BIR Ruling [DA-043-04]

February 4, 2004 BIR RULING [DA-043-04] Sections 105, 107 026-2002; 005-2000 Maharlika Village Islamic Foundation, Inc. Blk. 10 Lot 2 Maharlika Village Taguig, Metro Manila Attention: Ms. Saphia April M. Al-Raschid Secretary Gentleman : This refers to the 1st Indorsement of the Chief, Legal Division, Revenue Region No. 8, Makati City, dated April 18, 2003 relative to your letter request dated April 8, 2003, for exemption from the value-added tax (VAT) as a non-stock, non-profit corporation. Based on records submitted with your aforesaid letter, it appears that Maharlika Village Islamic Foundation Inc. is duly registered with the Securities and Exchange Commission on December 21, 1983 under SEC Registration No. 118221; that the main objective of the foundation is to provide learning opportunities that will enhance the Islamic character of the children so they will grow up practicing Muslims and active members of society; that no part of the net income shall inure to the benefit of any individuals; that in the event of dissolution, all its remaining distributable assets shall be transferred and conveyed to similar institution; and that it is maintained by means of contributions, membership dues and donations. In reply, please be informed that under Section 105 of the Tax Code of 1997, the 10% VAT is imposed on "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. . . . ." The tax exemption granted to you as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 and BIR Ruling No. RDA-RR-No. LD-000124-2003 covers only income tax which is a direct tax. It is clear that your tax exemption covers only income taxes for which you are directly liable there being no specific reference to your indirect tax exemption . It is noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. aCcSDT Thus, the shifting of the VAT to you does not make you the person directly liable and therefore, you cannot invoke your tax exemption privilege under Section 30(G) of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. [ VAT Ruling No. 026-2002 dated April 26, 2002 ] Finally, revenue from "contributions, membership dues and donations," not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 10% VAT. However, the above exemption from the 10% VAT does not extend to your purchase of goods or properties or services and importation of goods. Hence, notwithstanding that you are a non-stock, non-profit corporation, your purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 10% VAT pursuant to Section 107 of the said Code. Thus, it has been ruled in the case of The Camillian Fathers, Inc. that ". . . if your client imports goods, the said importation shall be subject to VAT. . . ." ( VAT Ruling No. 119-90, dated May 14, 1990 ). Moreover, "If it engages in the sale of goods or services in the course of a business pursuit, in general, it shall also be liable to VAT. . . . " ( ibid. ) [ VAT Ruling No. 005-2000 dated January 27, 2000 ] This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group