BIR Ruling No. 565-12

September 10, 2012 BIR RULING NO. 565-12 Sections 3 (r) and 20 of R.A. No. 7279; and RMC No. 32-2012; BIR Ruling No. 347-2011 dated September 28, 2011 National Housing Authority Quezon Memorial Elliptical Road, Diliman, Quezon City Attention: Felicisimo F. Lazarte, Jr. Group Manager Northern and Central Luzon Gentlemen : This refers to your letter dated 15 March 2012 requesting for and in behalf of B-12 Construction and Trading Corporation for exemption from the payment of value-added tax (VAT) pursuant to Republic Act No. 7279. SHIcDT The construction of a "three (3) storey school building (No. 2) with fifteen (15) classroom in Bocaue Hills Housing Project, Barangay Batia, Bocaue, Bulacan", intended for the families of the AFP-PNP personnel is, according to your office, qualified under the socialized housing project of the National Housing Authority (NHA) being undertaken by B-12 Construction and Trading Corporation . In reply, please be informed that your request for the exemption of B-12 Construction and Trading Corporation from payment of VAT relative to the "three (3) storey school building (No. 2) with fifteen (15) classroom in Bocaue Hills Housing Project, Barangay Batia, Bocaue, Bulacan" cannot be granted. Section 20 of R.A. No. 7279, states that: "Sec. 20. Incentives for the 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; xxx xxx xxx (3) Value-added tax for the project contractor concerned;" 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) In this case, B-12 Construction and Trading Corporation is engaged in the construction of three (3) storey school building (No. 2) with fifteen (15) classroom in Bocaue Hills Housing Project, Barangay Batia, Bocaue, Bulacan , although certified by the NHA as a socialized housing project, is nevertheless outside the definition of a "socialized housing" in relation to the tax incentives for the private sector under Section 20 of R.A. 7279. It is apparent that the tax incentive provision, granting exemption from project related taxes and VAT, is limited to project contractors on the construction and development of houses and lots or homelots only with a view to reduce the cost of housing units for the benefit of the underprivileged and homeless. (BIR Ruling No. 347-11 dated September 28, 2011) It should be remembered that laws and statutes granting tax exemptions are strictly construed against the taxpayer. Exemptions are never presumed and the burden is upon the taxpayer to establish his right to exemption beyond reasonable doubt. 1 In the case of Mactan Cebu International Airport Authority v. Marcos , 2 the Supreme Court held: SICaDA "Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception." To clarify the incentives of the private sector participating in socialized housing projects, this Office issued on 16 July 2012 Revenue Memorandum Circular No. 32-2012 which categorically stated that the development and/or construction of classrooms, school buildings , multi-purpose halls/covered courts, and livelihood centers falls outside the definition of the term "socialized housing" and cannot qualify for the tax incentives granted under Section 20 of R.A. No. 7279. (underscoring supplied) In view of the foregoing, the request for exemption from payment of VAT and project related taxes of B-12 Construction and Trading Corporation relative to its participation as contractor in the project "three (3) storey school building (No. 2) with fifteen (15) classroom in Bocaue Hills Housing Project, Barangay Batia, Bocaue, Bulacan", is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005). 2. G.R. No. 120082, 11 September 1996, 261 SCRA 667.