BIR Ruling [DA-414-04]

July 30, 2004 BIR RULING [DA-414-04] 109 127-95 Ulticon Builders, Inc. No. 14 Quimpo Blvd., Ecoland 8000 Davao City Attention: Mr. Carlos Gonzales President Gentlemen : This refers to your letter dated June 16, 2004 requesting a ruling to the effect that the road rehabilitation program of Ulticon Builders, Inc. (Ulticon) partake of the nature of services rendered by reforestration contractor so as to warrant exemption from the payment of value-added tax under Section 4.103-1(B) of Revenue Regulations No. 7-95, as amended. It is represented that Ulticon is a domestic corporation engaged in construction works, both for private and government entities; that in the year 2002, it completed the rehabilitation of farm-to-market road in the Pulangi Watershed Subproject (Bukidnon) under the JBIC (OECF) Forestry Sector Project (FSP); that the said project is an integral component of the rehabilitation of the Pulangi Watershed and included in the government's FSP for watershed rehabilitation; that it is undertaken by the Department of Environment and Natural Resources through the National Forest Development Office (NFDO) which is tasked with the government's national forest development program; that the project is funded and implemented under the JBIC (OECF) FSP, a loan package earmarked to support the forest development and ecological balance, including the rehabilitation of mangrove and watersheds; that in the Resolution of Contract Award, the subject road rehabilitation was described as among the infrastructure projects identified by the NFDO, the project implementation of which is needed to enhance and facilitate the success of the government's watershed rehabilitation program, particularly the Pulangi Watershed Subproject; and that its implementation is governed by the Guidelines for Infrastructure Development under the Forestry Sector Project of the DENR (Administrative Order No. 16, April 12, 1993). In reply, please be informed that Section 4(B)(k) of Revenue Regulations No. 6-97 provides viz : "Section 4. Exemptions . Section 4.103-1(B) of Revenue Regulations No. 7-95 is hereby amended to read as follows: (B) Exempt transactions. The following shall be exempt from VAT: xxx xxx xxx (k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar. "Agricultural contract growers", refer to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state. The term "agricultural contract growers" shall also include reforestration contractors pursuant to the Government Reforestration Programs . "(emphasis supplied)' In Commission on Audit Circular No. 89-310, otherwise known as Rules and Regulations in the Implementation of Contract Reforestration Projects Funded Out of Appropriations Released to and Administered by Department of Environment and Natural Resources, the term reforestration has been defined as "the planting of an area in forest land using perennial plant species, usually dominated by trees and other forest species including the attendant preliminary activities such as seedling production, site preparation, construction of trails and access roads and bridges as well as maintenance of plantations . Reforestration may also include watershed rehabilitation and such silvicultural treatment as timber stand improvement, assisted natural regeneration, and other similar activities that may result in the creation or improvement of forest stands." (emphasis supplied) Inasmuch as the rehabilitation of farm-to-market road in the Pulangi Watershed Subproject (Bukidnon) under the JBIC (OECF) Forestry Sector Project is reforestration as defined under the said COA Circular and the project, having been included in the government's Forestry Sector Project for watershed rehabilitation undertaken by the DENR, Ulticon Builders Inc. qualifies as a reforestration contractor, which likewise qualifies as an agricultural contract grower pursuant to Section 4.(B)(k) of Revenue Regulations No. 6-97. DSAacC Therefore, the services rendered by Ulticon Builders Inc., as an agricultural contract grower, is exempt from the payment of the value-added tax pursuant to Section 109 (k) of the Tax Code of 1997 as amplified by Revenue Regulations No. 6-97. (BIR Ruling No. 127-95 dated August 25, 1995) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group