BIR Ruling No. 470-14

November 21, 2014 BIR RULING NO. 470-14 RA 7279; BIR Ruling No. 360-2013; BIR Ruling No. 351-2012 Lak-K Builders Co. Units 606 & 609 Jocfer Bldg. Commonwealth Avenue, Quezon City Attention: Michael Angelo F. Kallos Vice President/General Manager Gentlemen : This refers to your letter dated June 11, 2014 requesting, on behalf of LAK-K BUILDERS CO., tax exemption on the low-cost housing project, Pandi Residences 2 Resettlement Project, located at Brgy. Bagong Barrio, Pandi, Bulacan, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that LAK-K BUILDERS CO., with Tax Identification Number 007-191-150-000, is a General Partnership duly registered with the Securities and Exchange Commission (SEC) bearing SEC Registration No. PG200818704; that it is a real property developer habitually engaged in the business of developing and constructing housing subdivisions; that it owns a parcel of land located at Brgy. Bagong Barrio, Pandi, Bulacan, covered by Transfer Certificate of Title (TCT) No. 040-2014008073 of the Registry of Deeds for Meycauayan, Bulacan, particularly described as follows: TCT NO. 040-2014008073 1 "A PARCEL OF LAND (LOT No. 2697 OF THE S.M. DE PANDI EST., GLRO REC. NO. 8503) SITUATED IN THE MUN. OF BIGAA, PROV. OF BUL. . . . CONTAINING AN AREA OF THIRTY FOUR THOUSAND AND NINETEEN SQUARE METERS (34,019) MORE OR LESS." On February 19, 2014, a Contract Agreement 2 was entered into by and between LAK-K BUILDERS CO. and Pandi Residences 2 Homeowner's Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with Registration No. 19247, whereby LAK-K BUILDERS CO. has agreed to sell to Pandi Residences 2 Homeowner's Association, Inc.'s individual members the developed lots, including the completed housing units thereon under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) (TIN 000-916-384-000) for Two Hundred Forty Thousand Pesos (P240,000) 3 for every developed lot and completed housing unit per family. SDHITE On March 7, 2014, a Memorandum of Agreement 4 (MOA) was executed by and among LAK-K BUILDERS CO., as the landowner/developer/constructor, the members of Pandi Residences 2 Homeowner's Association, Inc., as the beneficiaries, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government for Fiscal Year (FY) 2014, to ensure the timely, peaceful and orderly relocation and resettlement of the informal settler families living in danger areas, affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila. Under the MOA, NHA shall finance the acquisition of 1,940 developed lots and the completed housing units by the members 5 of the Pandi Residences 2 Homeowner's Association, Inc. through the CIAP under the National Resettlement Program of the government for FY 2014 in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot per family and One Hundred Twenty Five Thousand Pesos (P125,000.00) per housing unit, respectively. On April 15, 2014, LAK-K BUILDERS CO. and the NHA executed a Deed of Absolute Sale whereby the former transferred and conveyed to the latter a portion of the above-described real property, particularly an area measuring Twenty Thousand Six Hundred Eighty Seven (20,687) square meters, more or less, consisting of the Four Hundred Ninety Four (494) developed lots under Batch 01-2014 for a total consideration of Fifty Six Million Eight Hundred Ten Thousand Pesos Only (P56,810,000.00). 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. cSTCDA "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; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 494 developed lots under Batch 01-2014 on the Twenty Thousand Six Hundred Eighty Seven (20,687) square meters portion of the above-described property by LAK-K BUILDERS CO. to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. ( BIR Ruling No. 360-2013 dated September 30, 2013 ) Moreover, pertinent portions of Revenue Memorandum Circular (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: DHcEAa (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 It must be noted that the exemption from the documentary stamp tax of NHA, in connection with any of its socialized housing projects, 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 LAK-K BUILDERS CO. to NHA of the 494 developed lots under Batch 01-2014 on the Twenty Thousand Six Hundred Eighty Seven (20,687) square meters portion of the above-described property, is likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. ( BIR Ruling No. 360-2013 dated September 30, 2013 ). Upon application for exemption, a lien on the title of the subject parcel of land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to a 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 the transfer of the title 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 requirement provided under RMO 15-2003. 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 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: SETAcC "Section 4.109-1. VAT-Exempt Transactions. (A) In general. "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . . ." Furthermore, pursuant to HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013 approving the adjustment of price ceiling for socialized housing, and as circularized by Revenue Memorandum Circular No. 35-2014, pertinent portion of which reads: "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the price ceiling for horizontal socialized housing be adjusted from P400,000.00 to P450,000.00." ISCcAT thus, beginning December 18, 2013, 6 the newly adjusted price ceiling of P450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under R.A. No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as R.A. No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994," and R.A. No. 8763, otherwise known as the "Home Guaranty Act of 2000". Moreover, Section 2 of R.R. No. 17-2001 provides: "Section 2. Definition of Terms. As used in these Regulations, the following terms shall have the following meaning: xxx xxx xxx "A socialized housing unit shall not exceed P150,000.00 (now P450,000.00 per HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013) for a house and lot package, subject to periodic adjustment or increase as the Housing and Land Use Regulatory Board (HLURB) may effect from time to time. In the case of sale of homelots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package." Thus, LAK-K BUILDERS CO., being the contractor of the socialized housing project, Pandi Residences 2 Resettlement Project, located at Brgy. Bagong Barrio, Pandi, Bulacan, is likewise exempt from the payment of VAT on the sale of lot valued at One Hundred Eighty Thousand Pesos (P180,000.00) and below, and house and lot valued at Four Hundred Fifty Thousand Pesos (P450,000.00) and below, on its gross receipts from the sale of developed lots and completed housing units 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. ( BIR Ruling No. 351-12 dated May 21, 2012 ) 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. cDEHIC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Formerly TCT No. T-4592 registered under the name of Reynaldo Marcos, married to Epifania Marcos. 2. (Financing the Acquisition of Developed Lots and Completed Housing Units) in Pandi Residences 2, Brgy. Bagong Barrio, Pandi, Bulacan. 3. P115,000.00 per developed lot and P125,000.00 per completed housing unit. 4. (For Financing the Acquisition and Developed Lots and Financing the Acquisition of Completed Housing Units) Pandi Residences 2 Resettlement Project, Brgy. Bagong Barrio, Pandi, Bulacan. 5. Composed of members/families living in danger areas affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila. 6. HUDCC Resolution No. 1 Series of 2013 took effect on December 18, 2013 after having satisfied the publication requirement as circularized by HUDCC Memorandum Circular No. 01 Series of 2014.