August 22, 2000

BIR RULING NO. 031-00

Sec. 66, RA 6657 000-00

DEPARTMENT OF AGRARIAN REFORM
Elliptical Road, Diliman
Quezon City

Attention: Atty. Ibra D. Omar, Al Haj OIC, BALA — Litigation Division

Gentlemen :

        This refers to your letter dated March 2, 1999 requesting for a ruling to the effect that the transfer of land title to Agrarian Reform tenant-beneficiary, Ernesto A. Alvarez, represented by his surviving spouse Lourdes Pioquinto is exempt from taxes and further, for the possibility of the lifting of the annotation of existing tax lien in favor of the Bureau of Internal Revenue (BIR) in the amount of P809,059.18 as of April 21, 1987.    SHacCD

        It is represented that the aforesaid tenant-beneficiary Ernesto A. Alvarez had already made full and complete payment to the landowner for an Operation Land Transfer (OLT) tenanted parcel of riceland pursuant to the direct payment scheme of the Department of Agrarian Reform (DAR); that it was during the processing of the land transfer when the Municipal Agrarian Reform Office (MARO) of the place where the property is situated found out that the title has an existing tax lien annotated at the back of the certificate of title in favor of the BIR in the amount of P809,059.18 as of April 21, 1987; that due to the encumbrance, the transfer of the title cannot be effected much to the prejudice of the said farmer-beneficiary; that in your letter dated January 6, 1999 to Director Rene A. Aguas of BIR-Revenue Regional No. 15, you cited to him pertinent provisions of agrarian laws, specifically Sec. 66 of R.A. No. 6657, which exempt from taxes and fees all documents and certifications issued by all government agencies and instrumentalities, that are being required in the processing of land transfer claim pursuant to the Comprehensive Agrarian Reform Program (CARP); that you also requested the possibility of lifting the annotation on the title thru the Register of Deeds of Zamboanga City, for the subsequent transfer of the land title to the said farmer-beneficiary; that Director Aguas, in his letter dated January 28, 1999 informed DAR that your request to lift the tax lien is considered a matter of first impression, which shall be forwarded to the BIR, National Office for determination; that you further invoked the mandate of the DAR to acquire and distribute lands to qualified tenant and farmworkers; that while the power to tax is inherent to the State, to stop or suspend the processing of land transfer by reason of the non-payment of taxes which is a personal obligation of the landowner in the instant case, would unduly delay or defeat the very purpose for which the law was enacted and envisioned; and that pursuant to DAR Opinion No. 116, S. 1998 dated December 2, 1998, in answer to a legal query as to "whether or not CARP Implementors should stop processing Land Distribution Folders involving lands whose taxes remain unpaid, and therefore no Tax Clearance can be produced to complete the documentation of the land sought to be covered", the DAR answered in the positive and further states that "even assuming that there is non-payment of taxes, where the same are due (e.g., estate tax), CARP implementation should nonetheless continue. Taxes partake of the nature of a personal obligation which are legally due and demandable by the government from the landowner or his heirs, thus the same should perforce be paid and settled by the latter to the former. Furthermore, as explicitly provided in the aforecited provision of law, all arrearages in real property taxes shall be deductible from the compensation of the landowner or his heirs".    CSAaDE

        In reply, please be informed that pursuant to Section 66 of Republic Act No. 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988", which provides that —

"Section 66.   Exemptions from Taxes and Fees of Land Transfers. — Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance thereof; Provided, That all arrearages in real property taxes, without penalty and interest, shall be deductible from the compensation to which the owner may be entitled."

        transactions involving transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes and all other fees for the conveyance thereof. Furthermore, all arrearages in real property taxes, without penalty and interest shall be deductible from the compensation to which the owner may be entitled.

        Conversely, transactions which are not directly connected with the transfer of ownership under the comprehensive agrarian reform program (CARP), i.e., from the landowner to the tenant-beneficiary, shall be subject to capital gains tax and all other taxes and fees. In the instant case, the tax lien annotated at the back of the Transfer Certificate of Title (TCT) pertains to unpaid taxes which are not directly related to CARP. Such being the case, it should be paid in the manner as provided for under the above proviso of Section 66 of R.A. No. 6657.

        Considering, however, that compensation for the subject parcel of riceland was already completed and fully paid pursuant to the direct payment scheme of the DAR, in which case, there is no way that the DAR can intervene in behalf of the BIR with respect to collection of unpaid taxes, the lifting of the tax lien duly annotated in the TCT without prior payment of the tax specified therein is not possible.

        It must be noted that although the payment of taxes is the personal obligation of the taxpayer-landowner and therefore should not affect subsequent transfer of the property from the landowner to the beneficiary-vendee, in the instant case however, the right of the vendee-transferee to have the property titled in his name is subordinate to the right of the state to collect the corresponding tax as annotated in the TCT. Otherwise stated, the property was already encumbered when the state, through its police power, placed it under the agrarian reform program. The State could not have been unmindful of the fact that most of these parcels of land have been inherited by the heirs and estate taxes (or inheritance taxes) thereto may not have been paid. Had the State, in its policy to fully implement the agrarian land reform program by distributing the land to the qualified beneficiary/s, intended to forego any claim of unpaid and uncollected taxes which could affect the transfer of ownership from the landowner to the tenant-beneficiary, it could have easily done so. But such was not the case, and, as can be readily deduced from the proviso of Sec. 66 of R.A. 6657, the State, in all its intents, still requires payment of arrearages in real property taxes and in the instant case, the tax lien annotated in the property.

        Furthermore, waiver of arrearages in real property tax or transfer taxes, e.g., estate or inheritance taxes, as in the instant case, tantamounts to exemption from payment of tax. It is worth mentioning that there is no tax by silence but, where the law levies tax, so also must the exemption be explicit in the law and is not presumed. (Floro Cement vs. Gorospe, 200 ACRA 480)

        In view of the foregoing, this Office hereby holds that the transfer of ownership from the landowner to the herein tenant-beneficiary, the late Ernesto A. Alvarez represented by his surviving spouse Lourdes Pioquinto is indeed exempt from capital gains tax and other taxes and fees pursuant to Section 66 of R.A. No. 6657. However, as regards the property of lifting the tax lien annotated at the back of the TCT, as earlier stated, this Office regrets to inform you that the same is hereby denied for lack of legal basis. Certainly, if the landowner, as the person against whom the tax lien should be collected, is no longer interested to settle his tax obligation, then the person, i.e., the tenant-vendee, who is interested to have the property titled in his name can pay the tax obligations of the former. Such tax lien, if paid by the tenant-vendee should be considered as part of the just compensation for the property purchased by him.

        This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) DAKILA B. FONACIER

Commissioner of Internal Revenue