BIR Ruling [UN-097-94]

March 22, 1994 BIR RULING [UN-097-94] Hon. Delfin T. Ting Municipal Mayor Tuguegarao, Cagayan S i r : This refers to your letter dated January 27, 1994 requesting confirmation of your opinion that the joint venture entered into by the Municipality of Tuguegarao, Cagayan with the National Housing Authority to provide socialized housing for the benefit of the less privileged and homeless employees of the Municipality, is exempt from the payment of project-related income taxes and value added tax for the project contractor concerned, pursuant in Section 20 of R.A. 7279, and subject only to 0% creditable withholding tax on the sales of individual house and lot. Records disclosed that the Municipality of Tuguegarao, Cagayan as LANDOWNER, and he National Housing Authority entered into a Joint Venture Agreement dated December 17, 1992, to provide a specialized housing for the less privileged and homeless employees of the Municipality, duly signed by the contracting parties, that the project is known as the Sunshine Valley Homes Project located at Pengue Ruyo, Tuguegarao, Cagayan containing a total area of 8,316 square meters, and covered by Transfer Certificate of Title No. T62544 issued by the Registry of Deeds of Tuguegarao that the project is duly issued with the Preliminary Approval and Locational Clearance under Preliminary Approval and Locational Clearance No. 02-92-013 of the Housing and Urban Development Coordinating Council (HUDCC) and the Housing and Land Use Regulatory Board (HLURB); that the project's Subdivision Plan is duly approved by the HUDCC and HLURB consisting of 94 housing units with a selling price ranging from P108,554.28 to P110,796.37 per unit as stipulated in the Joint Venture Agreement. In reply, please be informed that pursuant to Section 20 of R. A. No. 7279, pertinent portion of 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: (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; xxx xxx xxx" the joint venture entered into by the Municipality of Tuguegarao, Cagayan and the National Authority to provide a socialized housing (Sunshine Valley Homes Project) for the less privileged and homeless employees of the Municipality, is exempt from the payment of project related (Sunshine Valley Homes Project) income taxes and value-added tax for the project contractor concerned. 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 . Moreover, the sale of the completed housing units of this project to the target beneficiaries whose price per unit ranges from P109,554.28 to P110,776.37, to be verified by the Revenue District Officer where the property is located to be within such price range, is subject to zero percent 0% creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing section 50(b) of the Tax Code, as amended. This renders inapplicable the use of the zonal valuation as well as the revised zonal valuation of the aforesaid project as tax base in computing the creditable withholding tax on the sale thereof. The beneficiaries, however, of this project are liable to pay the documentary stamp tax on the document conveying the property (house & lot) as imposed under Section 196 of the Tax Code, as amended, based on the actual consideration paid by them . In this connection, any sale made by the Municipality of Tuguegarao (Owner-Developer) opting to dispose completed housing units to target beneficiaries (Sec. 2.1, Article II, Joint Venture Agreement), and other interested parties other than the principal target beneficiaries shall not be entitled to the foregoing tax exemptions, should there be non-compliance with any of the sine qua non terms and conditions as aforestated, for tax exemption purposes pursuant to R.A. 7279 specifically Sections 3 (t) and 16 (less privileged and homeless citizens), and the Revised Consolidated Expanded Withholding Tax Regulations implementing Section 50 (b) of the Tax Code, as amended. 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void (BIR Ruling No. 393-93 dated October 1, 1993). cdtech Very truly yours, ALICIA P. CLEMENO Officer-in-Charge (Legal Service)