VAT Ruling No. 016-96

August 29, 1996 VAT RULING NO. 016-96 Sec. 4.100-1-RR 7-95-000-016 Ms. Cynthia V. Reyes Trade, Industry and Utilities Staff National Economic and Development Authority Amber Avenue, Pasig City M a d a m : This refers to your letter dated March 4, 1996 seeking clarification as to whether or not your purchase of a lot from the Extra Ordinary Development Corporation is covered by the Expanded Value-Added Tax (EVAT). It is represented that your made a reservation in November, 1994 and paid the corresponding reservation fee of P10,000.00; that the time, the company had a promo, you are allowed to pay the downpayment in four installments; that you paid the first downpayment of P13,850.00 in December, 1994; that the balance of the downpayment in the amount of P71,550.00 was paid from January 1995 to March 1995; that the contract to sell was signed and executed on January 13, 1995; that beginning April 1995 you started to pay P5,035.00 per months as principal payment or a total of P45,315.00 for 1995; that you have paid a total of P140,615.00 in the year of sale (1995) which is more than twenty five percent (25%) of the total contract price of P397,500.00. In reply, please be informed that Section 4.100-1 of Revenue Regulations No. 7-95, implementing Republic Act No. 7716, provides: SEC. 4.100-1. Value-Added Tax on sale of goods or properties . xxx xxx xxx In the case of sale of real properties on the installment plan, the real estate dealer shall be subject to VAT on the installment payments, including interest and penalties, actually and/or constructively received on or after January 1, 1996. xxx xxx xxx However, in the case of sale of real properties on the deferred-payment basis, not on the installment plan before January 1, 1996, the subsequent payments of the balance of the gross selling price on or after January 1, 1996 shall no longer be subject to VAT considering that the transaction is treated as cash. "Sale of real property by a real estate dealer on a deferred payment basis, not on the installment plan" means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross selling price. "Initial payments" means payment or payments which the seller received before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the year when the sale or disposiiton of the real property was made. It covers any down payment made and includes all payments actually or constructively received during the year of sale, the aggregate of which determines the limit set by law". Accordingly, since your total "initial payments" on the year of sale (1995) in the total amount of P140,615.00 exceed twenty five percent (25%) of the total contract price of P397,500.00, your purchase is treated as cash and therefore subsequent payments to Extraordinary Development Corporation to be made upon implementation of R.A. No. 7716 on January 1, 1996 are not subject to VAT. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue