BIR Ruling [DA-627-04]

December 10, 2004 BIR RULING [DA-627-04] R.A. 7279; DA-192-2003 PNOC Development and Management Corporation 5/F PNOC Bldg. 6, Energy Center Merrit Rd., Fort Bonifacio Makati City Attention: Dr. Cayetano W. Paderanga, Jr., Ph.D. President and CEO Gentlemen : This refers to your letter dated August 23, 2004 requesting for a ruling that the socialized housing projects of PNOC Development and Management Corporation (PDMC), formerly Filoil Development and Management Corporation (FDMC) qualifies as a socialized housing project as defined under Republic Act (R.A.) No. 7279 otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted shows that PDMC is a corporation registered under Philippine laws under SEC Company Registration No. 15082 dated December 13, 2002; that the primary purpose of PDMC under its amended Articles of Incorporation is to acquire by purchase, exchange, lease, donation, grant, foreclosure or otherwise, lands, interest in lands, real property and buildings of every class and description and to own, hold, establish, provide, possess, rebuild, alter, improve, reforest, develop, utilize, manage, subdivide, sell, exchange, lease, mortgage, securities and hold for investment or otherwise, real estate; that PDMC owns several properties located in Rosario and Noveleta, Cavite consisting of twenty-five (25) hectares being occupied by 3,500 informal settler families, more or less, based on occupancy verification survey conducted on October 2001; that since it is the priority concern of the present administration to provide housing to deserving landless and homeless families and ensure security of tenure of informal settler families occupying government lands which are no longer utilized for its intended purpose, Her Excellency, President Gloria Macapagal-Arroyo issued Executive Order (E.O.) No. 59, dated December 10, 2001, authorizing Filoil Development and Management Corporation to segregate and dispose of its properties in Noveleta and Rosario, Cavite to its bonafide occupants; that E.O. 59 was implemented by PDMC thru the "GMA-Abot Kayang Pabahay at Palupa", a Housing and Urban Development Coordinating Council (HUDCC) certified socialized housing project; that the project was implemented in cooperation with different government agencies, namely: the HUDCC, the Presidential Commission for the Urban Poor, the National Housing Authority (NHA), the Local Government of Rosario and Noveleta, Cavite, and the People's Organizations of Rosario and Noveleta, Cavite; that the aforementioned agencies also form part of the Inter-Agency Committee (IAC) formed to formulate the Master Plan and the Implementing Rules and Regulations of E.O. 59. TcEDHa The Socialized Housing Project was implemented in two (2) models/schemes, namely: (i) on-site development wherein only the lots were awarded or sold to its bonafide occupants; and (ii) off-site development wherein house and lot packages were offered to qualified beneficiaries of the Socialized Housing Program; that the off-site house and lot development for socialized housing involves the construction of 143 row houses and that the said housing units represent the initial socialized housing development out of the 500 socialized housing units that PDMC committed to develop; that the housing units each have a lot area of 40 square meters, a floor area including a mezzanine of 28 square meters, more of less, and a reserved area for future expansion as the household income increases overtime; and that pursuant to the Implementing Rules and Regulations for the Disposition of Filoil Properties located in Rosario and Noveleta, Cavite under E.O. 59, the valuation of the subject properties covered by the said E.O. shall have a maximum price of Seven Hundred Pesos (P700.00) per sq.m. for the first forty (40) sq.m. and the price of area in excess thereof shall be determined by the IAC subject to the approval of the FDMC Board, and payments thereof shall be made in cash or in monthly installments for a maximum period of twenty five (25) years. In reply, please be informed that Section 20 of R.A. No. 7279, reads: "Sec. 20. Incentives for the 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;" the owner of the raw land is 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 is to be applied or is 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 of the properties, whichever is higher. Furthermore, under Revenue Regulations 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 properties 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 tax 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. AaITCS Considering that PDMC is 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 project, 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 Regulations 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 P150,000.00, in accordance with Revenue Regulations No. 9-93, as amended by Revenue Regulations No. 11-97, implementing R.A. No. 7279 [maximum of P180,000.00 per unit pursuant to Section 5.1 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, and now as per issuance of HUDCC Memorandum Circular No. 02, Series of 2002 dated October 21, 2002 issued by Secretary Michael T. Defensor wherein it adjusted the socialized housing package to P225,000.00. (BIR Ruling No. S20-003-2003 dated February 27, 2003) 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 seal property, the actual selling price per sale transaction of the units in this case does not really exceed P225,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. However, it is observed that documentary stamp tax 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 properties 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. TSaEcH On the other hand, the contractor of the socialized housing units under R.A. No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service