Payment of the 5% Capital Gains Tax

November 26, 1990 BIR RULING NO. 220-90 21 (e) 000-00 220-90 S i r : This refers to your letter dated January 29, 1990 which was referred to this Office by the Bureau of Local Government Finance, furnishing said Office with a certified true copy of Resolution No. 2, Series of 1990, passed and approved by the Municipal Council of Marikina, Metro Manila, requesting the Department of Finance to exempt from the payment of capital gains tax the awardees of Fortune Village II, Apitong Street, Marikina Heights, Marikina, Metro Manila. casia 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. Accordingly, it is the individual, estate or trust that sells, exchanges or otherwise disposes of his/its real property located in the Philippines classified as capital asset that is liable to the 5% capital gains tax imposed by said Section 21 (e) of the Tax Code, as amended. Such being the case, and since the awardees of Fortune Village II in Apitong, Marikina Heights, Marikina, Metro Manila are the recipients of the same, they are not as awardees or recipients the ones liable to the payment of the 5% capital gains tax imposed under the aforesaid Section of the Tax Code. However, in this case, it is the owner or the proprietor of Fortune Village II that is subject to ordinary income tax on the gains derived from the sale of lots to the awardees. We also wish to inform you that the exemption from the capital gains tax or for that matter any Internal Revenue tax can only be effected by an act of Congress through legislation; the Secretary of Finance cannot make the exemptions. cdt Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner