Camarin Peasants HOA, Inc.

May 20, 2009 BIR RULING [SH-(045) 335-09] 24 (D) (1); 196; DA-065-2004 Camarin Peasants HOA, Inc. Anonas St.,Camarin II Area D Caloocan City Attention: Ms. Vilma B. Juanite President Gentlemen : This refers to your letter dated December 17, 2008, which was received by this Office by way of 1st Indorsement of Revenue Region No. 5, Valenzuela City, relative to the request of the landowner, Jose R. Dimaano, for exemption from the payment of Capital Gains Tax and Documentary Stamp Tax on the transfer of a parcel of land in favor of Camarin Peasants Homeowner's Association, Inc.(Association) pursuant to Republic Act (RA) 7279. Documents submitted disclosed that the subject parcel of land is covered by Transfer Certificate of Title No. C-14566; that the parcel of land is still registered with the landowner Jose R. Dimaano; that an ocular inspection on the property of the Association was made pursuant to the Memorandum of the Chief, Law Division dated November 3, 2008 disclosed that the Camarin Peasants Homeowners Association, Inc. with TIN 223-104-089-000 is a duly accredited association existing under the Community Mortgage Program and registered with the Housing and Land Use Regulatory Board under Registration No. 01420 dated February 17, 2003; and that the purpose of transfer was to provide homelots to qualified beneficiaries through direct sale at affordable prices to upgrade the living conditions in said area; and that Association is now in the process of facilitating the transfer of community titles in favor of its member-beneficiaries. In reply, please be informed that Section 20 of Republic Act No. 7279 provides, viz. : TCIDSa "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater participation in socialized housing, and further reduced 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; (4) Transfer tax for both raw completed projects; and (5) Donor's tax for lands certified by the local government units to have been donated to socialized housing purposes." Thus, the parcel of land covered by Transfer Certificate of Title No. C-14566 has been identified as Area for Priority Development, and therefore qualifies for the benefits of a socialized housing program. Therefore, the owners of the raw lands are exempt from the payment of capital gains tax on the conveyance of the property, corresponding to the portion thereof that will be used in the aforestated 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 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 Rev. Regs. No. 11-97, as amended by Revenue Regulations No. 17-2001, 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 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. EcDTIH 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 Rev. Regs. 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 P400,000.00. 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 P400,000.00. 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 taxes covered by the tax exemption clause under 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. Furthermore, the transfer of title of the said property from the developer to the beneficiaries is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement 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. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed 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