Ms. Beatriz Fajardo-Cane

November 12, 2009 BIR RULING [SH-(108) 704-09] 20 RA 7279; Da-258-08 Ms. Beatriz Fajardo-Cane Barangay Taguibo, Butuan City Madam : This refers to your letter dated October 7, 2009 requesting for a ruling that the acquisition of the City Government of Butuan of a parcel of land to be developed pursuant to the socialized housing program intended for a relocation site for the landless families in Barangay Pianing, Butuan City is exempt from capital gains tax, expanded withholding tax and documentary stamp tax pursuant to Section 20 of R.A. No. 7279. Documents submitted disclosed that the City Government of Butuan acquired a parcel of land covered by Original Certificate of Title No. P-580 Lot 958, Pls-74 (HV-26704) located at Barangay Pianing, Butuan City with an area of Seventy Five Thousand Eight Hundred Twenty Seven (75,827) square meters more or less pursuant to an undated Deed of Absolute Sale executed by and between the Heirs of the late Spouses Dionesio Bacleon and Lourdes Canusa-Bacleon and the City Government of Butuan. 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; "(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 aforestated 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 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. ISHaTA Furthermore, under Revenue Regulations 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 on and paid by the buyer/developer. 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 the taxes covered by the tax exemption clause in 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 Association to the member-beneficiaries 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. CacEID 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service