BIR Ruling No. 028-11

February 2, 2011 BIR RULING NO. 028-11 RA 7279; BIR Ruling SH(050)368-2009 Fatima de Guzman 72 M.H. Del Pilar St. Sto. Tomas, Pasig City Madam : This refers to your letter dated 4 August 2009, which was referred to this Office by Revenue Region No. 6, Manila, by way of 1st Indorsement dated March 30, 2010, requesting for capital gains tax exemption under Republic Act (R.A.) No. 7279, also known as the Urban Development Housing Act of 1992, in connection with the expropriation of your property situated at Pitong Gatang St., Tondo, Manila. It is represented that on December 9, 1999, the City of Manila initiated a Complaint for Expropriation of Fatima de Guzman's property pursuant to Ordinance Number 7974, expropriating her property pursuant to the Land for the Landless Program of the City and R.A. No. 7279; that on February 17, 2009, Hon. Judge Thelma Bunyi-Medina of the Regional Trial Court of Manila Branch 32 granted the petition for expropriation filed by the City of Manila; that the said decision fixed the just compensation in the case and directed the City of Manila to pay the just compensation in the total amount of PhP3,855,513.15, which is equivalent to 450.70 square meters at Php8,554.50 per square meter; that the decision became final on April 21, 2009; and that the City of Manila paid the amount of PhP2,698,860.00 on June 22, 2009 and PhP521,000 on July 29, 2009 as the first and second payments, with the balance still being processed by the City for payment. In reply, please be informed that Section 20 of Republic Act No. 7279 reads: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater participation in socialized housing, and further reduced the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: caADIC "xxx xxx xxx "(d) Exemption from the payment of the following: "(1) . . . "(2) Capital gains tax on raw lands used for the project; " Based on the foregoing provisions, Fatima de Guzman (TIN 213-516-395), the landowner of the real property used in the socialized housing project of the City of Manila (TIN 000-798-036), is exempt from the payment of capital gains tax on the conveyance, although involuntarily, of the above-described property. Upon application for exemption, a lien on the title to the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to a socialized housing project pursuant to R.A. No. 7279. (BIR Ruling SH(050)368-2009) It is observed that documentary stamp tax is not one of taxes covered by the tax exemption clause is Section 20 of RA No. 7279. Such being the case, the project developer/sellers 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 realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. However, please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land titles in the name of the City of Manila without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) without the payment of the capital gains tax on the transfer of the subject realty to the City of Manila. The CAR shall only be issued after the submission of the requirements provided under RMO 15-2003. 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. AIaDcH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue