Only Sale of Real Properties Held Primarily for Sale to Customers or Held for Lease in the Ordinary Course of Trade or Business of the Seller Shall be Subject to VAT

May 14, 1996 BIR RULING NO. 054-96 100 (A) 000-00 054-96 Revisan Agro-Industrial & Commercial Corporation Suite 206 Cattleya Condominium Salcedo Street, Legaspi Village Makati City Attention: Mr . Ernesto V . Santos President Gentlemen : This refers to your letter dated April 15, 1996 stating that you have been engaged in agriculture, such as the production of rice, sugar and vegetables since your incorporation in 1976; that your titled agricultural land comprised 210 hectares located in Mabalacat, Pampanga; that since the eruption of Mt. Pinatubo, your production was reduced to 10% in 1992 and reduced further to zero in 1993 up to the present; that early in 1994, the Department of Public Works and Highways (DPWH) without your permission, has converted the total hacienda into a "water passage" of water and lahar coming from Sacobia River and Parua River both from Bamban, Tarlac and Mabalacat, Pampanga respectively; that right now, the agricultural land is totally lahared and the improvements thereon were totally destroyed like the 1,000 houses, for tenants and squatters; the barrio chapel, the basketball court, the elementary school, the irrigation lagoon and the water distribution system; that the agricultural land is now totally unproductive without any improvements like housing, roads, bridges or any infrastructure thereon; that before the lahar, the property had a fair market value of P100.00 per square meter but after the lahar you could hardly offer it at P20.00 per square meter; that the voluntary offer to sell to the government thru the Land Reform Program ranges from P5.00 to P10.00 per square meter; that any sale made at this point at a price of P20.00 per square meter will mean P10.00 for the tenants and P10.00 to the landowners which is the prevailing practice in Pampanga with respect to the sale of agricultural land; and that you are not a real estate dealer, broker or engaged in the selling and development of subdivisions. cdt In connection therewith, you are requesting a ruling to the effect that in case you decide to sell the property at the current depressed value, the sale will not be subject to VAT. In reply thereto, please be informed that pursuant to Section 4.100-1 of Revenue Regulations No. 7-95 implementing Section 100(a) of the Tax Code, as amended by R.A. No. 7716, the sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. Such being the case, and since you are not a real estate dealer, your proposed sale of your aforementioned property shall not be subject to VAT. cd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue