BIR Ruling No. 031-14

January 27, 2014 BIR RULING NO. 031-14 RA 7279; BIR Ruling No. 360-2013 LAK-K Builders Co. Units 606 & 609 Jocfer Bldg. Commonwealth Avenue, Quezon City Attention: Michael Angelo F. Kallos Vice President/General Manager Gentlemen : This refers to your letter dated October 2, 2013 requesting, on behalf of LAK-K BUILDERS CO.,tax exemption on the low-cost housing project, San Jose Del Monte Heights Resettlement Site Phase 2, located in Brgy. Muzon, San Jose Del Monte City, Bulacan, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that LAK-K BUILDERS CO.,with Tax Identification Number 007-191-150-000, is a General Partnership duly registered with the Securities and Exchange Commission (SEC) bearing SEC Registration No. PG200818704; that it is a real property developer habitually engaged in the business of developing and constructing housing subdivisions; that it owns a parcel of land located at Brgy. Muzon, San Jose Del Monte City, Bulacan, covered by Transfer Certificate of Title (TCT) No. 040-2012022507 with an area of Twenty Six Thousand Five Hundred Thirty Six (26,536) square meters, particularly described as follows: TCT NO. 040-2012022507 1 "A PARCEL OF LAND BEGINNING AT A PT. MARKED "1" OF LOT NO. 267 CAD. 352 ...CONTAINING AN AREA OF TWENTY SIX THOUSAND FIVE HUNDRED THIRTY SIX (26,536) SQUARE METERS." On September 19, 2012, a Contract Agreement 2 was entered into by and between LAK-K BUILDERS CO. and San Jose Del Monte Heights Homeowner's Association Incorporated, a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with Registration No. 19247, whereby LAK-K BUILDERS CO. has agreed to sell to San Jose Del Monte Heights Homeowner's Association Inc.'s individual members the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) (TIN 000-916-384-000) for Two Hundred Forty Thousand Pesos (P240,000) 3 for every developed lot and completed housing unit per family. TDESCa On September 25, 2012, a Memorandum of Agreement 4 (MOA) was executed by and among LAK-K BUILDERS CO.,as the landowner/developer/constructor, the members of San Jose Del Monte Heights Homeowner's Association Inc.,as the beneficiaries, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government for Fiscal Year (FY) 2012, to ensure the timely, peaceful and orderly relocation and resettlement of the informal settler families living in danger areas, affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila. Under the MOA, NHA shall finance the acquisition of 2,004 developed lots and the completed loftable housing units by the members 5 of the San Jose Del Monte Heights Homeowner's Association, Inc. through the CIAP under the National Resettlement Program of the government for FY 2012 in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot per family and One Hundred Twenty Five Thousand Pesos (P125,000.00) per housing unit, respectively. On November 14, 2012, LAK-K BUILDERS CO. and the NHA executed a Deed of Absolute Sale whereby the former transferred and conveyed to the latter a portion of the above-described real property, particularly an area measuring Nine Thousand Eight Hundred Seventy Eight (9,878) square meters consisting of Two Hundred Forty Two (242) developed lots under Batch 01-2012 for a total consideration of Twenty Seven Million Eight Hundred Thirty Thousand Pesos Only (P27,830,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. "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; DaESIC (3) Value-added tax for the project contractor concerned." the landowner/developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 242 developed lots under Batch 01-2012 on the Nine Thousand Eight Hundred Seventy Eight (9,878) square meters portion of the above-described property by LAK-K BUILDERS CO. to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 360-2013 dated September 30, 2013) Moreover, pertinent portions of Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: (1) ... (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. xxx xxx xxx It must be noted that the exemption from the documentary stamp tax of NHA, in connection with any of its socialized housing projects, extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by LAK-K BUILDERS CO. to NHA of the 242 developed lots under Batch 01-2012 on the Nine Thousand Eight Hundred Seventy Eight (9,878) square meters portion of the above-described property, is likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 360-2013 dated September 30, 2013 ) Upon application for exemption, a lien on the title of the subject parcel of 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 socialized housing project pursuant to RA 7279. 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 the transfer of the title in the name of the buyer 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) after the submission of the requirement provided under RMO 15-2003. SIHCDA Moreover, LAK-K BUILDERS CO. is likewise exempt from the payment of value-added tax (VAT) on its gross receipts from the said project involving 242 developed lots under Batch 01-2012 on the Nine Thousand Eight Hundred Seventy Eight (9,878) square meters portion of the above-described property. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. It shall be understood that LAK-K BUILDERS CO. must issue non-VAT official receipts on its gross receipts from the said socialized housing project. 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, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Formerly, TCT No. T-30220 P(M) registered in the name of P.S. Sarmiento and Sons, Inc. 2. (Financing the Acquisition of Developed Lots and Completed Housing Units) in San Jose Del Monte Heights Site, City of San Jose Del Monte, Bulacan. 3. P115,000.00 per developed lot and P125,000.00 per completed housing unit. 4. (For Financing the Acquisition and Developed Lots and Financing the Acquisition of Completed Housing Units) San Jose Del Monte Heights Resettlement Site, Brgy. Muzon, City of San Jose Del Monte, Bulacan. 5. Composed of members/families living in danger areas affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila.