BIR Ruling No. 144-96

December 24, 1996 BIR RULING NO. 144-96 21 (e) 000-00 144-96 Hon. Manuel "Lito" Lapid Governor Province of Pampanga San Fernando, Pampanga S i r : This refers to your letter dated July 29, 1996 stating that the Provincial Government of Pampanga, with the assistance of the National Government, has been working to meet the challenges that is presently encountered by the eruption of Mt. Pinatubo; that one of those is the construction of the FVR megadike and similar structures to prevent further destruction from lahar and floodwaters especially in the high risk areas in the province; that a number of properties were adversely affected by the construction of said dike and were expropriated upon payments of right of way compensation in the amount of P10.00 per square meter; that most of the families affected by expropriation are hapless victims of the Mt. Pinatubo eruption which are now relocated in various evacuation centers and resettlement sites and could hardly live decent lives; and that the BIR is insisting on collecting capital gains tax on the said sale which would be another burden if they are forced to pay the same. LLphil Based on the foregoing, you are requesting on behalf of around two hundred (200) families whose properties were expropriated due to the construction of the FVR Mega Dike, exemption from the payment of the capital gains tax. In reply, we regret to inform you that your request cannot be granted for lack of legal basis. Section 21 (e) of the Tax Code as amended, is explicit in its provisions that 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 including estates and trusts, shall be taxed at the rate of 5% based on gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, expropriation sale is subject to the 5% capital gains tax regardless of whether any gain or profit was derived therefrom since the aforecited law is comprehensive enough to cover not only voluntary sale but also involuntary sale as in the instant case. (BIR Ruling No. 091-89 dated May 2, 1989) However, both capital gains tax and documentary stamp tax shall be computed based on the actual consideration appearing in the Deed of Sale, pursuant to Revenue Memorandum Order No. 41-91. Finally, this Office has no power to grant exemption from taxation to any person. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue