BIR Ruling No. 070-14

February 28, 2014 BIR RULING NO. 070-14 Sec. 20, RA 7279; 000-00 Mar-Deb Construction & Development Cabatuan, Isabela Attention: Dr. Mario P. dela Fuente Gentlemen : This refers to the letter of Felicisimo F. Lazarte, Jr., Group Manager, Northern and Central Luzon, National Housing Authority (NHA) dated July 16, 2013, requesting tax exemption on the land development involving two hundred sixteen (216) socialized housing units in Ilagan Resettlement Project-Phase 2A, Brgy. San Felipe, Ilagan, Isabela pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclosed that on May 17, 2011, NHA Board of Directors approved Resolution No. 5322, the inclusion of the land development and housing construction project in Brgy. San Felipe, Ilagan, Isabela in the 2011 Work Program/Budget as resettlement site of Typhoon "Juan'' victims; that pursuant to the desire of NHA to address the need of the affected families, it proposed the implementation of the land development and housing construction on the portion of Phase 2 which shall be named as Ilagan Resettlement Project-Phase 2A, Brgy. San Felipe, Ilagan, Isabela; that on January 16, 2012, the NHA in its Memorandum to the NHA Board of Directors recommended that the contract be awarded to Mar-Deb Construction & Development (TIN: 102-207-602-000), a single proprietorship owned by Mario P. dela Fuente (Mar-Deb); that on February 27, 2012, a Notice of Award was given to Mar-Deb to undertake the contract works in the amount of Thirty Five Million One Hundred Seventy Eight Thousand Seven Hundred Ninety Six and 49/100 pesos (P35,178,796.49); and that on May 24, 2012, a Contract for Ilagan Resettlement Project-Phase 2A, Brgy. San Felipe, Ilagan, Isabela was executed by the NHA and Mar-Deb to undertake land development and construction of two hundred sixteen (216) socialized housing units including site preparation, roadworks, drainage systems, survey works, earthworks, concreting works, formworks, masonry works, roof framing/tinsmithry, doors/jambs, windows, plumbing, kitchen counter and electrical works. In reply, please be informed that pertinent portion of Section 20 of RA No. 7279 reads: ACcISa "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) . . .; (3) Value-added tax for the project contractor concerned;" xxx xxx xxx" Considering that Mar-Deb is a project contractor whose services are engaged by NHA for the land development including its necessary components for the construction of two hundred sixteen (216) socialized housing units in Brgy. San Felipe, Ilagan, Isabela and which was certified by the National Housing Authority as a socialized housing project as resettlement site of Typhoon "Juan" victims pursuant to RA 7279, the income directly realized by Mar-Deb from the development of the Ilagan Resettlement Project-Phase 2A, Brgy. San Felipe, Ilagan, Isabela shall be exempt from project-related income taxes, in so far as the two hundred sixteen (216) socialized housing units are concerned. Moreover, Mar-Deb is likewise exempt from the payment of VAT on its gross receipts from the land development and its necessary construction components for the two hundred sixteen (216) socialized housing units. 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. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue