BIR Ruling No. 393-11

October 20, 2011 BIR RULING NO. 393-11 R.A. 7279 Bayanihan Riverside Settlers Homeowners Association, Inc. P-9 Barangay Obrero, Butuan City Attention: Mr. Diomedes Catarig Association President Gentlemen : This refers to your letter dated November 5, 2009 received by this Office on February 8, 2010 via 1st Indorsement from Revenue Region No. 17-Butuan City dated January 4, 2010, requesting exemption from capital gains tax on the sale of land by the City Government of Butuan to Bayanihan Riverside Settlers Homeowners Association, Inc. (BARISHAI). Documents submitted and the Memorandum from the Revenue District Office No. 103-Butuan City, disclosed that the City Government of Butuan (TIN: 006-571-207) is the registered owner of a four thousand ninety-seven square meter (4,097 sq.m.) parcel of residential land covered by Transfer Certificate of Title (TCT) No. T-14634 located at Brgy. Obrero, Butuan City; that BARISHAI is a homeowners association duly registered with the Home Insurance and Guarantee Corporation (HIGC) under Registration No. 10-396 dated August 18, 1994; that by virtue of SP Resolution No. 422-2009 approved by the Sangguniang Panlungsod of Butuan on October 1, 2009, the subdivision project of BARISHAI (TIN: 004-379-180-000) particularly that parcel of land covered by TCT No. T-14634 is a socialized housing project under Batas Pambansa (B.P.) Blg. 220 and its implementing rules and regulations; that a Deed of Absolute Sale dated July 28, 2009 was executed by and between the City Government of Butuan and BARISHAI; that documentary stamp tax on the transaction has been paid on July 3, 2009; that the Housing and Land Use Regulatory Board (HLURB) has certified that the subject land to be a socialized housing project with its house/lot package maximum selling price of P400,000.00; and that in support of this request, BARISHAI completely submitted the following documents on September 23, 2010: 1. Copy of the HIGC Registration of BARISHAI; aCIHcD 2. Certified true copies of BARISHAI's Articles of Incorporation and By-laws; 3. Copy of SP Resolution No. 422-2009; 4. Copy of Deed of Absolute Sale; 5. Copy of BIR Form 2000 (Documentary Stamp Tax Return); 6. Copy of Revenue Official Receipt for payment of documentary stamp tax; 7. Copy of TCT No. T-14634; 8. Copy of the Property Tax Declaration; and 9. Copy of the vicinity map. In reply, please be informed that R.A. 7279 or the "Urban Development and Housing Act of 1992" provides for incentives to participants in socialized housing under Article V thereof, to wit: "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 kinds, whether local or national, such as income and real 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 titles. 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 sectors: (a) Reduction and simplification of qualification and accreditation requirements for participating private developers; (b) Creation of one-stop offices in the different regions of the country for the processing, approval and issuance of clearances, permits and licenses: Provided, That clearances, permits and licenses shall be issued within ninety (90) days from the date of submission of all requirements by the participating private developers; HTDAac (c) Simplification of financing procedures; and (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; (4) Transfer tax for both raw completed projects; and (5) Donor's tax for lands certified by the local government units to have been donated to socialized housing purposes. ECaTDc Provided, That upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds: Provided, further, That the socialized housing development plan has already been approved by the appropriate government agencies concerned: Provided, finally, That all the savings acquired by virtue of this provision shall accrue in favor of the beneficiaries subject to the implementing guidelines to be issued by the Housing and Urban Development Coordinating Council." The foregoing incentives apply only to the NHA and the private sector participating in socialized housing. The land-owner is a local government unit which is not covered by either provision. Section 32 of R.A. 7279 grants the following incentives to participants in a Community Mortgage Project: "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: (a) Government-owned or -controlled corporations and local government units, may dispose of their idle lands suitable for socialized housing under the CMP through negotiable sale at prices based on acquisition cost plus financial carrying costs; (b) Properties sold under the CMP shall be exempted from the capital gains tax; and SaTAED (c) Beneficiaries under the CMP shall not be evicted nor dispossessed of their lands or improvements unless they have incurred arrangements in payments of amortizations for three (3) months." Section 31 of the same law defines a "Community Mortgage Program" as follows: "Sec. 31. Definition. The Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership. The primary objective of the program is to assist residents of blighted or depressed areas to own the lots they occupy, or where they choose to relocate to, and eventually improve their neighborhood and homes to the extent of their affordability." The purchase by BARISHAI of the subject parcel of land does not appear to be covered by a Community Mortgage Program (CMP). Such arrangement is not availing in this case. The deed of absolute sale does not even mention that the purchase by BARISHAI was through a CMP. It actually states: " That for and in consideration of the sum of SIX HUNDRED FOURTEEN THOUSAND FIVE HUNDRED FIFTY (P614,550.00) PESOS Philippine Currency, and the receipt of which is hereby acknowledged to the full and entire satisfaction of the VENDOR, the VENDOR herein hereby SELLS, CEDES, TRANSFERS and CONVEYS the above described property unto the VENDEE . . .". In view of the foregoing and in the absence of a clear grant of tax exemption, this Office hereby denies your request for exemption from payment of capital gains tax on the sale by the City Government of Butuan to BARISHAI for lack of legal basis. 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 as represented are different, then this ruling shall be considered null and void. CaTcSA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue