BIR Ruling [DA-243-96]

July 16, 1996 BIR RULING [DA-243-96] MEMORANDUM FOR : Sec. Roberto F. De Ocampo Department of Finance FROM : Commissioner Liwayway Vinzons-Chato Bureau of Internal Revenue SUBJECT : Comments on: Senate Bill No. 777. "An Act to Provide Additional Protections to Buyers of Real Estate on Installment Payments by Requiring Subdivision or Real Estate Owners to have an Individual Title on Every Lot Available First Before Offering the same for Sale Prohibiting Any Mortgage, Lien or Encumbrance on the same, Making the Annotation on the Title of the Contract to Sell or of Sale Mandatory, Making it Compulsory the Execution of Deed of Absolute Sale and the Delivery of Title to the Buyer Upon Completion of Installment Payments, and Providing other Protective Measures, Including the Imposition of Penalty for Violation Thereof" Senate Bill No. 1192 An Act Providing for Roads, Alleys, Sidewalks, Defining Open Spaces in Residential Subdivisions, Amending Presidential Decrees 957 and 1216, and for other Purposes" SENATOR Gregorio B. Honasan, Chairman, Senate Committee on Urban Planning Housing and Resettlement, in his letter dated May 8, 1996, is requesting for comments on Sections 4, of both the abovecaptioned Senate Bill Nos. 777 and 1192, which are quoted hereunder as follows: cdll Senate Bill No . 777 "SEC. 4. Payment of taxes shall remain to be the obligation of the seller of real estate on installment payments notwithstanding the execution of the Contract to Sell or Contract of Sale, but such obligation shall be transferred to the buyer from the moment the latter shall have started taking physical possession of the real estate purchased on installment payments, or the title is transferred to the buyer." Senate Bill No . 1192 "SEC. 4. Exemption from taxes . The roads, alleys, sidewalks and open spaces in a subdivision project being reserved for public use and beyond the commerce of man shall be exempt from the payment of real estate taxes from the time of approval of the project by the HLURB. "The pertinent provisions of the National Internal Revenue Code and of R.A. 7160 in this regard are hereby repealed and/or amended." COMMENTS: Section 4 of Senate Bill No. 777 We are interposing our objection to the proposed shifting of the obligation in the payment of taxes relative to the sale of real estate on installment payment from the seller to the buyer from the moment the latter shall have started taking physical possession of the real estate purchased on installment payments, or the title is transferred to the buyer. The capital gains tax, in case of individual, estate and trust, selling real property classified as capital asset and the creditable withholding tax, in case of corporation and individuals selling real property classified as ordinary asset being respectively imposed under Section 21(e) and Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 1-90 in relation to Section 50(b) of the National Internal Revenue Code, as amended, on the sale of real property whether on installment or cash payment basis are both income taxes, hence, direct taxes which obviously are the direct liabilities of the sellers of the subject real properties. Accordingly, the said proposed shifting of the obligation in the payment of taxes from the seller to the buyer found in Section 4 of Senate Bill No. 777 would in effect, encroach upon the very classification of the said income taxes in accordance to its burden on incidence. Section 4 of Senate Bill No. 1129 We do not interpose any objection on this proposed exemption of roads, alleys, sidewalks and open spaces in subdivision projects being reserved for public use from the payment of real estate taxes. However, it is noted that real estate tax is not among those being enforced under the National Internal Revenue Code (NIRC). Thus, the provision on the aforesaid Section relative to the repeal and/or amendment of pertinent provisions of the NIRC on real estate taxes should be deleted therefrom and the question should be directed instead to the Department of Interior of Local Government, which has jurisdiction over the same. Moreover, payment of the said taxes should first be effected before a Certificate Authorizing Registration (CAR) may be issued in favor of the buyer by the Revenue District Officer where the property sold is located in order that the document transferring real property shall be effected by the Register of Deeds concerned pursuant to the last paragraph of Section 49(a)(4) of the NIRC, as amended. In view, thereof, it is suggested that the portion of said Section of Senate Bill No. 777 shifting the obligation to pay the taxes due as a consequence of the sale of real property on installment payments from the seller to the buyer be deleted therefrom. cdlex LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue