Correct Tax Base for Purposes of Computation of Capital Gains Tax and Documentary Stamp Tax Due

November 26, 1996 BIR RULING NO. 125-96 21 (e); 196 00-00 25-96 Mr. Manuel M. Japuz 4th Floor Trans-Phil House 1184 Pasong Tamo Street Makati City S i r : This refers to your letter dated June 25, 1996 stating that Ong Siok Ty and Mrs. Criselda Yuen bought a parcel of land located at San Pedro East, Malvar, Batangas having an area of 57,845.817 square meters and covered by TCT No. T-46338 of the Registry of Deeds for Tanauan, Batangas Branch: that on March 15, 1996, as the owner thereof, you executed a Deed of Absolute Sale in favor of the individual buyers for and in consideration of P2,100,000.00 or at an average of P36.30 per square meter; that the said deed was filed with Revenue District Office No. 59, Lipa City, which has jurisdiction over the said parcel of land subject of the sale for the payment of the corresponding taxes and subsequent issuance of the Certificate Authorizing Registration (CAR); but that the Revenue District Officer (RDO) of Revenue District No. 59, Lipa City, in the person of Mr. Nicasio S. Ocampo, opined that the consideration of subject property was very low; that the Commissioner of Internal Revenue or his authorized representative may gather information(s) as to the true and fair market value of the said real property when he thinks that the buying price is very low; that thereafter, Revenue Officer Maximo G. Plete, Jr. of Revenue District No. 59, recommended that the basis for the computation of the capital gains tax and documentary stamp tax due and payable is P100.00 per square meter for the subject parcel of land; that this tax basis is supported by the Certification dated June 3, 1996 of the Municipal Assessor of Malvar, Batangas. Ms. Aniceta N. Malabanan to the effect that "the amount of P100.00 per square meters can be applied to properties (real estate) for sale located at San Pedro East., Malvar, Batangas, based on the Sales Data Analysis conducted by this Office"; that RDO Nicasio S. Ocampo contended that: "the tax base in determining the Capital Gains Tax is the adjusted Selling price computed at P100.00 per square meter and not the selling price stated in the Deed of Sale since this is higher. This is the rule being followed in assessing the Capital Gains tax and documentary stamp tax. Whichever is higher that will be the tax base. Capital Gains Tax: Area in square meter 57,845.817 Cost per square meter P 100.00 Adjusted Selling Price P5,784,581.70 Capital Gains Tax 5% Capital Gains Tax Due P289,229.09 Less: Tax Paid 100,000.00 Def. Capital Gains Tax P184,229.09 Documentary Stamps: Adjusted Selling Price P5,784,581.70 Doc. Stamps Tax Rate 1.5% Doc. Stamps Tax Due P86,770.00 Less Tax Paid 31,500.00 Def. Doc. Stamps Tax P55,270.00 ========== Certification Fee P5.00 TAX DUE P239,504.09" ========== that as per latest tax declaration submitted the subject parcel of land is classified as cocoland with a market value of P700,520.00 and the zonal value of the property is P35.00 per square meter at the time the sale was perfected. Based on the foregoing representations, you now request for a ruling as to the correct tax base for purposes of the computation of the capital gains tax and documentary stamp tax due on the aforesaid sale. In reply, please be informed that under Section 21 (e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Moreover, under Section 196 of the same Code, as clarified by Revenue Memorandum Order No. 41-91 dated November 11, 1991, in all cases involving sale, exchange, or any disposition of real property, the tax base for documentary stamp tax purposes shall be the same as the tax base used in the computation of the capital gains tax which means, gross selling price, fair market value, or zonal value of the real property prevailing at the time of sale, whichever is higher. Accordingly, since P36.30 per square meter or the total amount of P2,100,000.00 as found in the Deed of Absolute Sale is the higher valuation, it shall be the tax base to be used in computing the capital gains tax and documentary stamp tax due and to be paid on the sale of your property. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue