Geospecialist, Inc.

May 27, 2009 BIR RULING [SH-(047) 352-09] RA 7279; RMC 42-01; S20-024-06 Geospecialist, Inc. No. 168 P. Faustino Street Punturin, Valenzuela City Attention: Ms. Flordeliza A. Uy President Gentlemen : This refers to your letter dated May 15, 2009 requesting for a ruling on the tax consequence on the construction by Geospecialist, Inc. of housing units of the Northville 1-B Relocation Site, in line with the socialized housing program of the National Housing Authority (NHA), pursuant to Republic Act (R.A.) No. 7279, otherwise known as "Urban Development and Housing Act of 1992". The facts as represented are as follows: Pursuant to Executive Order No. 90 dated December 17, 1986, the NHA was mandated as the sole housing production agency to meet the housing needs of the low and marginal income families in the urban areas. In line with its mandate, the NHA was tasked in the relocation and resettlement of the families affected by the NLEX-PHASE 2 C-5, Northern Link Project of the North Luzon Railways Corp. (NLRC). Geospecialist, Inc., a domestic corporation, has offered its services to the Northville 1-B Homeowners Association, Inc. (the "Association") to undertake the construction of the completed housing units based on the housing plans and specification duly approved by the NHA. The completed housing units shall accommodate families affected by the Northrail Development Project as endorsed by the Local Inter Agency Committee (LIAC) of the City of Valenzuela. On December 20, 2008, the NHA entered into a Memorandum of Agreement (MOA) with Geospecialist, Inc. and the Northville 1-B Homeowner's Association, Inc. whereby the NHA shall finance the acquisition from Geospecialist, Inc. the completed housing units and shall pay an amount of Php75,000.00 per housing unit per family, through the Community Initiative Approach Program pursuant to NHA's Board Resolution Nos. 5028, 5114, 5061 and 5094. AaEcHC The Northville 1-B Homeowner's Association, Inc., as beneficiaries of the above project, on the other hand, shall execute separate Loan Agreements for each member family with the NHA which includes the terms and conditions for the payment of the housing unit in favor of the latter. From the foregoing, Geospecialist, Inc. is asking for an exemption from payment of taxes that may be imposed on its construction of socialized housing units in accordance with the provisions of R.A. No. 7279. In reply, please be informed that pursuant to Section 20 of RA No. 7279, pertinent portions of which read: "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater 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;" (Emphasis added) Based on the foregoing provisions, Geospecialist, Inc., the contractor/developer of the socialized housing project of NHA, is exempt from the payment of project related income taxes, and consequently, from withholding tax on the construction and the eventual sale of the socialized housing units to NHA or to the intended beneficiaries. Moreover, Geospecialist, Inc. is exempt from the payment of value-added tax (VAT) on its sale of the socialized housing units to NHA or the intended beneficiaries. However, purchases of goods/articles of Geospecialist, Inc. shall be subject to VAT, even if the said purchases are to be used for the socialized housing project. (Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001.) With respect to documentary stamp tax, Section 19 of RA No. 7279, provides as follows: "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 nationals, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempted from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of titles." (Emphasis supplied) On the other hand, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : ASETHC "A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: xxx xxx xxx (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA", the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. Provided, however, that in the case of foreclosure sale of real property mortgaged to NHA by qualified beneficiaries of socialized housing, NHA, as statutory seller, shall be liable to the payment of capital gains tax and documentary stamp tax otherwise due from the mortgagor-debtor. Provided further, that if the latter redeems the property within the one-year redemption period, the amount of tax paid by NHA may be collected from the mortgagor-debtor." (Emphasis supplied) Based on the foregoing, if the NHA is a party to the sale, other than a foreclosure sale of the mortgaged property, no documentary stamp tax shall be due on such sale, either on NHA or the party with which the NHA is transacting. Accordingly, the conveyance by Geospecialist, Inc. of the completed socialized housing units in favor of NHA and the intended beneficiaries is exempt from the payment of documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. 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