BIR Ruling No. 227-15

June 29, 2015 BIR RULING NO. 227-15 Section 20, RA 7279; BIR Ruling No. 063-2014 Bilrey Construction 94 Aramismis St., Veterans Village Project 7, Quezon City Attention: Billy Reymond De Leon General Manager Gentlemen : This refers to your letter dated October 8, 2014 requesting on behalf of Bilrey Construction for a certificate of exemption on the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project) located at Brgy. Sta. Catalina, Zamboanga City, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Based on the Memorandum dated June 11, 2014 issued by the National Housing Authority (NHA), the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project) located at Brgy. Sta. Catalina, Zamboanga City, is a socialized housing project of the NHA under its Emergency Housing Assistance Program (Calamity Fund) to provide immediate shelter to families who have lost their homes during the siege by the Moro National Liberation Front (MNLF) of some parts of Zamboanga City, including Brgy. Sta. Catalina, last September 2013. The details of the Project are indicated below: Table 1. Project Profile 1.1 Project Name Christian-Muslim UPAI Subdivision Project (Z3R Rehabilitation Project) 1.2 Location Brgy. Sta. Catalina, Zamboanga City 1.3 Land Owner Christian-Muslim UPAI 1.4 Program/Classification Emergency Housing Assistance Program (Calamity Fund) 1.5 Total Land Area 2.3148 hectares 1.6 No. of Units for 258 Housing Units Construction 1.7 Total Cost/Unit P201,229.62 It is further shown that per NHA Board Resolution No. 5783 dated July 23, 2014, Series of 2014, the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project), Brgy. Sta. Catalina, Zamboanga City, has been awarded to Bilrey Construction (TIN: 935-391-280-001), a sole proprietorship duly registered with the Department of Trade and Industry (DTI) under DTI Registration No. 01782698 dated July 6, 2012. Consequently, a Notice of Award dated June 10, 2014 was issued to Bilrey Construction to undertake the contract works for the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project) Brgy. Sta. Catalina, Zamboanga City, in the amount of Fifty One Million Eight Hundred Fifteen Thousand Nine Hundred Thirty One Pesos and 69/100 (P51,815,931.69). Based on the Contract for the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project), Brgy. Sta. Catalina, Zamboanga City, dated July 22, 2014, the scope of works for the said project includes General Requirements, General Earthworks, House Construction, Construction of Septic Tank and Survey Works. CAIHTE In reply, please be informed that pertinent portion of Section 20 of RA No. 7279 reads: "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 sector. xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) . . .; (3) Value-added tax for the project contractor concerned." xxx xxx xxx" 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) Based on the foregoing, housing projects covering houses and lots or homelots only, including sites development for socialized housing projects, intended for the underprivileged and homeless citizens undertaken by the Government or the public sector, are entitled to exemption from income tax on revenues directly derived therefrom. Considering that Bilrey Construction is a project contractor whose services are engaged by NHA for the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project) located at Brgy. Sta. Catalina, Zamboanga City, which Project was duly certified by the NHA as a socialized housing project intended for families who have lost their homes during the siege by the Moro National Liberation Front (MNLF) last September 2013, the income directly realized by Bilrey Construction from the Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project), Brgy. Sta. Catalina, Zamboanga City, shall be exempt from project-related income taxes in so far as the Two Hundred Fifty Eight (258) Housing Units, (including General Requirements, General Earthworks, House Construction, Construction of Septic Tank and Survey Works) are concerned. (BIR Ruling No. 063-2014 dated February 19, 2014) Moreover, pursuant to Section 20 (d) (3) of RA 7279, the construction by Bilrey Construction of Duplex Housing Units (Loftable Type) Rehabilitation of Christian-Muslim UPAI (Z3R Project), Brgy. Sta. Catalina, Zamboanga City, (including General Requirements, General Earthworks, House Construction, Construction of Septic Tank and Survey Works) shall be exempt from VAT. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. (BIR Ruling No. 063-2014 dated February 19, 2014) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue