Publishing Opinion No. 21, Series of 1977 of the Honorable, the Secretary of Justice Regarding the Implementation of Section 3 of P.D. 743 entitled "Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations and Partnerships"

September 26, 1977 REVENUE MEMORANDUM CIRCULAR NO. 42-77 SUBJECT : Publishing Opinion No. 21, Series of 1977 of the Honorable, the Secretary of Justice Regarding the Implementation of Section 3 of P.D. 743 entitled "Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations and Partnerships" TO : All Internal Revenue Officers and others concerned For the information and guidance of all concerned, there is quoted in full Opinion No. 21, s. 1977 of the Honorable, the Secretary of Justice: aisa dc "February 24, 1977 "The Secretary of Finance Manila "Sir: "This refers to your request for opinion regarding the implementation of Section 3 of Presidential Decree No. 745 (entitled, 'Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations and Partnerships'), which provides: 'SEC. 3. Pursuant to the above incentives, such domestic corporations and partnerships shall enjoy tax exemptions on: '(a) Real estate taxes on the improvements which will be used exclusively for housing their employees and workers; '(b) Taxes on income derived from the installment sales of houses to employees and workers of the company or income derived from rentals thereof.' "Specifically, you want my view on the following queries: '(1) Whether improvements used exclusively for housing the employees and workers of the company falling within the definition of PD 745, which have been existing and taxable prior to the promulgation of the Decree on July 15, 1975, are to be deemed included in the tax exemption granted therein; and '(2) Whether improvements occupied and used as residences of the officials and members of the staff of the company, are also included in the tax exemptions.' "Anent query No. 1, you refer to the view of several provincial and city assessors that the tax exemptions granted in section 3, supra , do not extend to improvements already existing and taxable prior to the promulgation of the Decree for the reasons, among others, that the decree neither expressly nor impliedly exempts existing improvements, and such exemptions should apply only to improvements 'constructed by the company in pursuance of the incentives contemplated in the Decree'. On the other hand, other quarters believe that the exemption applies to existing as well as to future improvements. "I believe the tax exemptions provided in section 3 also apply to existing improvements which had been devoted to employee housing prior to the promulgation of P.D. No. 745 on July 15, 1975 and which continue to be so devoted thereafter . "I do not see in section 3 any limiting factor which would prevent its application to housing improvements existing at the time of the decree's enactment. On the contrary, I am of the view that such improvements fall well within the purview of said provision as they are, for all intents and purposes, 'used exclusively for housing [the] employees and workers'. "Besides, I cannot see any cogent reason why employers, who on their own and without being prompted by any incentives have provided housing facilities to their employees and workers, should not now be entitled to the same benefits extended to those who have only been enticed by incentives to do so. From the very nature of things, the former, if only for their social consciousness, should be more worthy of government benefits than the latter. Moreover, the decree is a social legislation and as such should be given a liberal interpretation. "Nevertheless, it is to be emphasized that the application of section 3 is prospective, not retrospective, so that as to such employers who have continued to use the existing improvements for housing purposes of their employees and workers the tax exemption privileges granted in said provision shall be available only as of the effectivity date of P.D. No. 745 . "Regarding your second query, my answer is in the negative as to the residences occupied and used by officials and ranking members of the staff of the company but in the affirmative as to the members of the staff of the company who merely belong to the rank and file . It bears emphasis that the Decree seeks to encourage 'low-cost housing' for employees and workers of domestic corporations and partnerships (see title and preambulatory clauses). I do not think that the improvements 'occupied and used as residences of the officials' and other ranking members of the staff of the company fall within the scope and intendment of this Decree. "Please be advised accordingly. "Very truly yours, "(SGD) VICENTE ABAD SANTOS Secretary of Justice" FEATURES 1. Income derived as of July 14, 1975 by domestic corporations and partnerships on sales of houses in installments to their employees and workers shall be subject to income and real estate dealer's fixed taxes; while income derived beginning July 15, 1975, date of effectivity of P.D. No. 745 shall be exempt from said taxes. 2. Rental derived as of July 14, 1975 by domestic corporations and partnerships on leases of houses to their employees and workers shall be subject to income and real estate dealer's fixed taxes while income derived beginning July 15, 1975 date of effectivity of P.D. 745 shall be exempt from said taxes. 3. Only the houses sold or leased to the rank and file of domestic corporations and partnerships are covered by the tax exemptions specified in paragraphs 1 and 2 of this circular. Those sold or leased to officials and ranking members of the staff of the company are not covered by the exemption. In this connection, the officials and ranking members of the staff of the company shall be understood to mean the managerial employees as defined in Article 211(k) of Presidential Decree No. 442 or the Labor Code of the Philippines, which provides: "(k) 'Managerial employee' is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank and file employees for purposes of this Book ." (Emphasis ours) We are adopting the above-quoted provisions for purposes of this Revenue Memorandum Circular. For this reason, employees not falling within the definition of a managerial employee are considered rank and file employees and, therefore, the houses sold are leased to them are covered by the tax exemption subject of this circular. On the other hand, employees falling within the definition of a managerial employee are not considered rank and file employees and, therefore, the houses sold or leased to them are not covered by the tax exemption. All internal revenue officers and others concerned charged with the enforcement of revenue laws should give this Revenue Memorandum Circular as wide a publicity as possible. aisa dc EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8