BIR Ruling No. 413-11

October 28, 2011 BIR RULING NO. 413-11 RA 7279; RR 11-97;BIR Ruling No. 272-93; BIR Ruling No. S-20-077-2000; BIR Ruling No. SH-(010) 043-10 National Housing Authority Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Felicisimo F. Lazarte, Jr. Department Manager Northern and Central Luzon Management Office Gentlemen : This refers to your letter dated July 19, 2011 requesting confirmation that LAK-K Builders Co. is exempt from the payment of project-related income tax, capital gains tax, documentary stamp tax and value-added tax as landowner and project contractor of a socialized housing project of the National Housing Authority (NHA) known as the AFP/PNP Bocaue Hills Housing Project Site. Documents submitted show that LAK-K Builders Co., with Tax Identification Number 007-191-150-000, is the absolute and registered owner of a parcel of land located at Brgy. Batia, Bocaue, Bulacan and covered by Transfer Certificate of Title (TCT) No. 040-2011006806 with an aggregate area of ninety seven thousand four hundred forty eight square meters (97,448 sq.m.); that pursuant to the Deed Conveyance executed on July 6, 2011, fifty eight thousand and twenty one square meters (58,021 sq.m.) of the property was sold to NHA for one hundred fifty six million six hundred thousand pesos (P156,600,000.00). The property was developed by LAK-K Builders Co. into a socialized housing site called the AFP/PNP Bocaue Hills Housing Project Site. On July 6, 2011, a Memorandum of Agreement (For Developed Lots & Completed Housing Units) was executed by and among LAK-K Builders Co., as the landowner/developer, AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., as the beneficiaries, and the NHA, with TIN 000-916-384-000, as the implementing government agency for the AFP/PNP Housing Program as cited under Administrative Order No. 9 dated April 11, 2011. DCSETa 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 of developed lots in the AFP/PNP Bocaue Hills Housing Project Site through the Community Initiative Approach Program in the amount of Php175,000.00 for a House and Lot Package of thirty six square meters (36.00 sq.m.) lot and twenty two square meters (22.00 sq.m.) floor area and Php208,000.00 for a House and Lot Package of forty square meters (40.00 sq.m.) lot and eighteen square meters (18.00 sq.m.) floor area. On July 27, 2011, a Deed of Donation was executed by the LAK-K Builders Co., as Donor, and the NHA, as Donee, whereby the donor transfers and conveys the Road Lot Nos. 1 to 18 with an aggregate area of seventeen thousand two hundred eighty five square meters (17,285 sq.m.), Pathway Lot Nos. 1 to 38 with an aggregate area of eight thousand one hundred thirty nine square meters (8,139 sq.m.) and Open Spaces with an aggregate area of six thousand two hundred two square meters (6,202 sq.m.) of the subject property. In reply, please be informed that pursuant to Sections 19 and 20 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: (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) . . .; IAcDET (3) Value-added tax for the project contractor concerned; xxx xxx xxx" the landowners/developers of properties who sell their properties for use in a socialized housing project are exempt from the payment of the project-related income taxes. Such being the case, income from the sale of developed lots 1 by LAK-K Builders Co. to NHA is exempt from capital gains tax/income tax and consequently from the expanded withholding tax (BIR Ruling No. SH(134) 795-09 dated December 17, 2009). Moreover, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : SAEHaC 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. IHaSED 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. SH-(003) 010-10 dated March 22, 2010 and BIR Ruling No. S-20-077-2000 dated August 14, 2000 citing BIR Ruling No. 272-93 dated June 24, 1993) Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Relative thereto, Section 109 (P) of the Tax Code of 1997, as amended by R.A. 9337, provides: "(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);" Thus, LAK-K Builders Co., being the contractor of a socialized housing project known as the AFP/PNP Bocaue Hills Housing Project Site, is likewise exempt from the payment of VAT on the sale of lot valued at one million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) and below, on its gross receipts from the land development of the socialized housing site and from the sale of developed lots to NHA. 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. Moreover, it shall be understood that LAK-K Builders Co. must issue non-VAT official receipts on its gross receipts from the said socialized housing project. CDAHIT It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P400,000.00 for house and lot packages and P160,000.00 for lot only for socialized housing project. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. (BIR Ruling No. [SH-(105) 685-09] dated October 30, 2009; BIR Ruling No. [SH-(125) 757-09] dated December 8, 2009; BIR Ruling No. [SH-(117) 732-09] dated November 24, 2009). Upon issuance of this letter of exemption, and upon registration of the documents of sale, a lien on the Certificates of Title of the land to be issued in the name of NHA shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that said properties shall be used for socialized housing pursuant to RA 7279. cTEICD Finally, Section 101 (A) (2) of the Tax Code of 1997, as amended, gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the Government are exempt from donor's tax. Considering that the donations of Road Lots, Pathway Lots and Open Spaces were made by LAK-K Builders Co. in favor of NHA, an agency of the National Government, said donations, therefore, are exempt from donor's tax. (BIR Ruling Nos. 062-99 dated May 5, 1999, and DA-302-2003 dated September 16, 2003). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. P175,000.00 for a House and Lot Package of 36 square meter lot and 22 square meter floor area and P208,000.00 for a House and Lot Package of 40 square meter lot and 18 square meter floor area.