Urban Settlements Office

March 1, 2017 BIR RULING NO. 097-17 RA No. 7279; RA 7160; BIR Ruling No. 476-13; BIR Ruling No. 201-14 Urban Settlements Office Room 569, 5th Floor, Manila City Hall Building Arroceros St.,Ermita, Manila Attention: Victoria S. Clavel City Government Department Head III Gentlemen : This refers to your letter dated August 10, 2015, requesting for a ruling that the involuntary sale thru expropriation by the Heirs of AAA and BBB to the City of Manila intended for the latter's socialized housing program is exempted from payment of capital gains tax and other fees allowed under Republic Act (R.A.) No. 7279, otherwise known as the Urban Development and Housing Act of 1992. Documents submitted disclosed that the following landowners (hereinafter collectively referred to as "Heirs of AAA and BBB" are the absolute registered owners of these parcels of land covered by the corresponding Transfer Certificates of Title (TCT),to wit: Landowners TCT No. Tax Declaration No. Lot No. Area (sq.m.) 1 CCC, 1 DDD 2 and EEE 3 233721 C-092-00002EX 8-F 148.69 2 FFF 233720 C-092-00001EX 8-E 148.69 3 GGG 233722 C-092-00003EX 8-G 148.69 4 HHH, 4 III, JJJ and KKK 233723 C-092-00004EX 8-H 148.69 5 LLL, MMM, 5 NNN 6 and OOO 233724 C-092-00005EX 8-I 148.69 6 PPP 233725 C-092-00006 8-J 148.69 7 QQQ 7 233726 C-092-00007 8-K 148.69 8 RRR (SSS) 233727 C-092-00008EX 8-L 148.69 9 TTT 233728 C-092-00009EX 8-M 148.69 10 UUU 233729 C-092-000010EX 8-N 148.69 11 VVV 233730 C-092-000011EX 8-O 148.70 12 WWW 245005 C-092-00629 8-A 408.88 13 XXX 8 245006 C-092-00630 8-B 408.88 14 YYY 9 245008 C-092-00632 8-D 408.87 15 ZZZ 10 290827 C-092-00631 8-C 408.87 Total Area 3,271.10 all issued by the Registry of Deeds for the City of Manila; that the City of Manila issued Ordinance No. 8020 11 dated March 12, 2001, authorizing the City Mayor to acquire Lot No. 8, Block No. 1011, situated in Estero De Pandacan, Brgy. 843, Pandacan, Manila, District VI, owned by the late Spouses AAA and KKKK, for resale to qualified and bona fide tenants/occupants thereat, under the land-for-the-landless program of the City of Manila; and that on January 20, 2009, Branch 22 of the Regional Trial Court of Manila granted the Expropriation of the said property and determined just compensation therefore at P7,172 per square meter or a total of P23,460,329.20. aScITE In reply, please be informed that the involuntary transfers of real properties, including expropriation sale, are subject to applicable taxes, depending on whether the subject properties are classified as capital assets or ordinary assets. (BIR Ruling No. 476-13 dated December 18, 2013) However, Section 19 of R.A. No. 7160 provides the basis for the exercise of the power of eminent domain of local government, which provides that: "SECTION 19. Eminent Domain. A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property." As an instrumentality of the government, a local government unit, which acts for the purpose of accomplishing government policies and objectives and extending essential services to the people, performs governmental and not proprietary functions. (Peoples' Homesite and Housing Corporation vs. Court of Industrial Relations, 150 SCRA 296, 310 [1987]) Thus, in line with the foregoing, it is a declared State policy as laid down in Republic Act No. 7279, otherwise known as the "Urban Development and Housing Act of 1992," to provide decent and affordable housing to the underprivileged and homeless citizens. (BIR Ruling No. 201-14 dated June 17, 2014) Also, the pertinent portion of Section 20 of R.A. No. 7279, reads: "Sec. 20. Incentives for the 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) ...; (2) Capital gains tax on raw lands used for the project; xxx xxx xxx" Pursuant to the aforementioned provisions, the conveyance of the parcels of land covered by TCT Nos. 233721, 233720, 233722, 233723, 233724, 233725, 233726, 233727, 233728, 233729, 233730, 245005, 245006, 245008 and 290827 pursuant to the Expropriation Orders by herein landowners, Heirs of AAA and BBB, in favor of the City of Manila for use in its socialized housing project is exempt from capital gains tax. Upon application for exemption, a lien on the titles of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to R.A. 7279. (BIR Ruling No. 201-14 dated June 17, 2014) However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the actual consideration of the property transferred, considering that one of the contracting parties is the Government. (BIR Ruling No. 201-14 dated June 17, 2014) Please note that the exemption granted under R.A. 7279 is without prejudice to the right of the Government to collect the proper amount of estate tax to the legal heirs pursuant to Section 84 of the Tax Code, as amended. 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. HEITAD Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Married to AAAA. 2. Married to BBBB. 3. Married to CCCC. 4. Married to DDDD. 5. Married to EEEE. 6. Married to FFFF. 7. Married to GGGG. 8. Married to HHHH. 9. Married to IIII. 10. Married to JJJJ. 11. An Ordinance Authorizing his Honor, Mayor Jose L. Atienza, Jr.,to acquire Lot No. 8, Block No. 1011, consisting of 3,271.10 square meters, more or less, situated in Estero De Pandacan, Barangay 843, Pandacan, Manila, District VI, owned by the late Spouses AAA and KKKK, for resale, at cost, or on installment basis, for period not exceeding twenty (20) years, to qualified and bona fide tenants/occupants thereat, under the land-for-the-landless program of the City of Manila and for other purposes.