National Housing Authority

May 7, 2009 BIR RULING [SH-(037) 307-09] 19, 20 and 32 RA 7279; S-20-081-A-2000; SH(009)046-2008 National Housing Authority Elliptical Road, Diliman Quezon City Attention: Mr. Albert A. Perfecto Deputy Area Management Officer SLB-Region V Gentlemen : This refers to your letter dated May 6, 2009 requesting on behalf of Verzontal Builders, for a ruling that the sale of real properties to the National Housing Authority (NHA) under its Bicol Calamity Assistance Rehabilitation Effort (B-CARE) to Typhoon Victims is exempt from the capital gains tax and documentary stamp tax pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992. From the documents submitted, it appears that on May 4, 2009, a Memorandum of Agreement was executed between Verzontal Builders, as the landowner/developer, Daragang Magayon Homeowners Association, Inc., as the association and National Housing Authority (NHA) as the implementing government agency of CARE; Verzontal is the registered owner of parcels of land located at Brgy. Anislag, Daraga, Albay covered by Transfer Certificate of Title (TCT) Nos. T-140865, T-140864, T-140863, T-140870, T-140871, T-140866, T-140867, T-140869, T-140868, T-140873, T-141962 and T-140495 consisting of aggregate area of 171,340 square meters; that the NHA purchased said property for eventual transfer of ownership to the members of the Daragang Magayon Homeowners Association, Inc.; that pursuant to Republic Act No. 9401, otherwise known as the General Appropriations Act, the NHA was designated as one of the implementing agencies of the Calamity Assistance Rehabilitation Effort (CARE) to Typhoon Victims and for that purpose was allocated Php750 Million Pesos where NHA sourced its funding for the acquisition of the said properties; and that the subject property's total selling price is P90,975,000.00, and the sum of not exceeding P80,000.00 per lot per member/family to cover the acquisition of developed resettlement lots by its members/families shall be shouldered by Daragang Magayon Homeowners Association, Inc. HcaDIA NHA's purchase of the afore-stated land possesses all the qualification and none of the disqualifications for it to be granted an exemption from the payment of taxes. In reply, please be informed that pursuant to Sections 19, 20 and 32 of Republic Act (RA) No. 7279, pertinent portions of which read: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. 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;" 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 xxx xxx xxx" the landowner who sell its property for use in socialized housing project is exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 2-98, as amended. Such being the case, the sale of the aforementioned properties by Verzontal Builders to NHA is exempt from the capital gains tax and the expanded withholding tax. Moreover, the Deed of Absolute Sale conveying the real properties to NHA is not subject to the documentary stamp tax pursuant to Section 19 of RA 7279, which exempts all documents or contracts executed by and in favor of the NHA from the documentary stamp tax. On the other hand, the transfer by NHA to Daragang Magayon Homeowners Association, Inc. of the real properties sold under RA 7279 is not subject to any tax considering that NHA only acted as a coordinating agency in providing shelter to the underprivileged and homeless citizens in pursuance of its mandated function. Moreover, the transfer of the real properties from the 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, as amended, 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 property to the member-beneficiaries who actually bought the same. Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Thus, Verzontal Builders, being the project contractor for the development of a socialized housing project known as the Bicol Calamity Assistance Rehabilitation Effort (B-CARE) to Typhoon Victims, is likewise exempt from the payment of value-added tax (VAT) on its gross receipts 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. aTEHIC 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 property to the members considering that the members of the association could not donate a property the ownership of which belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by Daragang Magayon 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. 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 Tax Code of 1997. Moreover, 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 NHA and/or to the beneficiary association of the socialized housing program of the NHA shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to RA No. 7279. 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