BIR Ruling No. 156-13

April 29, 2013 BIR RULING NO. 156-13 RA 7279; BIR Ruling No. 347-2011 National Housing Authority Quezon Memorial Elliptical Road, Diliman, Quezon City Attention: Felicisimo F. Lazarte, Jr. Group Manager Northern and Central Luzon Gentlemen : This refers to your letter dated November 16, 2011 requesting for and in behalf of AL-B Development Corporation for exemption from the payment of value-added tax (VAT) on the services it rendered for the contract for the construction of Two-Storey Six-Classroom School Building in San Isidro Resettlement Site, Magalang, Pampanga. It is represented that the Construction of Two-Storey Six-Classroom School Building in San Isidro Resettlement Site, Magalang, Pampanga is under the socialized housing project of the National Housing Authority (NHA) being undertaken by AL-B Development Corporation. In reply, please be informed that your request for the exemption of AL-B Development Corporation from payment of VAT relative to the "Construction of Two-Storey Six-Classroom School Building in San Isidro Resettlement Site, Magalang, Pampanga" cannot be granted for lack of legal basis. Section 20 of R.A. No. 7279, states that: "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: DIHETS xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; xxx xxx xxx (3) Value-added tax for the project contractor concerned;" Section 3 (r) of R.A. 7279 defines "socialized housing" as follows: "(r) "Socialized housing" refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of this Act;" (Underscoring supplied) The definition of socialized housing was reiterated in Revenue Regulations (RR) No. 11-97, RR 17-01 and recently clarified in Revenue Memorandum Circular (RMC) No. 32-2012. In this case, AL-B Development Corporation is engaged in the construction of Two-Storey Six-Classroom School Building in San Isidro Resettlement Site, Magalang, Pampanga. Although certified by the NHA as a socialized housing project, it is nevertheless outside the definition of a "socialized housing" in relation to the tax incentives for the private sector under Section 20 of R.A. 7279. It is apparent that the tax incentive provision, granting exemption from project related taxes and VAT, is limited to project contractors on the construction and development of houses and lots or homelots only with a view to reduce the cost of housing units for the benefit of the underprivileged and homeless. HDAaIS It should be remembered that laws and statutes granting tax exemptions are strictly construed against the taxpayer. Exemptions are never presumed and the burden is upon the taxpayer to establish his right to exemption beyond reasonable doubt. 1 In the case of Mactan Cebu International Airport Authority v. Marcos , 2 the Supreme Court held: "Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception." In view of the foregoing, the request for exemption from payment of VAT and project related taxes of AL-B Development Corporation relative to its participation as contractor in the project "Construction of Two-Storey Six-Classroom School Building in San Isidro Resettlement Site, Magalang, Pampanga", is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005). 2. G.R. No. 120082, 11 September 1996, 261 SCRA 667.