Mr. Ricardo G. Ong

October 30, 2009 BIR RULING [SH-(105) 685-09] RR 11-97/RA 7279; S-20-003-2003 Mr. Ricardo G. Ong 8/F 111 Paseo de Roxas Bldg. 111 Paseo de Roxas cor. Legaspi St. Legaspi Village, Makati City Sir : This refers to your letter dated October 21, 2009 requesting on behalf of your client, First Advance Development Corporation (FADC), for exemption from taxes pursuant to the provisions of Republic Act (RA) No. 7279 or the "Urban Development and Housing Act of 1992". It appears that FADC is a domestic corporation created under Philippine laws and with principal place of business at 3rd Floor, Sayoc Abella Bldg.,Aguinaldo Highway cor. Tamsui Bayan Luma II, Imus, Cavite. It is the owner and developer of a socialized housing project known as Ciudad Nuevo Phase 5 in Brgy. Timalan, Naic, Cavite with a total land area of 132,258 sq.m. under Development Permit No. 2009-0002-H-NC dated October 19, 2009. In reply, please be informed that 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 on raw lands used for the project; HCSAIa "(3) Value-added tax for the project contractor concerned;" The owners of the raw lands are exempt from the payment of capital gains tax on the conveyance of the said properties for use in the above-named socialized housing project. Upon application for exemption, a lien on the titles of the lands 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 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 of the properties, whichever is higher. Furthermore, under Revenue Regulations (RR) No. 11-97, 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 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. As the developer of the properties used for the above-mentioned socialized housing project, 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 RR 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 P150,000.00, in accordance with RR No. 9-93, as amended by RR No. 11-97, implementing RA No. 7279 [maximum of P180,000.00 per unit pursuant to Section 5.1 of Memorandum of Agreement on Housing Finance entered into by and between the Housing and Urban Development Coordinating Council (HUDCC), and Department of Finance (DOF), Department of Budget and Management (DBM), the Government Service Insurance System (GSIS), the Home Development Mutual Fund (Pag-ibig), the National Home Mortgage Finance Corporation (NHMFC), and the Social Security System (SSS), in Metro Manila and highly urbanized areas mentioned in Table 25, Priority Area for Shelter Development and Implementation of RA No. 7279, and now as per HUDCC Resolution No. 1-2008 dated December 11, 2008 it again further adjusted the socialized housing package to P400,000.00. In this connection, any sale made by the owner and 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 aforestated sine qua non terms and conditions. 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. Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/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, as amended, 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. SHCaDA On the other hand, the contractor of the socialized housing units under RA No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. 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