BIR Ruling [DA-339-05]

August 8, 2005 BIR RULING [DA-339-05] RA 7279; RR 11-97;BIR Ruling No. DA-147-03, DA-067-03 New San Jose Builders, Inc . 7/F, President Tower, 81 Timog Ave. Diliman, Quezon City Attention: Mr. Rey L. Vergara Gentlemen : This refers to your letter dated July 19, 2005 requesting for a ruling exempting New San Jose Builders, Inc. from the payment of capital gains tax (CGT), documentary stamp taxes (DST) and other taxes in accordance with Section 20 of Republic Act (RA) No. 7279. As represented, your company has been endorsed by the Local Government of Bocaue, Bulacan to the National Housing Authority (NHA) for the development of relocation sites for the affected families on the Bocaue segment of the North Rail Development Project. The proposed site consists of twenty (20) hectares, more or less, and expects to generate three thousand (3,000) developed home lots located at Brgy. Batia, Bocaue, Bulacan. In reply, please be informed that under Section 5(B) of Revenue Regulations (Rev. Regs.) 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 Housing and Land Use Regulatory Board (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. TSIaAc Section 20 of R.A. No. 7279 provides that "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;" As project contractor of NHA, New San Jose Builders, Inc. is exempt from the payment of value-added tax (VAT) on its gross receipts from the said project. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. On the other hand, 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. No documentary stamp tax, however, is due if the other party to the transaction is the NHA. Furthermore, under Rev. Regs. 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 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 Rev. Regs. 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 PhP150,000.00, in accordance with Rev. Regs. No. 9-93, as amended by Rev. Regs. No. 11-97, implementing R.A. No. 7279 (maximum of PhP180,000.00 per unit pursuant to Section 51 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. No. 7279. Pursuant to Memorandum Circular No. 02, Series of 2002 dated October 21, 2002 issued by the HUDCC and signed by Secretary Michael T. Defensor, the socialized housing packages has been adjusted to PhP225,000.00. TAaIDH 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 PhP225,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. However, it is observed that DST 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. 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 as null and void.. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service