BIR Ruling No. 458-14

November 12, 2014 BIR RULING NO. 458-14 Section 20, RA 7279; BIR Ruling No. 063-2014 National Housing Authority Quezon Memorial Elliptical Road, Diliman, Quezon City Attention: Arch. Susana V. Nonato Officer-In-Charge Gentlemen : This refers to the letter dated October 22, 2013 of Arch. Susana V. Nonato, Officer-In-Charge of the National Housing Authority (NHA)-SLB, requesting for a certificate of exemption on the Land Development of Kinamaligan Resettlement Project, Phases I and II located at Brgy. Maingaran, Masbate City, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". It is represented that the Land Development of Kinamaligan Resettlement Project, Phases I and II, located at Brgy. Maingaran, Masbate City, is a joint socialized housing project of the NHA and the City Government of Masbate, under the NHA's Resettlement Assistance Program for the Local Government Units (RAP-LGUs), intended to accommodate families residing in danger areas, affected by the infrastructure projects of the national/local government, as well as for other informal settler families willing to be relocated permanently; that the NHA, in its two (2) Memoranda dated November 12, 2012 and April 15, 2013 respectively, recommended that the contract for the aforesaid Project be awarded to Arky Construction & Supply ("Arky"), (TIN: 934-419-263-000), a sole proprietorship owned by Ariel N. Lim and duly registered with the Department of Trade and Industry (DTI) under DTI Certificate No. 01739045 dated May 17, 2012; that on November 26, 2012, a Notice of Award was given to Arky to undertake the contract works for the Phase I of the Land Development of Kinamaligan Resettlement Project, in the amount of Forty Three Million Eight Hundred Eighty Eight Thousand One Hundred Ninety One Pesos and 60/100 (PhP43,888,191.60); and that based on the NHA's Memorandum dated November 12, 2012, the Phase I of the Project will generate Seven Hundred One (701) socialized residential lots with an average size of sixty (60) square meters. acHDTA It is further represented that on May 30, 2013, a Notice of Award was also given to Arky to undertake the contract works for the Phase II of the Land Development of Kinamaligan Resettlement Project, in the amount of Fifty Five Million Seven Hundred Ninety Five Thousand Seven Hundred Ninety One Pesos and 09/100 (PhP55,795,791.09); that based on the NHA's Memorandum dated May 30, 2013, the Phase II of the Project will generate Seven Hundred (700) socialized residential lots with minimum lot area of sixty (60) square meters; and that the scope of works for the Project (Phases I and II) includes Survey Works, General Earthworks, Road Works, Drainage Works and Water Supply Works. The parcels of land that will be utilized for the Kinamaligan Resettlement Project, Phases I and II, are registered under the name of the City Government of Masbate. Phase I of the Project covers the lot under Transfer Certificate of Title Nos. T-15857, T-15858 and T-15859, while Phase II of the Project is covered by the lot under TCT No. 080-2011000158. Based on the NHA Memorandum dated April 15, 2013 (2.0 Project Profile), the total land area for the Project is 14.9 hectares, 8.09 hectares of which is proposed for Phase I, while 6.83 hectares thereof is proposed for Phase II of the Project. In reply, please be informed that pertinent portion of Section 20 of RA No. 7279 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) . . .; (3) Value-added tax for the project contractor concerned;" IEHTaA xxx xxx xxx" Section 3 (r) of R.A. 7279 defines "socialized housing" as follows: "(r) "Socialized housing" refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development , long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of this Act;" (Underscoring supplied) Based on the foregoing, housing projects covering houses and lots or homelots only, including sites development for socialized housing projects, intended for the underprivileged and homeless citizens undertaken by the Government or the public sector, are entitled to exemption from income tax on revenues directly derived therefrom. Considering that Arky is a project contractor whose services are engaged by NHA for the Land Development of Kinamaligan Resettlement Project, Phases I and II, and its necessary construction components for One Thousand Four Hundred One (1,401) socialized residential lots in Brgy. Maingaran, Masbate City, which Project was duly certified by the NHA as a socialized housing project to accommodate families residing in danger areas, affected by the infrastructure project of the National/local government, as well as for other informal settler families willing to be relocated permanently pursuant to RA 7279, the income directly realized by Arky from the Land Development of Kinamaligan Resettlement Project, Phases I and II, located at Brgy. Maingaran, Masbate City, shall be exempt from project-related income taxes in so far as the One Thousand Four Hundred One (1,401) socialized residential lots on the 14.9 hectares of land covered by TCT Nos. T-15857, T-15858, T-15859 and 080-2011000158, (including Survey Works, General Earthworks, Road Works, Drainage Works and Water Supply Works) are concerned. (BIR Ruling No. 063-2014 dated February 19, 2014) Moreover, Arky Construction & Supply is likewise exempt from the payment of VAT on its gross receipts from the land development and its necessary construction components for the One Thousand Four Hundred One (1,401) socialized residential lots on the 14.9 hectares of land covered by TCT Nos. T-15857, T-15858, T-15859 and 080-2011000158, (including Survey Works, General Earthworks, Road Works, Drainage Works and Water Supply Works). 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. (BIR Ruling No. 063-2014 dated February 19, 2014) 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. prcd Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue