Implementation of National Anti-Drug Program of Action

April 6, 1989 VAT RULING NO. 095-89 Labrador Development C/O DT Enciso & Associates 900-C Victoria Bldg. U.N. Avenue Gentlemen : This refers to your letter dated February 5, 1988 stating your business activities as follows: 1. Purchase of land for inventory, building on lots in inventory, subdivision of lots owned by the company into lots for sale or for sale in the same condition it was purchased. LLphil 2. Building houses on land owned by either the company or others for sale to the general public. 3. Construction of roads, canals, drainage systems, water system and other such civil works which a subdivision developer normally engages in. 4. Collections of payments for houses, house and lots, or lots only that are sold by the company. Based on the foregoing the following clarifications are made on the following queries: 1. When a lot which is part of your inventory and declared as such in your year-end inventory is sold, is the entire value of the selling price subject to the value-added tax? 2. Where the lot is part of a partially developed subdivision but has been issued Certificate of Title, what method will be used to compute the VAT when the lot, which is located on that part of the subdivision completed in 1988, is sold? 3. There is a partially completed house on a lot in a partially developed subdivision at the end of 1987. In 1988 when that part of subdivision where the lot is located is ready for housing, the house and the lot is now sold in package. How should the VAT be calculated? 4. If the sale of a house or lot or together is covered by a contract to sell executed in the early part of 1987, with a 30% down payment and monthly amortization, what calculations shall be used to determine the VAT? Answer to Query No. 1 to No. 4: The sale contemplated by law as subject to the value-added tax is sale of goods, which is tangible, movable, appropriable and transferrable as defined in Section 2(p) of Revenue Regulations No. 5-87. Accordingly, your sale of lots, or house and lot is not subject to VAT. 5. Where there are miscellaneous expenses, such as the cost of transferring the Certificate of Title to the buyer, and the cost incurred in the processing of the loan application, which are added to the selling price of the house and lot, is it possible to segregate such expenses so that they will be excluded in the calculation of the VAT? Answer: Miscellaneous expenses charged against your customers in processing loan applications and transferring Certificates of Title constitute a sale of services; hence, subject to the value-added tax of 10% pursuant to Section 102 of the Tax Code. Since the basis of the VAT is the gross receipts which include the cost of the service, there is no need to segregate such expenses. 6. If the inventory of construction materials purchased in 1987 is used to complete a house which was started in 1987 and completed in 1988, how is the VAT calculated? Answer: Your inventory of construction materials purchased in 1987 and which are used to complete a house started in 1987 but completed only in 1988 shall form part of the cost of the house and lots sold. No value-added tax is levied thereon, since your sale of all kinds of lots or houses is not subject to VAT pursuant to Section 103(q) of the Tax Code, as amended by Executive Order No. 273. 7. On options in which the buyer has paid the option or earnest money on transactions that took place in 1987, shall you be required to shoulder the VAT or charge it to the customer? Answer: Earnest money paid in consideration for the option to purchase house and lot is not subject to the value-added tax; hence, it cannot be passed on to the customer. 8. Are commissions paid to your sales brokers/agents and fees for subdivision plans and surveys still subject to withholding tax? Answer: Commissions paid to the sales broker and fees for subdivision plans and surveys are subject to withholding tax pursuant to RR 6-85 Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner