BIR Ruling [DA-131-05]

April 6, 2005 BIR RULING [DA-131-05] 19 RA 7279; S20-016-2004 Ms. Remedios Cuartero-Yu 3 Virgo Drive, North Bay Blvd. Navotas, Metro Manila M a d a m : This refers to your letter dated June 2, 2004 requesting an opinion on whether or not the sale of a real property by the National Housing Authority (NHA) which is classified as "Commercial" by the City Assessor in favor of individuals who are considered as underprivileged and homeless are exempted from the payment of capital gains tax and documentary stamp tax under Revenue Memorandum Circular (RMC) No. 42-2001 and Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclosed that the NHA is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. M-17939 of the Registry of Deeds for Malabon, Metro Manila; that the said property was classified as Commercial by the City Assessor's Office per Tax Declaration No. B-011-13109; that the aforestated property was sold by the NHA to Remedios Cuartero-Yu for and in consideration of One Hundred Twenty Nine Thousand Three Hundred Sixty Pesos (P129,360.00);and that the subject property was certified by the NHA as a low-cost housing project. In reply, please be informed that Section 19, Article V of RA 7279, which amends the Charter of the NHA, reads as follows: "Sec. 19. Incentives for the National Housing Authority . The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title." It is recognized that the NHA is the primary government agency in charge of providing housing for the underprivileged and homeless citizens. Pursuant to Presidential Decree (PD) No. 757, the main purposes and objectives for which the NHA was created are: a) To provide and maintain adequate housing for the greater possible number of people; b) To undertake housing development, resettlement and other activities that would enhance the provision of housing to every Filipino; and c) To harness and promote private participation in housing ventures in terms of capital expenditures, land, expertise, financing and other facilities for the sustained growth of the housing industry. These objectives are not business related per se so as to subject the NHA to the coverage of applicable taxes under the aforesaid provision of law. Rather, these purposes are so imbued with governmental concerns, in recognition perhaps of the fact that mass housing, socialized housing and such other programs, for the underprivileged sectors of the society are not so much of a money-making activity that private business would rather not venture into these areas. It is, therefore, left to the government to make mass housing development and access to such projects an interest of national priority. (S-20-016-2004 dated August 18, 2004) Pursuant to the foregoing provision, the NHA enjoys exemption from all forms of taxation and thus, at the time of the sale of the above-quoted property, the NHA was not liable to pay any kind of taxes, fees and charges regardless of whether the subject property was classified as "commercial" by the City Assessor's Office. The law does not limit the property to be transferred by NHA to that which is residential in nature and to hold that only "residential" property, excluding lots referred to as "commercial" are within the purview of the tax exemption privilege granted to NHA would be equivalent to placing an unwarranted qualification on the obvious legislative intent that any property may be conveyed by NHA for purposes of accomplishing its mandate of providing affordable housing units to the underprivileged and homeless of society. CAIaHS Section 19 of RA 7279, give incentives to the NHA, as the entity tapped by the National Government to carry out the purposes of RA 7279, in the form of exemptions from the payment of all national taxes, such as income tax and the corresponding creditable withholding tax or the capital gains tax, including exemptions from documentary stamp taxes upon documents or contracts executed by and in favor of the NHA. (BIR Ruling No. 071-98 dated May 25, 1998) In view of the foregoing, this Office holds that the NHA is exempt from the payment of creditable withholding tax imposed under Section 57(B) of the Tax Code of 1997, as implemented by Section 2.57.2(J) of Revenue Regulations No. 2-98, or capital gains tax under Section 27(b)(5) of the Tax Code of 1997, whichever is applicable on its sale of the afore-mentioned parcels of land to Ms. Remedios Cuartero-Yu. The NHA is likewise exempt from the payment of the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. It is to be noted that under RMC 42-2001 dated October 5, 2001, the exemption from documentary stamp tax of the NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, Remedios Cuartero-Yu, as the other party to the sale transaction shall also be exempt from the payment of documentary stamp tax under Section 196 of the same Tax Code. Moreover, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of Remedios Cuartero-Yu shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to RA 7279. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group