Imposition of a Final Schedular Tax on Capital Gains Realized by Citizens and Resident Aliens from Sale or Other Disposition of Real Property

January 24, 1992 BIR RULING NO. 033-92 21 (e) 200-88 033-92 Mariano Marcos State University Batac, Ilocos Norte Attention: Mr . Felipe B . Cachola President Gentlemen : This refers to your letter dated October 7, 1991 addressed to the Secretary Department of Budget & Management, Malacaang, Manila, stating that the Mariano Marcos State University (MMSU) is presently at a stalemate as regards the titling of lands purchased since its establishment in 1978; that up to now, these lands have not been registered due to the BIR regulation that the capital gains tax must be paid by the vendor; that the farmer-owners of these lands have persistently refused to pay the tax since they were paid the government price of only four pesos (P4.00) per square meter; that the unpaid tax and surcharges have accumulated through the years such that these are not now within the means of individual farmer-vendors; that MMSU, as the sole owner of these lands, strongly desires immediate titling; that to do so expeditiously, the alternative action is for MMSU to foot payment of the tax; that the MMSU as the vendee has no obligation to pay the taxes, the action is deemed more sensible and practical than to litigate; that it is also a strategy for assuaging the restlessness of farmers affected by the land acquisition program of the MMSU; and that the government will stand to lose more if the lands remained untitled only for the unresolved issue of the capital gains tax by the vendors. In connection therewith, you now posed the following queries: "1. Can the case be treated as a special one where the University, instead of the farmer-vendors, will pay the capital gains tax? "2. If the University is allowed to pay the tax, can the amount needed be drawn from a. the fund released expressly for land acquisition which has been deposited with the banks since 1980 per orders of the Court, or b. the accumulated interest of the funds? "3. If the University is not allowed, can the capital gains tax be condoned in view of the fact that the vendors did not incur any profit from the sale of their lands." In reply, please be informed that Section 8 of Revenue Regulations No. 8-79 implementing then Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37 provides that the imposition of a final schedular tax on capital gains realized by citizens and resident aliens from sale or other disposition of real property shall apply to transactions entered into on or after September 7, 1979. Moreover, a deed of conveyance of real property acknowledged before a notary public on or after September 7, 1979 shall be deemed to be a sale or disposition of real property on or after September 7, 1979. Accordingly, and inasmuch as the farmer-owners sold their property to MMSU in 1978 upon its establishment, they are not required to file the capital gains tax return and pay the final schedular capital gains tax prescribed by then Section 34(h) of the Tax Code, as amended by B.P. No. 37. adc Moreover, if as represented the farmer-owners did not realize any profit from the sale of their lands, the farmer-owners are not subject to income tax. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue