BIR Ruling No. 624-12

November 20, 2012 BIR RULING NO. 624-12 Section 20, R.A. 7279; BIR Ruling No. 492-11; BIR Ruling No. 129-2012 Lagao Landholdings, Inc. 2nd Floor, D# 5, Leah Building, Daproza Ave., General Santos City Attention: Mr. John C. Gonzalez Finance Officer Gentlemen : This refers to your letter dated 28 July 2010 received by this Office on 18 October 2010 via 1st Indorsement from Revenue Region No. 18-Koronadal City, requesting tax exemption under Republic Act (R.A.) No. 7279 otherwise known as "Urban Development and Housing Act of 1992". cCSTHA Documents submitted disclosed that LAGAO LANDHOLDINGS, INC., with Taxpayer Identification No. 005-977-250-000, is a domestic corporation engaged in real estate development; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200311369; that it has its principal office at No. 6 Alcasid Apartment, Naranjita St., General Santos City; that LAGAO LANDHOLDINGS, INC. is the owner and developer of ALPINE VILLE SUBDIVISION, a project covered by Lot 39-A, 39-B and 39-C with an area of 79,457 sq.m. located at Nursery Road, Lagao, General Santos City; that ALPINE VILLE SUBDIVISION has been issued by the Housing and Land Use Regulatory Board (HLURB) a Certificate of Registration No. 03286 dated 20 May 2004 identifying the said housing project as an economic/socialized housing project; that the HLURB issued to LAGAO LANDHOLDINGS, INC. License to Sell No. 08954 dated 20 May 2004 for the sale of 446 house and lot units in Alpine Ville Subdivision ; that it was also issued License to Sell No. 08955 dated 20 May 2004 for the sale of 135 house and lot units in ALPINE VILLE SUBDIVISION; that LAGAO LANDHOLDINGS, INC. has requested for a certification from the HLURB Southern Mindanao Region that ALPINE VILLE SUBDIVISION is a socialized housing project and that it has a maximum selling price of P400,000.00 per house and lot package but was informed by such Office that there is no need to issue such Certification as the License to Sell issued to it will suffice; and that it has been issued development and building permits by the City Government of General Santos City. In reply, please be informed that Section 20 of R.A. 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: (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) . . .; (3) Value-added tax for the project contractor concerned. EICDSA xxx xxx xxx" Only the sale of socialized housing units to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended. In this connection, any sale made by the owner and developer to interested parties other than the principal target beneficiaries under Sections 3 (t) 1 and 16 2 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the aforestated sine qua non terms and conditions. (BIR Ruling No. 129-2012 dated February 23, 2012) Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. (BIR Ruling No. 492-11 dated December 14, 2011) On the other hand, for value-added tax (VAT) purposes, pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of VAT on the project concerned. Relative thereto, Section 109 (1) (P) of the Tax Code of 1997, 3 as amended by R.A. 9337, provides: "(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);" ETDAaC 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 LAGAO LANDHOLDINGS, INC. must issue non-VAT official receipts on its gross receipts from the said socialized housing units. Accordingly, sale of the House and Lot units in ALPINE VILLE SUBDIVISION covered by HLURB License to Sell No. 08955 (saleable 135 house & lot units) for Socialized Housing on subdivision plan Pcs-12-001387, to wit: Blk 13, Lots 2 to 18; Blk 14, Lots 3 to 42; Blk 16, Lots 4, 6, 8, 10, 12, 14, 16, 18, 20, 22, 24, 26, 28, 30, 32, 34, 35, 36, 37, 38; Blk 17, Lots 3 to 42; Blk 18, Lots 2 to 19, [Excluded: Blk 19 (CF), Blk 20, 22, 23 (P & P); Blk 13 Lots 19, 20 (P & P); Blk 21 (sewerage treatment facility area)] , wherein the maximum price of the House and Lot is P400,000.00, to qualified beneficiaries should be exempt from income taxes and consequently, from creditable expanded withholding tax and from VAT pursuant to R.A. 7279. Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are to be applied or being applied to socialized housing project pursuant to R.A. 7279. A buyer of a socialized housing unit shall be required by the developer/owner/seller to execute a sworn statement that he is eligible as a socialized housing beneficiary under the Act. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P400,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. (BIR Ruling No. 129-2012 dated February 23, 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 as represented are different, then this ruling shall be considered null and void. DaTEIc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. "Underprivileged and homeless citizens" refers to the beneficiaries of this Act and to individuals or families residing in urban and urbanizable areas whose income or combined household income falls within the poverty threshold as defined by the National Economic and Development Authority and who do not own housing facilities. This shall include those who live in makeshift dwelling units and do not enjoy security of tenure. 2. SEC. 16. Eligibility Criteria for Socialized Housing Program Beneficiaries . To qualify for the socialized housing program, a beneficiary: (a) Must be a Filipino citizen; (b) Must be an underprivileged and homeless citizen, as defined in Section 3 of this Act; (c) Must not own any real property whether in the urban or rural areas; and (d) Must not be a professional squatter or a member of squatting syndicates. 3. Effective January 1, 2012, the adjusted threshold amounts of sales of real properties exempt from VAT stated in 109 (1) (P) pursuant to Revenue Regulations No. 16-2011, are as follows: Sale of residential lot valued at P1,919,500.00 and below, Sale of house & lot and other residential dwellings valued at P3,199,200.00 and below where the instrument of sale/transfer/disposition was executed on or after January 1, 2012.