Buying a house, it pays to know if it is VATable or not

PEOPLE in the market for a home have a lot to consider -- from location, property type, style and size of property, to the developer. But for most people, especially those who are constrained by their budget, the clincher for big purchases such as this is the price of the property. With its considerable impact on the budget, VATability of a property -- i.e., whether the property is subject to 12% value added tax (VAT) -- should be one of the first things a prospective buyer should find out.

As provided under Revenue Regulations No. RR 16-05, as amended, the following sale of real properties shall be exempt from VAT:

(1) Low-cost housing registered and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB) subject to a price ceiling of P750,000

(2) Socialized housing with price ceiling per unit of P450,000

(3) Residential lot with price not exceeding P1,919,500

(4) House & lot and other residential dwellings with price ceiling of P3,199,200

It may be noted that RR 16-05 provides specific price ceilings for each type of exempt sale. Given this, is a low cost housing with a price of P1,250,000 still considered exempt from VAT? Or should the buyer pay an additional P150,000 for the 12% VAT on the purchase?

Fortunately, per BIR Ruling No. 285-2014, dated July 09, 2014, the sale of low-cost housing unit with a maximum ceiling price of P1,250,000, though already exceeding the price ceiling of P750,000 may still be considered exempt from VAT. Hence, the buyer does not have to pay the additional P150,000.

Section 109 (P) of the Tax Code, as implemented by Section 4.109-1 of RR 16-05, provides that sale of real property utilized for low-cost housing wherein the unit selling price is within the selling price per unit of P750,000 is exempt from VAT. Moreover, Section 109 further provides that the sale of properties held primarily for sale to customers with a selling price not exceeding the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings are exempt from VAT.

Hence, as discussed in the ruling, the sale of low-cost housing units that exceed the price ceiling of P750,000 per unit is not eligible for VAT exemption for low-cost housing under Section 109 (P) of the Tax Code. However, the sale may still be exempt from VAT if the selling price of the property held primarily for sale to customers does not exceed the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings pursuant to the same provisions of Section 109 (P) of the Tax Code.

Accordingly, the BIR held that while the selling price of P1,250,000 of the low-cost housing units sold by a real estate company does not qualify under the classification of a low-cost housing, the selling price still meets the VAT-exempt threshold of P3,919,200 for sale of house and lot under Section 109 (P) of the Tax Code. Hence, the buyer of said low-cost housing units does not have to pay VAT on his purchase.

Given the rising cost of living in the Philippines, specifically the rising prices of residential properties, the ruling is a welcome respite for those who are planning to buy a house. However, to give the hardworking Filipinos more chance or opportunity to have their own homes, hopefully, the government would consider the current proposals to increase the take home pay of employees. These include, among others, the proposals to increase tax exemptions for bonuses to P70,000 annually and to effectively adjust individual income tax rate in the Philippines. With these measures, the Filipinos’ purchasing power will increase, giving them more opportunity to buy not only low cost housing, but even those residential properties subject to VAT.

Ma. Lourdes Politado-Aclan is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source:  Businessworld