NINETEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES
4
H. B. No. 830

Introduced by Representative Ralph G. Recto

AN ACT
EXEMPTING THE SALE OF REAL PROPERTY IN THE EXERCISE OF THE
STATE'S POWER OF EMINENT DOMAIN FROM THE PAYMENT OF CAPITAL
GAINS AND DOCUMENTARY STAMP TAXES, AMENDING FOR THE PURPOSE
SECTIONS 24 (D) AND 199 OF REPUBLIC ACT NO. 8424, AS AMENDED,
OTHERWISE KNOWN AS THE “NATIONAL INTERNAL REVENUE CODE OF

1997”

EXPLANATORY NOTE

Section 9, Article III of the 1987 Constitution guarantees the right of every
owner whose land is being taken for public use to be paid with just compensation. This
exercise of the power of eminent domain by the State involves the transfer of real
estate title in exchange for the payment of compensation. Section 24(D)(1) of Republic
Act No. 8424, as amended, otherwise known as the National Internal Revenue Code
(NIRC) of 1997 mandates that a final tax of six percent (6%) based on the gross
selling price or current fair market value, whichever is higher, is imposed upon capital
gains presumed to have been realized from the sale, exchange, or other disposition
of real property located in the Philippines. This means that the Bureau of Internal
Revenue considers the just compensation received by a property owner as a gain for
which taxes should be paid. On the other hand, Section 199 of the NIRC, as amended,
mandates the collection of documentary stamp tax on the same transaction.

One way of looking at the expropriation of a real property is as a forced sale of
property. Owners have a degree of primal, oftentimes emotional attachment to the

land and forcibly taking the land from them is like severing the attachment.
1



Accordingly, the State should exercise due sensibility and consideration by exempting
the compulsory seller from paying these taxes, at least, to give justice for the material
impairment of the seller's property.

In an effort to sustain economic growth through its infratructure program, the
government may be constrained to acquire real properties. Private individuals and/or
entities concerned should be spared the burden of paying the capital gains and
documentary stamp taxes.

This bill acknowledges that time is of the essence in implementing a
government infrastructure project, thus, allowing certain exceptions to taxation of
property taken by eminent domain should hasten the acquisition process.

In view of the foregoing, approval of this bill is



10
nn
2

4

NINETEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES. )
First Regular Session )
HOUSE OF REPRESENTATIVES
~" 2830
H. B. No.

Introduced by Representative Ralph G. Recto

AN ACT
EXEMPTING THE SALE OF REAL PROPERTY IN THE EXERCISE OF THE
STATE'S POWER OF EMINENT DOMAIN FROM THE PAYMENT OF CAPITAL
GAINS AND DOCUMENTARY STAMP TAXES, AMENDING FOR THE PURPOSE
SECTIONS 24 (D) AND 199 OF REPUBLIC ACT NO. 8424, AS AMENDED,
OTHERWISE KNOWN AS THE ‘NATIONAL INTERNAL REVENUE CODE OF
1997"

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

Section 1. Section 24(D) of Republic Act No. 8424, as amended, otherwise
known as the National Internal Revenue Code of 1997, is hereby further amended to
read as follows:

“SEC. 24. x x x

(A) xXx

(8) Xxx

“© xxx

“(D) Capital Gains from Sale of Real Property. —
(1) Jn General, - The provisions of Section 39(B) notwithstanding, a final
tax of six percent (6%) based on the gross selling price or current fair
market value as determined in accordance with Section 6(E) of this
Code, whichever is higher, is hereby imposed upon capital gains
presumed to have been realized from the sale, exchange, or other
disposition of real property located in the Philippines, classified as capital



ve ene

eV o

10

2
B
14
1s

23
24
25
26
a
28
29
30
31
32

assets, including pacto de retro sales and other forms of conditional
sales, by individuals, including estates and trusts: Provided, That the tax
liability, if any, on gains from sales or other dispositions of real property
to the government or any of its political subdivisions or agencies or to
government-owned or controlled corporations shall be determined either
under Section 24 (A) or under this Subsection, at the option of the
taxpayer: PROVIDED, FURTHER, THAT IN CASE WHERE THE
GOVERNMENT EXERCISES ITS POWER OF EMINENT DOMAIN,
THE SAID TRANSACTION SHALL BE EXEMPT FROM THE
PAYMENT OF THE CAPITAL GAINS TAX IMPOSED UNDER THIS
SECTION.

™(2) Exception. — xxx"

Sec. 2. Section 199 of Republic Act No. 8424, as amended, otherwise known
as the National Internal Revenue Code of 1997, is hereby further amended to read as
follows:

"SEC. 199. Documents and Papers Not Subject to Stamp Tax. ~ The provisions

of Section 173 to the contrary notwithstanding, the following instruments,

documents and papers shail be exempt from the documentary stamp tax:
“(a) XxX x;
“Xxx
™(n) xxx; AND
“(O) TRANSACTIONS WHERE THE GOVERNMENT EXERCISES ITS
POWER OF EMINENT DOMAIN.”

Sec. 3. Rules and Regulations. — The Secretary of Finance shall, upon the
recommendation of the Commissioner of Internal Revenue, within sixty (60) days from
the effectivity of this Act, promulgate the necessary rules and regulations to faithfully
implement the intent and the provisions of this Act: Provided, That the failure of the
Secretary of Finance to promulgate the said rules and regulations shall not prevent
the implementation of this Act upon its effectivity.

Sec. 4. Separability Clause. — If any provision of this Act is subsequently
declared invalid or unconstitutional, other provisions hereof which are not affected
‘thereby shall remain in full force and effect.



owe wn

Sec. 5. Repealing Clause. — All laws, decrees and orders or parts thereof
inconsistent with the provisions of this Act are hereby repealed, amended or modified
accordingly.

Sec. 6. Effectivity Cause. -This Act shall take effect fifteen (15) days after its
complete publication either in the Official Gazette or in at least one (1) newspaper of

Approved,