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From the President

Clarifying the VAT on Low-Income Housing

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As we know, Republic Act No. 11354 or the CREATE Act, as passed by Congress, raised the VAT exemption threshold on low-income housing to P4.2 Million, from only P2 Million beginning January 1, 2021 under the Train Law.

However, President Duterte vetoed this upward adjustment, thus effectively retaining the old threshold. Consequently, on April 08, 2021, the BIR issued Revenue Regulation (RR) No. 4-2021 which states:

Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; sale of real property utilized for socialized housing as defined by Republic Act (RA) No. 7279, as amended; and, sale of house and lot, and other residential dwellings with selling price of not more than Two Million Pesos (P2,000,000.00), as adjusted in 2011 using the 2010 Consumer Price Index values; Provided, further, That every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index as published by the Philippine Statistics Authority (PSA).

Industry players and prospective low-income homebuyers – already agonizing over the presidential veto – were wracked by confusion as to how exactly the RR No. 4-2021 would translate in monetary terms, particularly in light of the phrase “the amounts stated herein.”

Acting expeditiously to defuse what could have turned into a volatile situation, the BIR issued on June 11, 2021 an amendatory regulation – RR 8-2021 – which categorically clarifies that the effective threshold beginning January 1, 2021 stands at P3,199,200.00. The new regulation states:

Provided, that beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as defined by Republic Act (RA) No. 7279, as amended, and sale of house and lot and other residential dwellings with selling price of not more than Two Million Pesos (P2,000,000.00) as adjusted to P3,199,200.00 in 2011 using the 2010 Consumer Price Index values; Provided, further, That every three years thereafter, the amount stated herein shall be adjusted to it present value using the Consumer Price Index as published by the Philippine Statistics Authority (PSA)

We take this to mean that the next presently-value adjustment (in January 2024) will be based on the P3,199,200 figure, instead of P2 Million.

This is not to say that the threshold now in effect is sufficient to enable a low-income earner to acquire a decent home. Our legislators, in attempting to raise the exemption levels, were no doubt aware that every peso of VAT on housing is a peso added to the cost of home acquisition; that particularly for low-income earners, this means a peso less for food, transportation, utilities, education, medicine and other primordial needs; and that the cost of land and housing development, and consequently the price of housing packages, continually skyrocket while wage increases tend to lag far behind the price increase of all commodities.

Every Filipino, more so the low-income earner, desires to own a decent home; but even with low cost home financing or interest subsidy, acquiring one at prices bloated by VAT – at whatever percentage – is far from possible. An independent study by the PIDS states that food and housing expenditures combined represent 70% to 80% of household income, which leaves only a small amount for expenditures on other basic needs. Add VAT to housing expenditures, and the residual 20% to 30% becomes even less.

There appears to be no reason to expect this situation to change in the near future.

Our hope remains, however, that the Executive Branch will be more sensitive to social considerations, particularly when the tremendous favorable economic impact of an ameliorative measure far outweighs the unjustifiably feared loss of tax revenue.

More on that later. In the meantime, we thank the leadership of the Bureau of Internal Revenue and Department of Finance for providing the much needed clarificatory relief under RR No. 8-2021.

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