Grepaland, Inc.

April 29, 2009 BIR RULING [SH-(034) 296-09] S-20-028-07 Grepaland, Inc. 4/F Grepalife Building 221 Sen. Gil Puyat Avenue Makati City Attention: Mr. Emmanuel BM. Santos Documentation Head Gentlemen : This refers to your letter dated February 26, 2009 requesting for a ruling that as a project contractor of socialized housing project under Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992, it is exempt from the payment of project related income taxes, value-added tax (VAT) and the capital gains tax. It is represented that Grepaland, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission (SEC);that it is engaged in the construction business; that it is the owner of Celestine Homes Phase 1, 2 & 3, a 1,445 unit socialized/economic subdivision located at Barangay Marinig, Cabuyao, Laguna with a License to Sell and Certificate of Registration was issued by the Housing and Land Use Regulatory Board (HLURB) bearing No. R4-97-02-0026 and R4-97-02-0022 and Celestine Ville a 322 unit socialized/economic subdivision located at Barangay Gulod, Cabuyao, Laguna with License To Sell No. 15227-R4A06-03 and Certificate of Registration No. 14579-R4A-06-03. In reply thereto, please be informed that pertinent portion of 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: xxx xxx xxx "(d) Exemption from the payment of the following: (1) project-related income taxes; (2) capital gains tax; (3) value-added tax for the project contractor concerned;" xxx xxx xxx Pursuant to the aforementioned provision, the owner of the raw land is exempt from the payment of capital gains tax on the conveyance of the above-described property for use in the 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 properties, to the effect that the same are to be applied or are being applied to socialized housing project pursuant to R.A. 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. aETDIc Furthermore, under Revenue Regulations No. 11-97, as amended by Revenue Regulations No. 17-2001, within six (6) months after the issuance of tax exemption form 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 form 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. On the other hand, once the developer is registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A. No. 7279 and as developer of the property used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lots or lots only) shall be exempt from project-related income taxes, and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, implementing Section 57 (B) of the Tax Code of 1997. In this connection, it should be mentioned that 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 as well as should there be non-compliance with any of the sine-qua-non terms and conditions as afore-stated, for tax exemption purposes. 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 properties imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realties or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. 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 on this case does not really exceed P400,000.00, as the case may be, for each qualified beneficiary. (HUDCC Resolution No. 01, Series of 2008) SETaHC Finally, as developer, Grepaland, Inc. is exempt from the payment of value-added tax (VAT) on its gross receipt from the said project. 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. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service