BIR Ruling No. 218-11

July 6, 2011 BIR RULING NO. 218-11 National Housing Authority Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Virginia R. Domingo Manager Southern Luzon & Bicol Region Gentlemen : This refers to your letter dated August 25, 2010 requesting on behalf of M.Y. Reyes Builders and Development Corporation for exemption from payment of Value-Added Tax (VAT). It is represented that the National Housing Authority ("NHA") with Tax Identification Number (TIN) 000-916-384, is a government-owned and controlled corporation organized and existing pursuant to Presidential Decree No. 757, as amended; that M.Y. Reyes Builders and Development Corporation with TIN 201-792-849, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. A199901072 dated February 23, 1999; and the purpose for which the corporation is formed is "to engage in general construction and other allied businesses including the constructing, enlarging, repairing, removing, developing, or otherwise engaging in any work upon buildings, roads, highways, manufacturing, plants, bridges, airfields, piers, docks, mines, shafts, waterworks, railroads, railways structures, all iron, steel, wood, masonry, and earth construction, and to make, execute, bid for and take or receive any contracts or assignment of contracts therefore, or in relation thereto, or connected therewith and to manufacture and furnish building materials and supplies connected therewith; and doing of any and all other business and contracting incidental thereto or connected therewith, and the doing and performing of any and all acts and things necessary, proper or convenient for and incidental to the furtherance and/or implementation of the purposes therein mentioned." aEHIDT It is further represented that the NHA is tasked to provide a school building for elementary pupils of displaced families affected by Typhoons "Ondoy" and "Pepeng" in Rodriguez, Rizal; that a Notice of Award dated May 24, 2010 was sent to M.Y. Reyes Builders and Development Corporation to undertake the construction of one (1) unit three-story (15 classroom) school building at Southville 8 Housing Project in Bgy. San Isidro, Rodriguez, Rizal; and that a Contract dated August 4, 2010 was executed between NHA and M.Y. Reyes Builders and Development Corporation embodying the said contract works. In support of your request, you have submitted the following documents: 1) Original copy of Certification dated August 25, 2010 issued by the National Housing Authority; 2) Certified true copy of Contract dated August 4, 2010; 3) Certified true copy of BIR Certificate of Registration; 4) Certified machine copy of 2009 General Information Sheet; 5) Certified machine copy of SEC Certificate of Incorporation; 6) Certified machine copy of SEC Articles of Incorporation; 7) Certified machine copy of SEC By-laws; and 8) Copy of the duly approved Socialized Housing Plan of Southville 8, Housing Project including a provision for school building. In reply, please be informed that the request of M.Y. Reyes Builders and Development Corporation for exemption from payment of Value-Added Tax (VAT) relative to the contract for the construction of one (1) unit three-story (15 classroom) school building at Southville 8 Housing Project in Bgy. San Isidro, Rodriguez, Rizal cannot be granted for lack of legal basis. Section 20 of Republic Act (RA) No. 7279 limits the grant of VAT exemption to project contractors on the construction of housing units only, pertinent portion of which states that: CDISAc "Sec. 20. Incentives for 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 sectors: (d) Exemption from the payment of the following: (1) Project-related income taxes; xxx xxx xxx (2) Value-added tax for the project contractor concerned; xxx xxx xxx" Laws and statutes granting tax exemptions are construed strictissimi juris 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 Mactan Cebu International Airport Authority v. Marcos , 2 it was held therein that: "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." Applying the foregoing, although the school building is part of the socialized housing project of the National Housing Authority, nevertheless, the law relied upon by M.Y. Reyes Builders and Development Corporation , in this case the provisions of Section 20 of RA 7279, is explicit that the entitlement to the exemption from payment of Value-Added Tax shall be limited to the construction of housing units. 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. IDaEHS 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.