City Government of Panabo

June 30, 2009 BIR RULING [SH-(057) 410-09] RA 7279; S-32-077-2000 City Government of Panabo Nanyo, Panabo City Attention: Hon. Rey P. Gavina City Mayor Gentlemen : This refers to your letter dated February 8, 2007 as indorsed by the Regional Director, Revenue Region No. 19, Davao City, requesting for a ruling that the sale by Mr. Neptali Calaycay of his property to the City Government of Panabo intended for the latter's socialized housing program is exempted from payment of capital gains tax. IAETDc Documents submitted show that Neptali Calaycay, married to Jocelyn Garzon Calaycay is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-63417 and designated as Lot No. 1728-H of Psd-11-019639 issued by the Registry of Deeds for the Province of Davao del Norte. The aforestated lot is located at Brgy. Nanyo, Panabo City containing an area of 17,366 sq.m. more or less. The City Government of Panabo, on the other hand, is a public entity created and existing under the laws of the Philippines and is desirous of purchasing the said property for socialized housing purposes. A Deed of Absolute Sale was executed by and between the afore-named parties on December 27, 2006 transferring the subject realty in consideration for one million seven hundred thousand pesos (P1,700,000.00),part of which in the amount of two hundred thousand pesos (P200,000.00) was made by Nanyo Urban Poor Homeowner's Association, Inc. (NUPHAI). In reply, please be informed that pursuant to Sections 20 and 32 of Republic Act (RA) No. 7279, pertinent portions of which state that: "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: (d) Exemption from the payment of the following: (2) Capital gains tax on raw lands used for the project; xxx xxx xxx. 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" the owner of the raw land is exempt from the payment of capital gains tax or the withholding tax under Revenue Regulations (RR) No. 12-98 on the conveyance of the parcel of land for use in the aforesaid 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 property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, based on the actual consideration of the property transferred, considering that one of the contracting parties is the Government. In this connection, it should be mentioned that any sale made by the City of Panabo to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA 7279, shall not be entitled to the foregoing tax exemption. 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 in this case does not really exceed P400,000.00, for each qualified beneficiary. (HUDCC Resolution No. 1-2008 dated December 11, 2008) Moreover, any transfer of the real properties from NUPHAI 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, 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 properties to the member-beneficiaries who actually bought the same. HAECID 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 properties to the members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by NUPHAI 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, as amended. 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 same Tax Code. Finally, 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 beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling No. S-32-077-2000 dated August 14, 2000) 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