Ask Tomas, Cutie’s help in securing SRP tax exemption, mayor urged

HOW can  the Cebu city government do away with paying capital gains tax for selling reclaimed land to SM in 2010?

Ask the city’s congressmen to secure a tax exemption.

The City Council gave this advice to Cebu City Mayor Michael Rama, saying he failed to ask President Benigno Aquino III and Finance Secretary Cesar Purisima  for the exemption.

“It seems that our mayor has been a failure in saving the city in savings of about P1 billion in taxes,” Vice Mayor Joy Augustus Young said of Mayor Michael Rama.

He said the mayor should “swallow” his pride and seek the help  of Rep. Tomas Osmeña and Rep. Rachel del Mar of Cebu City’s south and north districts.

Capital gains tax is paid by the seller in a real estate transaction under the law, in this case the Cebu city government.

Rama said in a separate interview that the council should have intervened in  the issue long before it was decided by the BIR.

“If they wanted to help, they should have done that long before,” Rama said.

He said he is discussing with his lawyers and finance consultant Ofelia Oliva on their next move.

Vice Mayor Young said Rama already had his audience with the Presidentlast November when they discussed the controversy over Cebu City flyovers and was also in Manila to meet with the Department of Budget and Management.

“The mayor is bragging that he was in Manila but he was unable to settle the tax exemption issue,” said Young.

Pending the city’s next legal move, Rama said SM Prime Holdings should continue to pay their dues to the city.

BIR Commissioner Kim Jacinto-Henares, said in a letter to the City Treasurer’s Office (CTO) that the sale of 30.4 hectares of SRP lots to SM Prime Holdings Inc. (SMPI) doesn’t qualify the company for tax incentives.

In City Hall’s view,  the SRP is exempted from payment of  capital gains tax  and other taxes since it is registered with the Philippine Economic Zone Authority (Peza) and declared a special economic zone through Presidential Proclamation 763, issued on Jan. 20, 2005.

However, Henares affirmed the opinion of the BIR regional office that the portion sold to SM is classified as commercial land and will be used as such, thus it cannot be tax exempt.

SM already paid more than P1 billion since 2010 for the 30.4 hectares of land worth P2.7 billion which it bought from the city and is payable in six years.

They will have to withhold payment of their quarterly amortization of about P110 million to the city government if they will pay taxes to the BIR.

SM was asked to pay BIR the five percent expanded withholding tax, amounting to P197 million, due on the purchase of the SRP lot.

Their basic tax due is about P121 million with a 25 percent surcharge equivalent to more than P30 million and interest of P46 million computed from Feb. 11, 2010 to Dec. 31, 201.

Henares said in her Dec. 19 letter that SM was not registered with Peza when it bought the property and neither was it issued a permit to locate in a Peza zone.

She said the sale is a “a clear violation of the registration agreement” between the SRP and Peza.

Henares said SMPI, as an authorized agent of BIR, has the obligation to deduct taxes from all payments, subject to withholding tax and remit it to the revenue office.

Last week, BIR district officer Clotilde Menchavez wrote Ronald Tumao, vice president of SMPI, to inform him of the firm’s tax liabilities. /Doris C. Bongcac, Chief of Reporters