BIR Ruling No. 022-09

November 26, 2009 BIR RULING NO. 022-09 R.A. 7279 Hon. Matias V. Defensor, Jr. Room No. 303 Northwing House of Representatives Batasan Pambansa, Quezon City Sir : This refers to your letter dated August 4, 2009 requesting legal opinion on whether or not the survey works to be undertaken for a local housing project is exempt from value-added tax. It is represented that on January 10, 1989, the National Housing Authority (NHA) approved the inclusion of Kaingin I and II in Brgy. Pansol, Quezon City as Areas for Priority Development (APDs) under Zonal Improvement Program; that said approval was on the condition that the development of the site shall be undertaken under Community Self-Help Program with Community Mortgage and that the exact boundaries of the areas occupied by families residing thereat shall be determined; that the NHA is responsible for the management of the Trust Fund per IRR of R.A. 7835, otherwise known as the "Comprehensive and Integrated Shelter Financing Act (CISFA) of 1994" which was issued to govern the implementation of local housing program; that a Memorandum of Agreement was executed on July 3, 2009 by the NHA, the 3rd Congressional District of Quezon City ("District") represented by Congressman Matias V. Defensor, Jr. and Barangay Pansol, Quezon City whereby NHA and the District agreed to allocate from the Trust Fund the amount of P274,000 as payment for Boundary Survey Works for Kaingin I and II Housing (APD) Project, Brgy. Pansol, Quezon City; that Brgy. Pansol has engaged the services of Adonis Surveying Office to conduct the perimeter boundary/relocation survey in determining the territorial boundary of Kaingin I and II; and that a consideration of P274,000, excluding value-added tax (VAT), will be paid to Adonis Surveying Office. IacHAE In reply, please be informed that pursuant to Section 20 of R.A. No. 7279, pertinent portion of which reads: "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; xxx xxx xxx" the contractor of socialized housing units is exempt from the payment of value-added tax. On the other hand, Section 25 of R.A. 7279 enumerates the benefits granted to the occupants of Areas for Priority Development (APD), zonal improvement program sites and slum improvement and resettlement programs sites, to wit: "SECTION 25. Benefits. In addition to the benefits provided under existing laws and other related issuance to occupants of areas for priority development, zonal improvement program sites and slum improvement and resettlement program sites, such occupants shall be entitled to priority in all government projects initiated pursuant to this Act. They shall also be entitled to the following support services: (a) Land surveys and titling at minimal cost; " (Emphasis supplied) Based on the foregoing, surveying of land is merely a support service for the beneficiaries of socialized housing. It is a preliminary activity to constructing or developing socialized housing sites. ICTaEH Inasmuch as Adonis Surveying Office is only contracted as surveyor to determine boundaries of the subject land and is not the contractor for the development of the housing projects and, considering further that the survey works and services to be undertaken by Adonis Surveying office is separate from the construction of the socialized housing units which shall take place after the metes and bounds of the individual areas of Kaingin I and II have been established, Adonis Surveying Office cannot be considered as a private contractor participating in socialized housing entitled to tax exemption privileges under Section 20 (d) of R.A. 7279. Thus, the amount charged by said surveyor is subject to value-added tax (VAT) 1 under Section 105, in relation to Sections 108 and 114 (C) of the 1997 Tax Code, as amended by R.A. 9337, which provides that: "SEC. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx xxx xxx SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. "(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) (now 12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; . . ." "SEC. 114. Return and Payment of Value-added Tax. . . . (C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be considered as the withholding agent. IAEcCa "The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made." Based on the foregoing, this Office is of the opinion that cost of survey works and services in the amount of P274,000 is subject to value-added tax at the rate of 12% pursuant to Section 105 of the 1997 Tax Code, as amended, and the income payment made by Brgy. Pansol to Adonis Surveying Office shall be subject to 5% final withholding tax under Section 114 (C) of the same Tax Code. 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.) JOEL L. TAN-TORRES Senior Deputy Commissioner (Officer-In-Charge) Footnotes 1. If taxpayer is VAT-registered or meets the P1,500,000 threshold. Otherwise, transaction is subject to the 3% percentage tax, withheld at source pursuant to Sec. 116 of the 1997 Tax Code.