BIR Ruling No. 361-13

September 30, 2013 BIR RULING NO. 361-13 RA 7279; BIR Ruling No. 066-2011; BIR Ruling No. 413-2011 Lak-K Builders Co. 17 Nickel St.,Filinvest II, Quezon City Attention: Michael Angelo F. Kallos Vice President/General Manager Gentlemen : This refers to your letter dated February 8, 2013 duly indorsed by National Housing Authority requesting tax exemption on the low cost housing project in San Jose Del Monte Heights Resettlement Site Phase 1, Brgy. Muzon, San Jose Del Monte City, Bulacan pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". IEAacS Documents submitted show that LAK-K BUILDERS CO. with Tax Identification Number 007-191-150-000, is the absolute and registered owner of parcels of land located at Brgy. Muzon, San Jose Del Monte City, Bulacan, covered by Transfer Certificates of Title (TCT),to wit: TCT No. Area (sq. m.) Property Identification No. 040-2012019623 1 29,203 020-21-019-016-005 040-2012019624 2 29,203 020-21-019-016-002 040-2012019625 3 28,703 020-21-019-016-003 040-2012019626 4 22,785 020-21-019-013-013 109,894 ======= On September 19, 2012, a Contract Agreement 5 was executed by and between LAK-K BUILDERS CO. and San Jose Del Monte Heights Homeowner's Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB), whereby LAK-K BUILDERS CO. has agreed to sell to San Jose Del Monte Heights Homeowner's Association, Inc.'s individual members the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) for Two Hundred Forty Thousand Pesos (P240,000) 6 for every developed lot and completed housing unit per family. On September 25, 2012, a Memorandum of Agreement 7 (MOA) was executed by and among LAK-K BUILDERS CO., as the landowner/developer/constructor, the members of San Jose Del Monte Heights Homeowner's Association, Inc., as the beneficiaries, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government for FY 2012 and to ensure the timely, peaceful and orderly in the relocation and resettlement of the informal settler families living in danger areas, affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila. Under the MOA, members 8 of the San Jose Del Monte Heights Homeowner's Association, Inc., shall be provided by the NHA with a financial grant for the acquisition of 2,004 developed lots and financing of the acquisition of completed loftable housing units through the Community Initiative Approach Program (CIAP) in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot per family and One Hundred Twenty Five Thousand Pesos (P125,000.00) per loftable housing unit. IATHaS On November 14, 2012, LAK-K BUILDERS CO. and the NHA executed a Deed of Absolute Sale whereby the owner, transferred and conveyed Seventy Two Thousand Four Hundred Two square meters (72,402 sq.m.) portion of the subject properties consisting of 1,752 developed lots under Batch 01-2012 to NHA (TIN 000-916-384-000) at an agreed price of Two Hundred One Million Four Hundred Eighty Thousand Pesos (P201,480,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "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 sell its properties for use in a socialized housing project are exempt from the payment of the capital gains tax and project-related income taxes. IcSHTA Such being the case, the sale of 1,752 developed lots under Batch 01-2012 on the Seventy Two Thousand Four Hundred Two square meters (72,402 sq.m.) portion of the subject properties by the LAK-K BUILDERS CO. to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 066-2011 dated March 9, 2011) Moreover, pertinent portions of 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 NHA of its real properties in favor of member-beneficiaries is, likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 413-2011 dated October 28, 2011) IHCESD 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. Considering that LAK-K BUILDERS CO. is engaged in the development of 1,752 developed lots for the socialized housing project at Brgy. Muzon, San Jose Del Monte City, Bulacan, which was certified by the NHA as a socialized housing project pursuant to RA 7279, the income directly realized by LAK-K BUILDERS CO. from the development of the said socialized housing units shall be exempt from project-related income taxes. Moreover, LAK-K BUILDERS CO. is likewise exempt from the payment of VAT on its gross receipts from the said project. 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. It shall understood that LAK-K BUILDERS CO. 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 Footnotes 1. Formerly TCT No. T-512581 (M) issued in the name of RCBC Savings Bank. 2. Formerly TCT No. T-512582 (M) issued in the name of RCBC Savings Bank. 3. Formerly TCT No. T-512583 (M) issued in the name of RCBC Savings Bank. 4. Formerly TCT No. T-67550 P(M) issued in the name of RCBC Savings Bank. 5. (Financing the Acquisition of Developed Lots and Completed Housing Units) in San Jose Del Monte Heights Site, City of San Jose Del Monte, Bulacan. 6. P115,000.00 per developed lot and P125,000.00 per completed housing unit. 7. (For Financing the Acquisition and Developed Lots and Financing the Acquisition of Completed Housing Units) San Jose Del Monte Heights Resettlement Site, Brgy. Muzon, City of San Jose Del Monte, Bulacan. 8. Composed of members/families living in danger areas affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila.