BIR Ruling No. 251-15

July 21, 2015 BIR RULING NO. 251-15 RA 7279; BIR Ruling No. 036-2014 Cynara Construction Marcos Drive Ext. Caputatan, Putik, Zamboanga City Attention: Engr. Yshmael J. Jumlaie Owner/Manager Gentlemen : This refers to the letter of Atty. Sinforoso R. Pagunsan, Chief of Staff, Office of the General Manager of the National Housing Authority (NHA) dated. September 11, 2014, requesting for the issuance of Certificate of Tax Exemption for the AFP-PNP Housing Program (Gagandilan Village) in Brgy. Tagbak, Indanan, Sulu pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Cynara Construction, (TIN 183-820-850-000), is a single proprietorship duly registered with the Department of Trade and Industry (DTI) under Certificate No. 03074542 dated January 20, 2014 with business address at Marcos Drive, Kaputatan Putik, Putik, Zamboanga City, Zamboanga del Sur; that it is owned by Yshmael Jailani Jumlaie; that Cynara Construction is the registered owner of two (2) parcels of land located at Brgy. Tagbak, Indanan, Sulu and covered by the following Transfer Certificates of Title (TCT), to wit: TCT No. Lot No. Area (sq. m.) T-13,573 2451-D 17,296 T-13,574 2451-E 17,296 total area 34,592 ====== both issued by the Registry of Deeds for Province of Sulu. On August 8, 2014, a Contract Agreement was executed by and between Cynara Construction and AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB), whereby Cynara Construction has agreed to sell to AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc.'s individual members the developed lots and completed housing units covered by the said Titles under the Community Initiative Approach Program (CIAP) of the NHA for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. Moreover, on August 12, 2014, a Memorandum of Agreement (MOA) for 500 developed lots and completed housing units was executed by and among Cynara Construction as the landowner/developer, AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., as the beneficiaries, and the NHA, as the implementing government agency for the AFP/PNP Housing Program as cited under Administrative Order No. 9 dated April 11, 2011. Under the MOA, members of the AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., shall be provided by the NHA with a financial grant for the acquisition house and lot packages in the AFP/PNP Housing Project through the CIAP in the amount of Php240,000.00 for a House and Lot Package of Forty square meters (40.00 sq.m.) lot and Twenty Two square meters (22.00 sq.m.) floor area. On September 10, 2014, Cynara Construction and the NHA executed a Deed of Conveyance, whereby the former, transferred and conveyed to the latter the Five Hundred (500) developed lots and housing units at Gagandilan Village with an aggregate area of Twenty Thousand Six Hundred Sixty square meters (20,660 sq.m.) and which is situated on the subject properties, at an agreed price of Fifty Seven Million Five Hundred Thousand Pesos (P57,500,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: SDAaTC "Sec. 19. Incentives for the National Housing Authority . The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. "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) Capital Gains Tax; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 500 developed lots and housing units on the Twenty Thousand Six Hundred Sixty square meters (20,660 sq.m.) portion of the subject properties by Cynara Construction to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 036-2014 dated January 29, 2014) Moreover, pertinent portions of Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. xxx xxx xxx The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by Cynara Construction to NHA of the 500 developed lots and housing units on the Twenty Thousand Six Hundred Sixty square meters (20,660 sq.m.) portion of the subject properties, is likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 036-2014 dated January 29, 2014) Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirement provided under RMO 15-2003. acEHCD Moreover, pursuant to Section 20 (d) (3) of RA 7279, the sale by Cynara Construction of 500 developed lots or parcels of land on the Twenty Thousand Six Hundred Sixty square meters (20,660 sq.m.) portion of the subject properties shall be exempt from VAT. However, the purchases of goods/articles by Cynara Construction 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. It shall be understood that Cynara Construction must issue non-VAT official receipts on its gross receipts from the said socialized housing project. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue