City Government of Puerto Princesa

December 9, 2009 BIR RULING [SH-(128) 765-09] RA 7279; S20-017-2007 City Government of Puerto Princesa City Engineering Department Housing Development Division Palawan Attention: Javier P. Quindoza Officer-in-Charge Gentlemen : This refers to your letter dated July 17, 2009 requesting for a ruling that the sale by Blesilda A. Torres of a parcel of land located at Barangay Tiniguiban, Puerto Princesa City, Palawan, to the City Government of Puerto Princesa, Palawan, as represented by the City Mayor Hon. Edward S. Hagedorn, is exempt from capital gains tax pursuant to R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992. EATCcI It is represented that the City Government of Puerto Princesa, in line with its mandate of providing basic services to its constituents and working towards its goal of making the City informal settlers free in the years to come has acquired a 20,001 square meters raw land in Brgy. Tiniguiban, Puerto Princesa City to accommodate various request for housing assistance covered by Transfer Certificate of Title (TCT) No. 172802 issued by the Register of Deeds of Puerto Princesa City; that a Memorandum of Agreement was executed by Blesilda A. Torres and the City Government of Puerto Princesa, represented by its City Mayor, Hon. Edward S. Hagedorn; and that said property shall be used for socialized housing project of the government. In reply thereto, please be informed that pursuant to Section 20 (d) of R.A. No. 7279, which reads: "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: "xxx xxx xxx "(d) Exemption from the payment of the following: "xxx xxx xxx "(2) Capital gains tax on raw lands used for the project; "xxx xxx xxx the owner of the raw land is exempt from the payment of capital gains tax on the conveyance of the parcel of land consisting of 20,001 square meters for the 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 R.A. No. 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 consideration or the fair market value, whichever is higher. cHAaEC Furthermore, under Revenue Regulations No. 11-97, as amended by Revenue Regulations No. 17-2001, within six (6) months after the 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. On the other hand, once the developer is registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A. No. 7279 and as developer of the property 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 Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, implementing Section 57 (B) of the Tax Code of 1997, as amended. In this connection, it should be mentioned that any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption as well as 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 lots in this case does not really exceed P180,000.00 or P225,000.00, as the case may be, for each qualified beneficiaries. (now P400,000.00 per issuance of HUDCC Resolution No. 1-2008 dated December 11, 2008 and being implemented under Revenue Memorandum Circular (RMC) No. 30-2009). 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. cDIHES Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service