Publishing the National Housing Authority RULES AND REGULATIONS IMPLEMENTING P.D. 1217, the Subject Matter of Which is the Grant of Tax Exemption Benefits to Domestic Corporations, Partnerships or Landowners who Invest Funds in Housing for the Low-Income Groups

January 23, 1980 REVENUE MEMORANDUM CIRCULAR NO. 03-80 SUBJECT : Publishing the National Housing Authority Rules and Regulations Implementing P.D. 1217, the Subject Matter of Which is the Grant of Tax Exemption Benefits to Domestic Corporations, Partnerships or Landowners who Invest Funds in Housing for the Low-Income Groups TO : All Internal Revenue Officers and Others Concerned. RULES AND REGULATIONS IMPLEMENTING PD 1217 WHEREAS, Presidential Decree 757 mandated the National Housing Authority, hereinafter referred to as the Authority, to harness and promote the participation of the private sector in housing; WHEREAS, in support of this objective, encouragement and incentives have been granted by Presidential Decree 1217 to broaden the participation of the private sector; WHEREAS, these incentives have been conceived to help the mass of the people to afford decent shelter and secure tenure ; cdt WHEREAS, Section 4 of Presidential Decree 1217 requires the Authority to define the low-income groups who shall through incentives granted to domestic corporations, partnerships and landowners, be the end-beneficiaries for the Decree; WHEREAS, Section 5 of Presidential Decree 1217 specifies that the Authority certifies and approves projects eligible for benefits under the said Decree and therefore, consequently a need to define rules and regulations pertinent to such certification and approval; NOW, THEREFORE, pursuant to the provisions of Presidential Decree 1217, the National Housing Authority hereby promulgates the following procedures, rules and regulations: ARTICLE I DEFINITION OF TERMS SECTION 1 . Low Income Family . For purpose of Presidential Decree 1217, the low-income family is hereby defined as that family who, under the prevailing normal market conditions of construction and of money costs, needs government assistance and subsidy in the form of capital and/or interest in order to avail of housing opportunities . By reason of the foregoing, until further revised by the Authority, a low-income family shall be understood to mean and to include that family whose average gross income, as evidenced by the joint income tax returns of the head and spouse for the last immediately preceding two (2) years, does not exceed P1,500 a month. Notwithstanding the above income categorization, the low-income family with networth of more than P100,000 shall not be eligible for the benefit under PD 1217. Income and networth for the purposes of eligibility under this Decree shall be determined at the time of application. SECTION 2 . Housing Improvement . A housing improvement is a physical development on land which is being utilized for residential purposes and which may take the form of among others, an apartment, a condominium unit, a house, a building, or parts thereof, the value of which improvement proportionately increases the valuation of the land on which the improvement is made. Further, it also includes all other structures necessary and incidental to the housing development undertaken in order to enhance the quality of housing the low income family as defined in Section 1. Housing improvements shall also include improvement on land undertaken to make the area habitable such as water system, drainage, pipelines, roads, community facilities and open space development. casia SECTION 3 . Income . Income for the purposes of Section 3 of Presidential Decree 1217 is defined as the gross income received and/or accrued by the domestic corporation, partnership or landowner as a result of undertaking a housing development which shall be rented, or sold under installment basis, less allowable deductions. Such income shall be arrived upon after an adequate accounting system shall have been installed for every low-income housing development which shall be clearly separated from other taxable transactions in the books of account of the taxpayer. The accounting system intended for housing projects and development for the low-income families shall be in accordance with generally accepted accounting principle as it applies to transactions peculiar to the construction and housing industry, taking into consideration the following revenues and costs incurred in the pursuance of the project development as a whole: a. Land development costs such as roads, water, drainage, power and including common facilities; b. Direct housing costs such as the cost of construction of the dwelling unit; cd c. Indirect costs such as marketing, promotion overhead, fees and interests. Such income or profit shall be exempt from income taxes upon the certification of the Authority that said income was derived from installment sales or from rentals to low income families. In case the housing development shall be undertaken jointly by several proponents, income shall be distributed pro-rata according to the equity contributed by each proponent as expressly quantified in the project proposal and in the project accounting. The same pro-rata share in the income shall be exempt from income taxes upon the certification of the Authority to the extent that income was derived from installment sales or from rentals to low-income groups. Income as above determined from projects eligible under this Decree and certified to as serving the low-income group by the Authority shall cover those income recognized during taxable years over the project life . casia SECTION 4 . Interests . Interests earned due to the financing of houses for the low-income groups shall be exempt from business and miscellaneous taxes as enumerated below, insofar as their gross receipts from such business are concerned: 4.1 Percentage tax of 3% on gross receipts earned due to financing houses for the low-income group and the corresponding privilege tax imposed by Secs. 209 and 192 (3) (dd) of the Tax Code, respectively, if a lending investors; 4.2 Percentage tax of 5% on gross receipts earned due to financing houses for the low-income group and the corresponding privilege tax imposed by Secs. 261 and 192 (3) (gg) of the Tax Code, respectively, if a financing company; 4.3 Percentage tax of 5% on gross receipts earned due to financing houses for the low-income group and the corresponding privilege tax levied by Secs. 260 and 192 (3) (gg) of the Tax Code, respectively, if a banking institution . cdt The foregoing exemptions from business and miscellaneous taxes may be availed of insofar as the receipts of the entities concerned arise from the business of financing or lending money or capital for housing projects and developments for the low-income group. In addition, the interest income earned on the credit extended by the entities concerned would also be exempt from income tax. SECTION 5 . Housing Project/Housing Development . For purposes of Presidential Decree 1217, a housing project or a housing development refers to the provision of housing and facilities towards the development of new communities under the concepts of the Authority. The project may take the form of a single dwelling unit, an apartment, condominium, dormitory or subdivision development. ARTICLE II PROCEDURE FOR ELIGIBILITY FOR THE EXEMPTIONS SECTION 1 . Coverage . All housing projects, in order to avail of the benefits and incentives under Presidential Decree 1217 shall be certified to by the Authority as to its eligibility. Projects, developments and loans undertaken and/or obtained after the promulgation of PD 1217 shall be eligible for approval by the Authority for purposes of availing of the tax exemptions from the date of such approval. SECTION 2 . Certification . A certification for service to the low-income groups to be used for tax exemptions purposes shall be issued by the Authority to the participant taxpayer. The certificate shall clearly state the amount of housing improvement, income, or interest that is for the service of low-income groups and consequently eligible for the benefits of PD 1217. However, such amounts shall be subjects to the final verification of duly authorized representative of the BIR. Prior to undertaking projects to be covered by the incentives and tax exemptions, a project study prepared in the preferred format set by the Authority shall be submitted for approval. The certification shall be based on the duly approved project study and shall incorporate prior approval of the identified target market from the low-income group intended for the project. The certification of the eligibility for tax exemption shall be issued to cover housing projects and development whose residential beneficiaries are solely the low-income families. casia SECTION 3 . Documents Required . For the issuance of the certification, the following documents in standard 8-1/2 x 11 form shall be submitted to the Authority, appropriately covered by a letter of intent to qualify for the benefits under PD 1217. A. For exemption from taxes on housing improvements (1) TCT on property which was the subject of housing as defined in Section 2. (2) Tax Declaration which covers the housing improvement for exemptions. (3) Tax Declaration which covers the period immediately preceding the improvements. (4) Certificate of Acceptance and Occupancy indicating the households and their income groups together with Contract of Lease, Contract of Sale or Mortgage, whichever shall be applicable. Provided , however , that a certified xerox copy of the ITR of the households the last immediately preceding two (2) years and a Statement of Assets and Liabilities duly subscribed and under oath for the current year, shall be submitted and attached to the contracts. Provided , further , that the low-income beneficiary and/or the participant taxpayer shall not sublet, transfer, resell or dispose of in any mode the residential lot and housing unit, whether to another low-income family or otherwise, without prior approval of the Authority and the same will be provided for by the Contract of Lease or Sale . acd (5) An Inspection Report on such improvements and beneficiaries to be submitted by a designated representative of the Authority based on compliance with the duly approved project study. B. For exemption from taxes on income . (1) Project study prepared in accordance with the guidelines and format set by the Authority. (2) Project financial statements which shall indicate all project receipts including grants and equities, all applicable project costs and related expenditures, and cost allocation to reflect pro-rata distribution of costs and expenditures according to the provisions of Section 3 of this body of rules and regulations. Such project financial statements shall be based on a duly approved accounting system for the project and duly certified to and audited by an independent CPA acceptable to the Authority. (3) Certificate of Acceptance and Occupancy indicating the names of households and their income groupings as evidenced by the following documents which shall be attached to the Certificate of Acceptance and Occupancy: Income Tax Returns of the family head of the occupants for the last immediately preceding two (2) years; Contract of Sale or Contract of Mortgage, whichever shall be applicable, and a Statement of Assets and Liabilities for the current year, duly subscribed and under oath. Provided , however , that the low-income beneficiary shall not sublet, transfer, resell or dispose of in any mode the residential lot and housing unit, whether to another low-income family or otherwise within the duration of the loan without prior approval of the Authority and the same will be provided for by the Contract of Lease or Sale . (4) Income Tax Returns of the family head shall be filed at NHA every year thereafter after the approval of the application. C. For exemption from taxes on interest earned (1) Certification by an independent CPA of the amount of interests earned by the creditor in financing projects duly certified to by the Authority for purposes of this Decree or in extending loans directly to the low income groups to finance their long-term mortgages, based on the duly approved project study. (2) Contract of Sales, Lease or Mortgage which is the subject of financing by the creditor supported by the Income Tax Returns of the low-income debtors for the last immediately preceding two years who benefited from the financing and the households Statement of Assets and Liabilities for the current year, duly subscribed and under oath. SECTION 4 . Consideration in Housing Benefits . All projects to avail of the benefits under the Decree shall serve the low-income groups, giving consideration to the following : a. Housing designs shall be oriented to the low-income groups, utilizing low-cost materials for its construction. b. Housing benefits shall be within the affordable level of expenditure for housing of the income groups benefitted. c. Sale or lease of the housing units shall only be made to eligible income groups as defined in Article I, Section 1. SECTION 5 . Validity of the Certification . The tax exemption certification by the Authority shall be valid for taxable years covering the entire project life as described in the project study. Applications for exemption certification shall be filed with the Authority within 45 days from the completion date of the construction period for tax exemptions on housing improvements and for project income. Applications for exemption certification for interests shall be filed with the Authority within 45 days after the grant of the financing. SECTION 6 . Filing Fee . Every application for tax exemption certification shall be accompanied by a processing fee made in favor of the Authority, according to the following schedule : aisa dc SCHEDULE OF FEES Description of Exemption Size of Project Fee Real Estate Taxes on 250 units and below P250.00 Housing Improvement 251 750 units 1,000.00 751 units and above 3,000.00 Income Tax 250 units and below P500.00 251 750 units 2,500.00 751 units and above 5,000.00 Business and 250 units and below P250.00 Miscellaneous Taxes 251 750 units 350.00 751 units and above 500.00 ARTICLE III BOOKS OF ACCOUNTS An adequate accounting system shall be installed by the participating taxpayer and approved by the Authority to segregate the investments, service, sales, receipts, purchases, costs, expenses and profits or loss of taxable business from those of the tax-exempt operations under the Decree. The accounting system shall be in accordance with generally accepted accounting principles as they apply to transactions peculiar to the construction and housing industry. aisa dc Such books and records shall be subject to examination by the Authority and/or any authorized representative of the Bureau of Internal Revenue (BIR) at any time it may deem proper to do so to determine proper compliance with the provisions of the Decree and the implementing regulations. ARTICLE IV VIOLATIONS Any violation or infraction of these rules and regulations, including misrepresentation in the development and implementation of the subdivision plans and project agreement will serve as sufficient basis for the suspension or the cancellation of the Certification for Tax Exemption. The Authority reserves the right to demand additional documents in order to clarify issues that may be brought up by applications. Inaccuracy or misleading statements in any of the documents submitted in the applications shall give the Authority the right to deny the application for certification of service to low-income groups. This shall further be without prejudice to the rights of the Authority to institute under the existing laws, any civil or criminal action against the erring applicant/participant or beneficiary of PD 1217 arising from misrepresentation, tax evasion or defrauding the government of any taxes due. ARTICLE V SUPPLEMENTARY RULES SECTION 1 . The Authority reserves the right to inspect the project records and other pertinent books and records of the participating taxpayer at any time it may deem proper to do so. This examination shall, however, be without prejudice to the inherent authority vested upon the Bureau of Internal Revenue to investigate the taxpayers concerned for internal revenue tax purposes. SECTION 2 . The Authority shall from time to time issue additional rules and regulations to supplement, complement or amend these rules and regulations. ARTICLE VI EFFECTIVITY These rules and regulations shall take effect immediately and any order, memorandum, or circular inconsistent herewith shall be deemed amended or revoked. PROMULGATED, 20 March 1979. (SGD.) G.V. TOBIAS Maj. Gen. AFP (Ret.) General Manager ATTESTED: (SGD.) ALFREDO L. JUINIO Presiding Officer NHA Board of Directors CONCURRED: (SGD.) EFREN I. PLANA Acting Commissioner Bureau of Internal Revenue All Internal revenue officers and others charged with the enforcement of internal revenue laws are hereby enjoined to enforce the provisions of herein National Housing Authority Rules and Regulations accordingly and to give it a wide a publicity as possible. EFREN I. PLANA Acting Commissioner