BIR Ruling [DA-007-98]

January 15, 1998 BIR RULING [DA-007-98] Atty. Mario G. Serrano 717 State Center II Ortigas Avenue, Mandaluyong City Gentlemen : This refers to your letter dated November 12, 1997 requesting for exemption on behalf of your client, Angeles Electric Corporation, from the payment of value-added tax on the company's importation of equipment, machinery and spare parts, including, but not limited to, all apparatus and appurtenances relative to the conduct of its business. cdtech Documents submitted show that under Republic Act No. 4079 which was approved on June 18, 1964, Angeles Electric Corporation was granted a legislative franchise to construct, maintain and operate an electric light, heat and power system for the purpose of generating and distributing electric, light heat and/or power for sale within the City of Angeles for a period of fifty years from the approval thereof; and that Section 2 of the same Act provides : "SEC. 2. The same Act is further amended by inserting between Sections 3 and 4 a new section which shall read as follows: "SEC. 3-A. The franchise tax paid for the gross earnings from electric current sold under this franchise shall be in lieu of all taxes, fees and assessments of whatever authority now and in the future upon privileges, capital stock, income, franchise, right of way, machinery and equipment, poles, wires, transformers, watt-hour meters, insulators of the grantee and all other property owned or operated by the grantee under this concession or franchise, from which taxes and assessments the grantee is hereby expressly exempted." It is clear from the aforequoted provisions of law that Angeles Electric Corporation's franchise under R.A. 2341, as amended by R.A. 4079, exempts it from all "taxes, fees and assessments of whatever authority." However, the compensating tax under the then Section 199 of the Old Tax code on importation of goods was replaced by value-added tax. Such being the case, Angeles Electric Corporation's exemption from the compensating tax on its importation of equipment, machinery and spare parts, including, but not limited, to, all apparatus and appurtenances necessary in the conduct of its business should now be understood to mean exemption from the 10% value-added tax on importations imposed under Section 101(a) of the Tax Code, as amended by R.A. 7716, and as further amended by R.A. 8241. Moreover, the gross receipts of Angeles Electric Corporation as an electric franchise grantee are exempt from the 10% value-added tax pursuant to Section 103(j) of the Tax Code, as amended, and as implemented by Section 4.103-1(B)(j)-3 of Revenue Regulations No. 7-95, as amended, but subject to the 2% franchise tax imposed under Section 117 of the same Code. (BIR Ruling No. 46-97 dated April 14, 1997) cdta Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)