BIR Ruling

March 14, 1969 Zialcita and Associates Certified Public Accountants Room 205 Quisumbing Building Dasmarias, Manila Gentlemen : This refers to your letter dated March 7, 1969 requesting opinion as to whether or not sales of locally manufactured articles to the Armed Forces of the Philippines, the Department of Health and government-owned hospitals are exempt from the payment of sales tax. In reply, I have the honor to inform you that under paragraph 11 of the Special Provision for the Armed Forces of the Philippines of Republic Act No. 5422, the Appropriation Act for 1968-1969, any provision of law to the contrary notwithstanding, all importations made by the Armed Forces of the Philippines directly or thru indentors as well as local purchases exclusively for military purposes, . . . shall be free of taxes, fees and levies . . . Accordingly, purchases by the Armed Forces of the Philippines from your client are exempt from the sales tax. The Armed Forces of the Philippines being exempt from tax, local producers or manufacturers, like your client should not include in their selling price to the Armed Forces of the Philippines the amount corresponding to the sales tax. In this connection, it may be stated that in the implementation of the tax exempt purchases of the Armed Forces of the Philippines, local producers or manufacturers should secure a tax-exemption certificate from the Armed Forces of the Philippines. This certificate should be kept by them as part of their records and shall serve as authority for them in not including their monthly percentage tax returns their sales to the Armed Forces of the Philippines. If the local producers and manufacturers declared for the sales tax their sales to the Armed Forces of the Philippines and paid the tax due thereon and the Armed Forces of the Philippines deducted the tax from the payments made by it to them, the local producers and manufacturers may claim the refund of the tax or a credit therefor subject to the provisions of Sections 309 of the Tax Code. However, sales of locally manufactured articles to the Department of Health and government-owned hospitals are subject to the sales tax. The percentage tax imposed by Sections 184, 185 and 186 of the Tax Code is a tax on the manufacturer or producer and not on the purchaser. (See Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967) The fact that the sales tax may ultimately be shifted to the aforesaid government agencies and/or instrumentalities will not constitute the tax as a tax on the latter. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue