Bacolod City Government Employees Multi-Purpose Cooperative (BACGEM)

February 19, 2009 BIR RULING [SH-(011) 124-09] 20 RA 7279; S20-111-2000 Bacolod City Government Employees Multi-Purpose Cooperative (BACGEM) Bacolod City Attention: Mr. Eduardo H. Ravena Chairman Gentlemen : This refers to your undated letter requesting for a ruling that the sale of a parcel of land to the Community Mortgage Program beneficiaries is exempt from the payment of the capital gains tax, documentary stamp tax, and other related taxes. Documents submitted disclosed that the Bacolod City Government Employees Multi-Purpose Cooperative is a cooperative duly registered with the Cooperative Development Authority under CDA Registration No. ILO-3149 dated April 6, 1998; that the Office of the Sangguniang Panglunsod has issued a Final Approval and Development Permit under BP 220 dated March 2, 2006 on your project called "BACGEM VILLAGE" on one (1) parcel of land covered by Transfer Certificate of Title No. 175384 containing an area of 1,724 square meters located at Brgy. Pahancoy, Bacolod City and duly registered in the name of Teresa M. Obregon (14,424 square meters) and Ramon C. Montelibano (1,300 square meters); and that the said raw land shall be used for socialized housing purposes of the cooperative members. In reply, please be informed that Section 20 of RA No. 7279 reads: "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: DEIHSa xxx xxx xxx "(d) Exemption from the payment of the following: "(1) Project-related income taxes; "(2) Capital gains tax on raw lands used for the project; "(3) Value-added tax for the project contractor concerned;" The owners of the raw lands are exempt from the payment of capital gains tax on the conveyance of the said properties for use in the aforestated socialized housing project. Upon application for exemption, a lien on the titles of the lands shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are being applied to socialized housing project pursuant to RA No. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, within six (6) months after this issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the property and shall start the development of the socialized housing project within one (1) year after the approval of the Development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed on and paid by the buyer/developer. In this connection, any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the sine qua non terms and conditions as aforestated for tax exemption purposes. 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 P300,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. ASTDCH However, 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 project developer/sellers 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, 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. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service