Westlane Neighborhood Association, Inc.

April 21, 2009 BIR RULING [SH-(030) 265-09] 20 RA 7279; S20-111-2000 Westlane Neighborhood Association, Inc. Mendaros bldg., Lirio Street Carmen, Cagayan de Oro City Attention: Mr. Edgar Allan A. Donasco President Gentlemen : This refers to your letter dated October 10, 2008 which was received by this Office by way of Memorandum and 1st Indorsement dated October 10, 2008 by the Revenue District Office No. 98, Cagayan de Oro City, requesting for exemption from the payment of project-related taxes particularly the capital gains tax and other taxes on the sale of a parcel of land pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclosed that a Deed of Sale dated July 11, 2008 was executed by and between the Development Bank of the Philippines and The Westlane Neighborhood Association, Inc. with TIN 005-893-378 over a parcel of land covered by Transfer Certificate of Title No. T-142809 issued by the Register of Deeds for Cagayan de Oro City for the purpose of constructing socialized residential housing units; that the said parcel of land has been certified to by the Housing and Land Use Regulatory Board as a socialized housing project. In reply, please be informed that under Section 5 (B) of Revenue Regulations No. 11-97, a developer of a proposed subdivision project shall be required to develop an area for socialized housing equivalent to at least twenty percent (20%) of the total subdivision area or total subdivision project cost at the option of the developer, within the same city or municipality whenever feasible and in accordance with the standards set by the HLURB under existing laws. The balance housing development required under Section 18 of R.A. No. 7279 may also be complied with by the developers concerned in any of the following manner: (a) Development of new settlement; (b) Slum upgrading or renewal of areas for priority development either through zonal improvement programs or slum improvement and resettlement programs; (c) Joint venture projects with either the local government units or any of the housing agencies; or (d) Participation in the community mortgage program. Pursuant to Section 20 of R.A. No. 7279, pertinent portion of which reads: cDHCAE "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 on raw lands used for the project; (3) Value-added tax for the project contractor concerned; xxx xxx xxx" the owners of the raw land are exempt from the payment of capital gains tax on the conveyance of the said properties for use in the aforesaid socialized housing project. Upon application for exemption, a lien on the titles 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 are being applied to socialized housing project pursuant to R.A. 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 and paid by the buyer/developer. cTECIA On the other hand, once registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A. No. 7279, as the developer of the properties used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lot or lots only) shall be exempt from project-related income taxes, and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98 implementing Section 57 (B) of the Tax Code of 1997. It shall be understood that to be tax-exempt, the selling price per lot or house and lot shall not exceed P300,000.00 by virtue of Memorandum Circular No. 03, Series of 2005 dated June 10, 2005 signed by HUDCC Chairman, Vice President Noli L. de Castro. 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 R.A. 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. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. On the other hand, the contractor of the socialized housing units under R.A. No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. 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. HaAIES Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service