Edison Development & Construction/ 3R Metal Craft-Joint Venture

June 22, 2016 BIR RULING NO. 255-16 Section 20 of RA 7279; BIR Ruling No. 063-14 Edison Development & Construction/ 3R Metal Craft-Joint Venture 40 Tandang Manang St. Brgy. Parada, Valenzuela City Attention: Rogelio N. Relucio General Manager Gentlemen : This refers to your letter dated May 26, 2016 requesting issuance of Certificate of Tax Exemption for the socialized housing project, Bagong Pag-asa Subdivision Phase 2, under the Yolanda Permanent Housing Project, located at Brgy. Margen, Ormoc City, Leyte, pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". EcTCAD Documents submitted show that 3R Metal Craft is a sole proprietorship owned by Rogelio Ng Relucio (TIN: 211-916-968-000) and duly registered with the Department of Trade and Industry (DTI) with Certificate of Registration No. 04026593; that Edison Development & Construction is also a sole proprietorship owned by Elpidio Silvestre Uy (TIN: 100-457-776-000) and duly registered with the DTI with Certificate of Registration No. 03098039; and that the National Housing Authority (NHA) (TIN: 000-916-384-012) has issued a Notice of Award dated February 1, 2016 to Edison Development & Construction/3R Metal Craft-Joint Venture for the "Procurement of Fully Developed Lots and Completed Housing Units under the NHA's Yolanda Permanent Housing Program Located at Site 2 Brgy. Margen, Ormoc City, Leyte 419 Housing Units" with a contract price of P121,300,000.00. To give effect to the Notice of Award, a Contract for the Procurement of House and Lot Packages at Bagong Pag-asa Subdivision Phase 2, Brgy. Margen, Ormoc City, Leyte, was executed on May 11, 2016 between NHA and Edison Development & Construction/3R Metal Craft-Joint Venture, whereby the latter has committed to deliver Four Hundred Nineteen (419) units (House and Lot Package) for a price of P121,300,000.00; and that according to the contract, the scope of works under the said project includes "Survey Works, Earthworks, Road Works, Drainage Works, Water System, Electrical Power Lines, Miscellaneous Works and Housing Construction. In reply, please be informed that Section 20 of Republic Act (RA) No. 7279 provides: "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 on raw lands used for the project; (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) xxx xxx xxx" 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 Edison Development & Construction/3R Metal Craft-Joint Venture is a project contractor whose services have been engaged by the NHA to undertake the construction of 419 Housing Units with its necessary construction components in Bagong Pag-asa Subdivision Phase 2 located at Brgy. Margen, Ormoc City, Leyte, a socialized housing program of the NHA pursuant to R.A. 7279 in connection with its Yolanda Permanent Housing Project, the income directly realized by Edison Development & Construction/3R Metal Craft-Joint Venture from the construction of the 419 Housing Units (House and Lot Packages) with its necessary construction components in Bagong Pag-asa Subdivision Phase 2 located at Brgy. Margen, Ormoc City, Leyte, shall be exempt from project-related income taxes. (BIR Ruling No. 063-14 dated February 19, 2014) Moreover, pursuant to Section 20 (d) (3) of R.A. No. 7279, the construction of the 419 Housing Units (House and Lot Packages) with its necessary construction components in Bagong Pag-asa Subdivision Phase 2 located at Brgy. Margen, Ormoc City, Leyte, by Edison Development & Construction/3R Metal Craft-Joint Venture shall be exempt from VAT. However, the purchases of goods/articles by Edison Development & Construction/3R Metal Craft-Joint Venture 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. 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