Request to Exempt the Owners of the Lots That May be Affected by the Implementation of Road Right-of-way Acquisition from Payment of Capital Gains Tax, Surcharges and Documentary Stamps Tax

February 14, 1991 BIR RULING NO. 022-91 21 (e) 125-90 022-91 Gentlemen : This refers to your letter dated August 13, 1990 which was referred to this Office by the Department of Finance, furnishing a copy of your Resolution No. 27590 approved on July 11, 1990 requesting the Hon. Jesus P. Estanislao, Secretary of the Department of Finance, to exempt the owners of the lots that may be affected by the implementation of your Road Right-of-way acquisition from the payment of capital gains tax, surcharges and documentary stamps tax. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher, provided, that the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 21(a) or (e) of the same Code, at the option of the taxpayer. While, under Section 196 of the Tax Code, as amended, there shall be collected a documentary stamp tax on all conveyance, deeds, instruments, or writing, other than grants, patents, or original certificates of adjudication issued by the Government, whereby lands, tenements or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or to any other persons designated by such purchaser or purchasers, at the following rates: a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed one thousand pesos, ten pesos. b) For each additional one thousand pesos, or fractional part thereof in excess of one thousand pesos of such consideration or value, ten pesos. Such being the case, the owners (individuals, estates, trust) of the lots (classified as capital assets) that may be affected by your implementation of your Road Right-of-way acquisition are subject to the 5% capital gains tax imposed under Section 21(e) of the Tax Code, as amended, and to the corresponding documentary stamp tax prescribed under Section 196 of the same Code. However, their capital gains tax liability from the said acquisition (sale) shall be determined either under Section 21(a) or (e) of the Tax Code, at their option. In case they elect the former, this Office shall issue the certification authorizing the transfer of title to the purchaser. (Sec. 7(a) (5), Revenue Regulations No. 8-79) On the other hand, in case they elect the latter, this Office hereby allows the registration of the deed of sale with the Register of Deeds concerned and consequently, the transfer of the property in your favor. Thereafter, upon submission of a new certificate of title in your name at which time payment of their lots affected by your Road Right-of-way acquisition can be effected, they shall file the corresponding capital gains tax return within thirty (30) days from said business submission of the certificate of title. You shall within the same period, withhold the capital gains tax due from said lot owners and remit the same to this Bureau (BIR Ruling No. 044-84). In this connection, it may be noted that this ruling applies only to sales of property in favor of the government or as in this case, any of its political subdivisions or agencies or to government-owned or controlled corporations wherein the contract stipulates that the seller shall not be paid until title to the property is transferred to any one of the aforementioned entities. Moreover, in case of failure on the part of the said lot owners to file the corresponding capital gains tax return within the period above stated, as well as the corresponding documentary stamp tax, they shall be subject to the 25% civil penalty prescribed under Section 24b(B) (1) and (4) of the Tax Code, as amended. Furthermore, we also wish to inform you that exemption from the capital gains tax or documentary stamp tax or for that matter any Internal Revenue Tax including civil penalties that may be imposed under the Tax Code can only be effected by an act of Congress through legislation, the Secretary of Finance cannot make the exemptions. Very truly yours, (SGD.) JOSE U. ONG Commissioner