Joint Venture on Low-Cost Housing Exempt from Project-Related Income Taxes & VAT

October 1, 1993 BIR RULING NO. 393-93 JOINT VENTURE ON LOW-COST HOUSING EXEMPT FROM PROJECT-RELATED INCOME TAXES & VAT 24 (a), 99 50 (b) 28-93 330-93 393-93 HLC Construction & Development Corp. Monteverde-Narra Streets Davao City Attention: Mr . Henry Lopez Chua President & Gen . Manager This refers to your letter dated July 7, 1993 requesting confirmation of your opinion that the joint venture you have entered into with DABISCO Development Corporation and the National Housing Authority to provide low-cost housing (socialized housing) for the benefit of the less privileged and homeless citizens, is exempt from the payment of project-related income taxes and value-added tax for the project contractor concerned, pursuant to Section 20 of R.A. 7279, and subject only to 0% creditable withholding tax on the sales of individual house and lot. Records disclosed that HLC Construction and Development Corporation as DEVELOPER, DABISCO Development Corporation as LANDOWNER, and the National Housing Authority entered into a Joint Venture Agreement dated January 7, 1993, to provide a low-cost housing (socialized housing) for the less privileged and homeless citizens of Davao City, duly signed by the contracting parties; that the project is known as the San Lorenzo Village Housing Project located at Upper Rapnaga, Bago Gallera, Davao City containing a total area of 177,148 square meters and covered by Transfer Certificates of Title Nos. 145157, 145158 & 145159 issued by the Registry of Deeds of Davao City; that the project is duly covered by the Development Permit, Alteration of Plan Permit and Certificate of Registration issued by the Housing and Urban Development Coordinating Council (HUDCC) and the Housing and Land Use Regulatory Board (HLURB) under Development Permit No. REN 1190-0212, Alteration of Plan No. REN-1192-0353 and Certificate of Registration No. 710; that the project's Subdivision Plan is duly approved by the HUDCC and HLURB consisting of 1,080 housing units with a selling price ranging from P120,000.00 to P155,000.00 per unit as stipulated in the Joint Venture Agreement; that also attached herewith are the following: (a) Approved partial list of beneficiaries duly determined as qualified beneficiaries by the NHA; (b) The project feasibility study; (c) Cost and detained estimates; and (d) The housing plan. In reply, please be informed that pursuant to Section 20 of R.A. No. 7279, pertinent portion of which 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) Capital gains tax on raw lands used for the project; (3) Value-added tax for the project contractor concerned: xxx xxx xxx the joint venture entered into by HLC Construction and Development Corporation, DABISCO Development Corporation and the National Housing Authority to provide a low cost housing (San Lorenzo Village Housing Project) for the less privileged and homeless citizens of Davao City is exempt from the payment of project-related (San Lorenzo Village Housing Project) income taxes and value-added tax for the project contractor concerned. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. Moreover, since the residential subdivision project at San Lorenzo Village located at Upper Rapnaga, Bago Gallera, Davao City is duly registered with the Housing and Land Use Regulatory Board under Certificate of Registration No. 710 and was issued with its corresponding License to Sell under License to Sell No. 0761 coupled with the sale thereof at a price ranging from P120,000.00 to less than P500,000.00 per unit (house and lot), this Office is of the opinion, as it hereby holds, that the sale of the residential house and lot at San Lorenzo Village, Upper Rapnaga, Bago Gallera, Davao City that are within the range of P120,000.00 to less than P500,000.00, to be verified by the Revenue District Officer where the property is located, is subject to 0% creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code. This renders inapplicable the use of the zonal valuation as well as the revised zonal valuation of the aforesaid project as tax base in computing the creditable withholding tax on the sale thereof. However, the beneficiaries of this project are liable to pay the documentary stamp tax on the document conveying the property as imposed under Section 196 of the Tax Code, as amended, based on the actual consideration paid by them. In this connection, any sale made by the DEVELOPER opting to dispose completed housing units to interested parties other than the principal target beneficiaries under paragraph 2.1, Article II of the Joint Venture Agreement shall not be entitled to the foregoing tax exemptions, should there be non-compliance with any of the sine qua non terms and conditions as aforestated, for tax exemption purposes pursuant to R.A. No. 7279 specifically Sections 3 (t) and 16, and the Revised Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended. 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue