BIR Ruling [DA-164-99]

March 18, 1999 BIR RULING [DA-164-99] Hon. Reynaldo U. Malonzo City Mayor Caloocan City S i r : This refers to the letter dated October 13, 1998 of Atty. Phillip L. Dela Cruz addressed to the Chairman, City Finance Committee, Caloocan City, wherein he opined that the City Government of Caloocan is not subject to the 6% capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997 on capital gains presumed to have been realized from the exchange of property by and between the Iglesia Ni Cristo (INC) and the Caloocan City Government which you indorsed to the Revenue District Officer of Caloocan City and who in turn indorsed the same to this Office for appropriate action. cdll With due respect, the contention of your Legal Officer that "following the well settled principle of tax exemption of the government, the BIR cannot assess and collect from a government instrumentality such as the City of Caloocan", is not altogether correct. Notwithstanding the immunity of the Government from taxes, the principle is also well-settled that the Government may tax itself. Thus, under Section 27(C) of the Tax Code of 1997, all corporations, agencies or instrumentalities owned or controlled by the Government, except the GSIS, the SSS, the PHIC, the PCSO and the PAGCOR shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in a similar business, industry or activity. Likewise, under P.D. No. 1177, all units of government, including government owned or controlled corporations, are subject to income taxes, customs duties and other taxes and fees as are imposed under revenue laws. He has also misinterpreted Sec. 24(D)(1) of the Tax Code of 1997 which provides that ". . . Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24(A) or under this Subsection, at the option of the taxpayer". when he stated that "by reading the said provision it is very clear that the taxpayer mentioned therein is not the government it is obviously the other party to the transaction that has the option of choosing which tax to be paid . . .". The aforequoted proviso simply allows an individual taxpayer to report the gains derived by him from the sale or exchange of capital asset to the government or any of its political subdivision or agencies or to government-owned or controlled corporations and pay the corresponding income tax using the schedular rates prescribed under Sec. 24(A) or the 6% final tax under Sec. 24(D)(1), both of the Tax Code of 1997. This proviso is not found in Sec. 27(D)(5) which imposes a final tax of 6% on capital gains realized from the sale, exchange or disposition of lands and/or buildings by domestic corporations. llcd It is worth to state herein that taxes are the lifeblood of the nation. (CIR vs. Pineda No. L-22734, Sept. 15, 1967, 21 SCRA 105) Their primary purpose is to generate funds for the State to finance the needs of the citizens and to advance the common weal. (NPC vs. The Province of Albay, et. al., G.R. No. 87499, June 4, 1990) In view of the foregoing, this Office hereby reiterates its previous ruling (DA-419-98 dated September 14, 1998) that the City Government of Caloocan is subject to the 6% final tax on the capital gains presumed to have been realized from the exchange transaction of real property with the INC. This constitutes the final decision of this Office on the matter. cdt Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue