New San Jose Builders, Inc.

December 17, 2009 BIR RULING [SH-(134) 795-09] S-20-011-03 New San Jose Builders, Inc. 20/F President Tower 81 Timog Avenue Quezon City Attention: Mr. Felicisimo P. Isidro President Gentlemen : This refers to your letter dated November 20, 2009 requesting for exemption from the payment of whatever taxes as a developer of properties applied for socialized housing project pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992." It appears that on November 26, 2009, New San Jose Builders, Inc. as the Landowner/Developer, is a corporation organized and existing under the laws of the Philippines, Southville 6 Homeowners Association (Association), a non-stock, non-profit organization duly registered with the Housing and Land Use Regulatory Board (HLURB) and the National Housing Authority (NHA), as the Authority, have entered into a Memorandum of Agreement (MOA), to ensure the timely, peaceful and orderly relocation and resettlement of families affected by the North-South Rail Linkage Project of the South Luzon Railways Corporation (SLRC), Administrative Order No. 111 dated November 8, 2004 was issued designating the NHA as lead agency in the implementation of the Rail Related Resettlement and Relocation Programs which covers the National Relocation Program (NRP); that the organized Association of communities which includes the Southville 6 Homeowners Association, composed of affected families shall be provided by the NHA the financial resources for lot assistance in the amount not to exceed P100,000.00 per lot per affected member/family for the purpose of acquiring developed and serviced home lots to serve as their permanent relocation site; that the Association and Landowner/Developer has entered into a Contract Agreement to cover the acquisition of developed resettlement lots by the members/families in the amount not to exceed P100,000.00 per lot per affected member/family; and that pursuant to Resolution No. 4914 dated July 4, 2005, the NHA Board has approved the selection and financing scheme for the acquisition of developed resettlement lots from the Landowner/Developer by the qualified member/families affected by the NRP through the Community Association's (Association) Initiative Approach Program considering the in-town/in-city relocation to address the needs of the said affected communities/families. TEHDIA In reply thereto, please be informed that pursuant to Sections 19, 20 and 32 of RA No. 7279, pertinent portion of which reads: "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 national, such as income and realty taxes. All documents or contracts executed by and in favour of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of the transfer certificates of title. (emphasis supplied) "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; (3) value-added tax for the project contractor concerned;" xxx xxx xxx the owner of the raw land is exempt from the payment of capital gains tax on the conveyance of the above-described property for use in the 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 properties, to the effect that the same are to be applied or are being applied to socialized housing project pursuant to R.A. 7279. However, the New San Jose Builders, Inc. 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. On the other hand, as developer of the properties used for the aforementioned socialized housing subdivision, the sale of the socialized housing lots shall be exempt from project-related income taxes and creditable withholding tax prescribed under Revenue Regulations No. 2-98, as amended, implementing Section 57 of the Tax Code of 1997. It shall be understood that to be tax-exempt, the selling price per lot only or house and lot package shall not exceed P400,000.00. SIcEHC 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 landowner/developer 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. 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 afore-stated, 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 selling price per sale transaction of the lots on this case does not really exceed P400,000.00, as the case may be, for each qualified beneficiary. 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. 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, as project developer/seller, your company shall be liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. IcHTED 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service