Insurance System (GSIS), the Home Development Mutual Fund (Pag-IBIG), the National Home Mortgage Finance Corporation (NHMFC), and the Social Security System (SSS), in Metro Manila and highly urbanized areas mentioned in Table 25, Priority Area for Shelter Development and Implementation of R.A. 7279. ( BIR Ruling No. 021-97 dated March 3, 1997 ). Pursuant to Memorandum Circular No. 02, Series of 2002 dated October 21, 2002 issued by the Housing and Urban Development Coordinating Council and signed by Secretary Michael T. Defensor, the socialized housing packages has been adjusted to P225,000.00. ( BIR Ruling No. DA-008-2003 dated January 14, 2003 ) TIDcEH In this connection, any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3(t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the sine-qua-non terms and conditions as aforestated, for tax exemption purposes. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P225,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the said Code, whichever is higher. CAcEaS On the other hand, the contractor of the socialized housing units under R.A. No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service