BIR Ruling No. 434-15

December 22, 2015 BIR RULING NO. 434-15 RA 7279; BIR Ruling No. 171-15; BIR Ruling No. 063-14 HG-III Construction and Development Corporation 3368 Harvard Street, Pinagkaisahan Makati City Attention : Elmer S. Ceguerra President Gentlemen : This refers to the letter of Felicisimo F. Lazarte, Jr., Group Manager of Northern and Central Luzon Management Office, National Housing Authority (NHA) dated April 30, 2015, requesting issuance of Certificate of Tax Exemption for socialized housing project, the "Fully Developed & Completed Housing Units" under NHA's Yolanda Permanent Housing Program located at Site 1, Brgy. Vista Alegre, Barotac Viejo, Iloilo pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". acEHCD Documents submitted show that Jesus Legislador, (married to Ana Cachuela), Consuelo Legislador, (married to Aristotelis Celera), Dolores Legislador, (married to Antonio Tagumpay), Todolfo Legislador, 1 (married to Alicia Badilla) and Romeo Legislador (hereinafter referred to as Landowners) are the registered owners of parcel of land with an area of Seventy Seven Thousand Four Hundred Two square meters (77,402 sq.m.), identified as Lot No. 497 of the Cadastral Survey of Barota Viejo, Cadastral Case No. N-21 LRC Cadastral Record No. N-528 situated at Brgy. Vista Alegre, Barotac Viejo, Iloilo and covered by Original Certificate of Title (OCT) No. O-11905 issued by the Registry of Deeds for the Province of Iloilo. On April 10, 2015, the parties executed a Deed of Absolute Sale whereby the Landowners 2 transferred and conveyed the subject property to National Housing Authority (NHA) (TIN: 000-916-384-012) at an agreed price of Two Million Eighty Nine Thousand Eight Hundred Fifty Four Pesos (P2,089,854.00). Moreover, Certificates Authorizing Registration (CAR) were issued to the Estates of Jesus Legislador and Rodolfo Legislador dated March 8, 2006, certifying that the said estates have fully paid the estate tax. The above described property has been identified and certified for development into a residential project under the Yolanda Permanent Housing Program intended for the families affected by Typhoon Yolanda and qualified for housing assistance under R.A. No. 7279. The NHA has issued a Notice of Award dated December 4, 2014 to HG-III Construction and Development Corporation (TIN 227-349-940-000) for the "Procurement of Fully Developed Lots and Completed Housing Units under the NHA's Yolanda Housing Program located at Site 1, Brgy. Vista Alegre, Barotac Viejo, Iloilo-1,000 Housing Units" with a contract price of Two Hundred Eighty Nine Million One Hundred Seventy Five Thousand Four Hundred Three Pesos and 93/100 (P289,175,403.93). To give effect to the Notice of Award, a Contract for the Procurement of Lot and Housing Units (1,000 units) at Viejo People's Village Site 1 located at Brgy. Vista Alegre, Barotac Viejo, Iloilo was executed on April 23, 2015 between NHA and HG-III Construction and Development Corporation, whereby the latter is committed to deliver One Thousand (1,000) units (House and Lot Package) for a contract price of P289,175,403.93; and that according to the contract, the scope of work under this project are "boundary and subdivision survey, roadworks, drainage works, water supple works, power supply works, housing construction and miscellaneous requirements necessary for the completion of the project". 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 on raw lands used for the project; (3) Value-added tax for the project contractor concerned;" xxx xxx xxx 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: SDHTEC (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 Sale by the Landowners to NHA The landowners who sell their property for use in a socialized housing project is exempt from the payment of the capital gains tax. Such being the case, the sale by the landowners to NHA of the subject property covered by OCT No. O-11905 is exempt from capital gains tax. (BIR Ruling No. 171-2015 dated June 8, 2015) 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. Accordingly, the transfer by the landowners to NHA of the subject property covered by OCT No. O-11905 are likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 171-2015 dated June 8, 2015) Moreover, under Section 109 (1) (P) of the Tax Code of 1997, as amended by R.A. 9337, the sale of real properties utilized for low-cost and socialized housing as defined by R.A. No. 7279 shall be exempt from value-added tax (VAT), thus, the sale of the subject property covered by OCT No. O-11905 by the landowners to NHA for purposes of the Yolanda Permanent Housing Program is exempt from the imposition of VAT. (BIR Ruling No. 171-2015 dated June 8, 2015) Upon application for exemption, a lien on the titles of the lands shall be annotated by the Register of Deeds having jurisdiction over the properties, 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 lands 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 requirements provided under Revenue Memorandum Order (RMO) No. 15-2003. On the other hand, the exemption granted under R.A. 7279 is without prejudice to the right of the Government to collect the proper amount of estate tax to the legal heirs pursuant to Section 84 of the Tax Code, as amended. Transaction between HG-III Construction and Development Corporation and NHA Considering that HG-III Construction and Development Corporation is a project contractor whose services are engaged by NHA to undertake construction of 1,000 Housing Units with its necessary construction components in Viejo People's Village Site 1 located at Brgy. Vista Alegre, Barotac Viejo, Iloilo and which was certified by the NHA as a socialized housing project as resettlement site pursuant to R.A. 7279, the income directly realized by HG-III Construction and Development Corporation from the land development and housing construction with its necessary construction components for 1,000 Housing Units in Viejo People's Village Site 1 located at Brgy. Vista Alegre, Barotac Viejo, Iloilo 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 housing construction with its necessary construction components for 1,000 Housing Units in Viejo People's Village Site 1 located at Brgy. Vista Alegre, Barotac Viejo, Iloilo by HG-III Construction and Development Corporation shall be exempt from VAT. However, the purchases of goods/articles by HG-III Construction and Development Corporation 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 be understood that HG-III Construction and Development Corporation 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. AScHCD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Pursuant to "Affidavit of One and the Same Person" executed by Sheila Mae L. Montelibano, Rodolfo B. Legislador, Jr. and Sharon L. Elizalde stating that Todolfo Legislador and Rodolfo B. Legislador refers to the same and only person, duly acknowledged before Notary Public F. Evari O. Tupas under Doc. No. 282, Page No. 57, Book No. XIII, Series of 2014. 2. Jesus Legislador represented by Jena L. Padilla and Jocelyn L. Basbao and Rodolfo Legislador represented by Sheila Mae L. Montelibano, Rodolfo B. Legislador, Jr., and Sharon L. Elizalde.