City Government of Taguig

February 4, 2009 BIR RULING [SH-(005) 071-09] RA 7279; S-32-077-2000 City Government of Taguig Taguig City Hall Gen. Antonio Luna St. Tuktukan, Taguig City Attention: Mr. Wilfredo C. Villar City Administrator Gentlemen : This refers to your letter dated August 21, 2008 requesting for a ruling that the sale by Mariquit P. Cabrera of her property to the Municipal Government of Taguig (now City Government of Taguig),intended for the latter's socialized housing program is exempted from payment of capital gains tax. Documents submitted show that Mariquit P. Cabrera, married to Benjamin L. Cabrera is the registered owner of a parcel of land covered by Original Certificate of Title (OCT) No. 1051 issued by the Register of Deeds for Pasig, Metro Manila. The aforestated lot is located at Pulong Kendi, Brgy. Sta. Ana, Taguig City containing an area of 2,776 sq.m. more or less. The Municipal Government of Taguig, on the other hand, is a public entity created and existing under the laws of the Philippines. While the Samahang Nagkakaisang Damdamin at Organisadong Kapit-Bahayan (SANDOK) Homeowners Association, Inc.,is a duly registered community association. The latter in its desire to acquire the aforesaid tract of land was assisted by the municipal government acting as the originating institution for the loan to be granted by the National Home Mortgage Finance Corporation (NHMFC) under the Community Mortgage Program (CMP) of the Government at a price of P800.00 per sq.m. with a the total selling price of P2,220,800.00. The said venture was certified by the Housing and Land Use Regulatory Board (HLURB) to benefit low-income workers/employees and constituents of the City and classified the same as a socialized housing project. In reply, please be informed that pursuant to Sections 20 and 32 of Republic Act (RA) No. 7279, pertinent portions of which state that: cEAHSC "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: (2) Capital gains tax on raw lands used for the project: xxx xxx xxx. Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and" the owner of the raw land is exempt from the payment of capital gains tax or the withholding tax under Revenue Regulations No. 12-98 on the conveyance of the parcel of land for use in the aforesaid socialized housing project. Upon application for exemption, a lien on the title of the 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 socialized housing project pursuant to RA 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the actual consideration of the property transferred, considering that one of the contracting parties is the Government. In this connection, it should be mentioned that any sale made by the City of Taguig to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA 7279, shall not be entitled to the foregoing tax exemption. 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 selling price per sale transaction of the lots in this case does not really exceed P300,000.00 (previously P150,000 or P180,000.00, as the case may be),for each qualified beneficiary. (HUDCC Memorandum Circular No. 03, Series of 2005) Moreover, the transfer of the real properties from the said association to the individual members thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real properties to the member-beneficiaries who actually bought the same. HICcSA Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate said properties to the members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by SANDOK Homeowners Association, Inc. to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Tax Code. Finally, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling No. S-32-077-2000 dated August 14, 2000) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service