BIR Ruling [UN-068-95]

February 14, 1995 BIR RULING [UN-068-95] MEMORANDUM: FOR : Atty. Frumencio A. Lagustan Asst. Executive Secretary For Legislation FROM : Commissioner Liwayway Vinzons-Chato Bureau of Internal Revenue SUBJECT : An Act Providing for the National Land Use Code of the Philippines Features of the Proposed Bill: The purpose of the proposed Bill is to define the priorities for land utilization to ensure the judicious allocation and utilization of land resources. It embodies the criteria, provision and mechanism for assigning and/or changing the uses of land from agricultural to non-agricultural purposes. Section 75 in relation to Section 116 of the proposed Bill carries a provision imposing Agricultural Land Use Conversion Taxes as follows: a) 12% special Agrarian Reform tax to be imposed and collected by the DAR; b) 5% special Land Use conversion tax to be collected by the Department of Finance; and c) 8% Local Land Development tax to be imposed by the City or Municipal government. Observation: It is observed that the sum of the above imposition represents 20% of the zonal or fair market value of the land and that the same is collectible upon conversion but before development, not upon sale, in addition to the 10% VAT on the sale thereof of the land, pursuant to R.A. No. 7716 and the 35% corporate income tax on capital gains. The amount allocated for the payment of the Land Conversion Tax would constitute a substantial deduction from the corporation's taxable gross income; thus, eroding our overall income tax collection while leaving undisturbed the Land Conversion Tax collectible by, or allocated to other government agencies. Comments: Since the 5% special Land Use Conversion Tax to be collected by the Department of Finance, is obviously an internal revenue tax, the proposed bill should carry a provision amending the Tax Code by inserting a separate section under Title V of the same Code. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue