Waiver of the Imposition of the Capital Gains Tax, Documentary Stamp Tax as Well as the Donor's Tax

September 13, 1988 BIR RULING NO. 438-88 24 261-86 438-88 Gentlemen : This refers to your letter dated August 24, 1988 stating that in response to the call of the National leadership, there is now a need more than ever to enhance the delivery mechanism for the government's housing benefits to the marginal and low-income groups; that pursuant to its mandate to focus itself to the lowest thirty percent (30%) of income earners, your office has embarked on a massive slum upgrading program on sites classified as Areas for Priority Development (APD) and Urban Land Reform Zones, to include the GSIS property in Bo. Menu, Manila and the PNR owned property in Malate, Manila; that in order to enhance the viability of these sites vis-a-vis the affordability of the intended beneficiaries, you had negotiated for and succeeded in pegging the acquisition costs of the abovementioned properties at prices way below their assessed market values; that for Bo. Menu, the agreed acquisition price is only P7.653 M (P380 per square meter) as against the assessed market value of P18.290 M, subject to the conditions imposed by the GSIS Board of Directors that NHA as vendee shall shoulder the capital gains, documentary stamps and deficiency taxes; that computed on the basis of the assessed market value, these taxes amount to P1.212 M which eventually shall be borne by the project beneficiaries; that for PNR Anak Bayan, which you are acquiring at P7.723 M (158/sq. m.) the donor's tax alone amounts to staggering P6.747 M; that considering that the program under which you intend to acquire and develop the properties will resolve the land tenure problems in the areas and enable bonafide squatter families residing thereat to become legitimate house and lot owners, it will convert the area into a productive tax revenue source; that it will eventually benefit the government in general, not only in term of increased tax receivables, but also in terms of decreased budgetary outlay for the delivery of other socio-economic services (e.g. health, sanitation, peace and order). cdta In connection therewith, you are requesting for the waiver of the imposition of the capital gains tax, documentary stamp tax as well as the donor's tax on the aforementioned transactions. In reply thereto, please be informed that under Section 21(e) of the Tax Code, as amended, only individuals, including estates and trusts shall be taxed on the capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, PNR and GSIS not being individuals, estates or trusts are not subject to the said 5% capital gains tax when they sell their aforementioned properties to you. Moreover, any gain realized by the GSIS from the contemplated sale shall not likewise be subject to the corporate income tax imposed under Section 24(a) of the Tax Code because Memorandum Order No. 42 of the President which took effect on September 26, 1986 amending further Section 24(c) of the Tax Code as amended by Executive Order No. 37 excludes or exempts all the taxable incomes of both the SSS and the GSIS from the payment of any and all taxes imposed by Section 24 of the same Code. (BIR Ruling No. 261-86 dated November 26, 1986) However, as regards the PNR, any gain realized by it from the contemplated sale shall be subject to income tax under Section 24(a) of the Tax Code, as amended, since Executive Order No. 93 effective March 10, 1987 has withdrawn all tax and duty incentives granted to government and private entities. Executive Order No. 93 did not affect the abovementioned income tax-exemption of GSIS. (Role I, Sec. 4(s), Ibid) The aforementioned transaction is not subject to the donor's tax as there is no intention to donate on the part of any of the parties. cdt Finally, PNR is subject to the payment of the documentary stamp tax due on the Deed of Sale to be executed by it in your favor. On the other hand, GSIS is exempt from the documentary stamp tax, because pursuant to Section 173 (formerly Section 186) of the Tax Code, as amended "whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Such being the case, since GSIS is exempt from the documentary stamp tax under P.D. No. 1146 as amended by P.D. No. 1981, you are the one directly liable for the tax. Besides, under your contract you, as vendee shall shoulder the documentary stamp tax on the Deed of Sale to be executed in your favor. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner