BIR Ruling [DA-461-06]

July 28, 2006 BIR RULING [DA-461-06] RA 7279; DA-067-03 Filinvest Land Incorporated 178 P. Gomez Street San Juan, Metro Manila Attention: Atty. Andrew James Gerard D. Ruiz Tax Counsel Gentlemen : This refers to your letter dated March 21, 2006 requesting confirmation of various tax consequences arising from the sale of socialized housing units (lots and houses and lots) by Filinvest Land, Inc. It is a represented that Filinvest Land, Inc. ("FLI" for brevity) is a corporation duly organized and existing under the laws of the Republic of the Philippines; that it is engaged in the business of acquiring, developing and selling real estate, including residential subdivisions, and socialized housing projects and units; that it owns the following real properties, developed into socialized housing projects and duly registered with the Housing and Land Use Regulatory Board (HLURB), specifically under Section 21 of "The Rules and Standards for Economic and Socialized Housing Projects To Implement Batas Pambansa 220": Southern Heights Location : Barangay Langgam, San Pedro, Laguna HLURB Registration Number : R4-95-05-0265, May 29, 1995 Date of Registration License to Sell Registration : R4-95-05-0308, May 29, 1995 number, date of Issuance TCT No. T-630669 Southern Heights II Location : Barangay San Vicente, San Pedro, Laguna HLURB Registration Number : R4-96-02-0035, February 29, 1996 Date of Registration License to Sell Registration : R4-96-02-0038, February 29, 1996 number, date of Issuance TCT No. T-636376 Southern Heights II-A Location : Barangay San Vicente, San Pedro, Laguna HLURB Registration Number : R4-97-01-0018, January 27, 1997 Date of Registration License to Sell Registration : R4-97-01-0019, January 27, 1997 number, date of Issuance TCT No. T-3900881 that at present, the price ceiling for sale of socialized units (lots and/or houses and lots), as determined by the Housing and Urban Development Coordinating Council (HUDCC), is Three Hundred Thousand Pesos (P300,000.00). From the foregoing, you are requesting confirmation of your opinion as follows: 1. The sales by Filinvest Land, Inc. of socialized housing lots, and houses and lots, in the projects Southern Heights, Southern Heights II, and Southern Heights II-A, are not subject to income tax, and consequently not subject to withholding tax under the provisions of the National Internal Revenue Code (NIRC), as amended, as implemented by Revenue Regulations (RR) No. 2-98, as amended; 2. The sales by Filinvest Land, Inc. of socialized housing lots, and houses and lots, in the projects Southern Heights, Southern Heights II, and Southern Heights II-A, are not subject to the Value-Added Tax (VAT) under the provisions of the NIRC, as amended, as implemented by RR No. 16-2005. In reply, please be informed as follows: A. Income Tax Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", provides for the tax incentives relative to the development and sale of socialized housing units (lots and/or houses and lots). AacCIT In particular, Section 20(d) of RA No. 7279, provides as follows: "Section 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 sectors: 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; (4) Transfer tax for both raw completed projects; and (5) Donor's tax for lands certified by the local government units to have been donated to socialized housing purposes. . . ." [emphasis provided] On the other hand, Section 2.57.5 of RR No. 2-98, as amended, provides, viz.: "Section 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: xxx xxx xxx (B) Person enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or specials such as but not limited to the following : (1) Sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed one hundred eighty thousand pesos (P180,000.00) in Metro Manila and other highly urbanized areas and one hundred fifty thousand pesos (P150,000.00) in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under Republic Act No. 7 2 79 and its implementing regulations ; . . . ." [emphasis supplied] The current adjusted price ceiling for socialized housing units (lots and/or houses and lots) is P300,000.00 per Housing and Urban Development Coordinating Council (HUDCC) Memorandum Circular No. 3, series of 2005, dated June 10, 2005, signed by Vice President Noli L. De Castro. Thus, in BIR Ruling No. DA-067-03 dated March 4, 2003 this Office ruled as follows: "On the other hand, once registered with and certified by the HLURB as engaged to socialized housing project pursuant to R.A No. 7 2 79, 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 Regulat ions N o. 2-98 implementing Section 57(B) of the Tax Code of 1997 ." [emphasis provided] In view of the foregoing, and considering that FLI's developed properties, namely: Southern Heights, Southern Heights II, and Southern Heights II-A are duly registered with the HLURB as socialized housing projects, this Office therefore confirms your opinion that if the said socialized housing projects are sold below or at the ceiling price of P300,000.00 per lot/unit, the sale thereof should not be subject to income tax, and consequently, to the withholding tax imposed under RR No. 2-98, as amended. B. Value-Added Tax (VAT) Section 109(P) of the NIRC, as amended, provides thus: "Section 109. Exempt Transactions. (1) Subject to the provisions of subsection (2) hereof the following transactions shall be exempt from the value-added tax: xxx xxx xxx " (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7 2 79, otherwise known as the Urban Devel opment and Hou sing Act of 1992, and other related laws , . . . ." [emphasis supplied] Implementing the above provision of the 1997 Tax Code, as amended by RA No. 9337, Section 4.109-1(B)(1)(p)(3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions . (A) In general. "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely; xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7 2 79, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . ." [emphasis supplied] Clearly, the above-quoted provision of the 1997 Tax Code, as amended, as implemented by RR No. 16-2005, allows for the VAT-exempt sale of socialized housing units (lots and/or houses and lots). Considering that FLI's socialized housing projects are duly registered with the HLURB as such, its sales are thus VAT-exempt ( BIR VAT Ruling No. 038-93, dated September 8, 2003 ). It is understood that the documentary stamp tax (DST) is not one of the taxes (covered by the exemption clause under Section 20 of RA No. 7279. As such, FLI's sale of socialized housing units is subject to the DST provided for under Section 196 of the 1997 Tax Code, as amended (BIR Ruling No. DA-386-98, dated August 24, 1998). TASCEc 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service