BIR Ruling No. 129-12

February 23, 2012 BIR RULING NO. 129-12 RA 7279; RR 11-97; BIR Ruling No. [SH-(105) 685-09]; BIR Ruling No. [SH-(125) 757-09]; BIR Ruling No. [SH-(117) 732-09] Happy Living Realty & Development Corporation Sinsuat corner Morrow Street City of Koronadal, South Cotabato Attention: Maria Henrietta C. Dela Pea President Gentlemen : This refers to your letter dated July 17, 2010, endorsed by Revenue Region 18, Koronadal City, requesting for exemption from project-related income taxes, capital gains tax/expanded withholding tax and value-added tax (VAT) pursuant to the provisions of Republic Act (RA) No. 7279 or the "Urban Development and Housing Act of 1992". It appears that Happy Living Realty & Development Corporation with Taxpayer's Identification No. 003-256-263-000, is a domestic corporation created under Philippine laws and with principal place of business at Sinsuat corner Morrow Street, City of Koronadal, South Cotabato. It is the owner and developer of a housing project known as San Antonio Village Phase III with a total land area of 29,876 sq.m. covered by TCT No. T-129033; and that the project is duly registered with the Housing and Land Use Regulatory Board under Certificate of Registration No. 20203, with License to Sell No. 22837 for economic housing and 22838 for socialized housing. In reply, please be informed that Section 20 of RA 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: ADSTCI "(1) Project-related income taxes; "(2) Capital gains tax on raw lands used for the project; "(3) Value-added tax for the project contractor concerned;" Only the sale of socialized housing units to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended. In this connection, any sale made by the owner and developer to interested parties other than the principal target beneficiaries under Section 3 (t) and 16 of TRA No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the aforestated sine qua non terms and conditions. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P400,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. (BIR Ruling No. [SH-(105) 685-09] dated October 30, 2009; BIR Ruling No. [SH-(125) 757-09] dated December 8, 2009; BIR Ruling No. [SH-(117) 732-09] dated November 24, 2009) Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. On the other hand, for value-added tax (VAT) purposes, sale of real properties utilized for low-cost housing, wherein the unit selling price is within the selling price ceiling per unit of P750,000.00, as defined by RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other related laws, such as RA No. 7835 and RA No. 8763 shall be exempt from VAT pursuant to Section 109 (P) of the Tax Code of 1997, as amended, as implemented by Sec. 4.109-1 (B) (p) (2) of RR 16-2005, as amended. Accordingly, sale of housing units exceeding the threshold of P750,000.00 per unit shall be subject to the 12% VAT imposed under Section 106 of the Tax Code of 1997, as amended. The developer of the socialized housing units under RA No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. CacTIE Accordingly, sale of the House and Lot covered by HLURB License to Sell No. 22838 (for Socialized Housing, wherein the maximum price of the House and Lot is P400,000.00) to qualified beneficiaries should be exempt from income taxes and, consequently, from creditable expanded withholding tax and from VAT pursuant to RA 7279 and sale of the houses and lots covered by HLURB License to Sell No. 22837 (for Economic Housing, wherein the maximum price of the House and Lot is P1,250,000.00) is subject to the payment of appropriate taxes. 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